Update from Uruguay - Argentina’s Economic Situation, A Problem Or Opportunity?

 From: International Man

Update from Uruguay - Argentina’s Economic Situation, A Problem Or Opportunity? 

By Dean Steinbeck
Located south of the equator, South America is counter-seasonal to the northern hemisphere.  Meaning it’s almost summer in Uruguay!  For the chic resort town of Punta del Este it’s time for the annual influx of Argentines to enjoy its beaches, rent overpriced apartments, and spend lavishly on food and entertainment. Or is it?
In this article we’ll take a quick look at the current economic landscape in Argentina and see why business and property owners in Uruguay are nervous, while investors with cash wait to see what opportunities will arise from Argentina’s next decennial default.

Argentina Continues to Implode

Since my last article on the subject, “Update from Uruguay,” nothing good has happened to Argentina’s economy. In fact, it’s getting uglier by the day. So bad that many top international brands have already fled the country, including Louis Vuitton, Polo Ralph Lauren, Cartier, Yves Saint Laurent, and more.
To cover the country’s fiscal shortfall, the Argentine Central Bank has resorted to issuing increasingly large “transitory advances” (101 billion pesos so far, with more expected before year’s end) to the Argentine treasury. That’s one arm of the Argentine government lending to the other – I’m sure that will end well.
Meanwhile, the Argentine government continues to institute more rigorous capital controls to prevent wealth from fleeing the country. At this point only the richest and most connected Argentines have access to foreign currency markets. Even the purchase of gold has been “suspended.” The end result is that middle class Argentines are trapped into holding Argentine pesos, which everyone fears will be devalued in the near future.
Many government agencies are also unable to access US dollars.  Just recently two Argentine provinces “Pesified” their debt, because the Central Bank did not allow them to access foreign currency markets. The bondholders were obviously not pleased. And given Argentina’s economic situation, how long before it announces the “Pesification” of its own national debt, or perhaps a full default as it did in 2001? If one believes credit rating agencies – something I normally advise against – it appears that default is just around the corner, as top credit rating agency Fitch recently downgraded Argentine debt, fearing a “probable default.”  MORE