Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Venezuela vs. Argentina, Which Will Run Out of Money First?

Politics / Emerging Markets Oct 17, 2012 - 01:12 PM GMT

By: Money_Morning

Politics

Best Financial Markets Analysis ArticleMartin Hutchinson writes: After a surprisingly comfortable re-election, Venezuela has decided to stick with Hugo Chavez and all that comes with him.

That has prompted The Wall Street Journal and other pundits to forecast nothing less than economic doom for Venezuela in 2013.


But when it comes to poorly run South American countries, Cristina Fernandez de Kirchner is someone that could easily give Chavez a run for his money.

As Argentina's president, Fernandez de Kirchner is a master of economically inept policies in her own right.

So who will win this race to the bottom?

Let's examine which one of these losers will run out of money first, starting with Venezuela's Chavez.

After all, when it comes to wealth destruction, Chavez has had a pretty big head start. He was elected in 1998, while Fernandez's husband was first elected president in 2003 (she succeeded him as president in 2007; he died in 2009.)

What's more, the wealth destruction in Venezuela did not begin with Chavez. The Conference Board Total Economy Database shows that Venezuelan productivity was more than 20% lower in 1998 than it had been in 1970.

In fact, I did a study on the potential for Venezuelan corporate finance for a client bank back in 1990 and came to the conclusion that there was very little potential for it.

Other than the oil company PdVSA, there were very few corporations in Venezuela for which one could imagine doing corporate finance deals of any substance. There were a few local monopolies like the tobacco company, but essentially all business activity beyond the mom-and-pop store level centered round the oil sector.

That same thing was not true in Argentina.

Venezuela vs. Argentina
Argentina was genuinely rich in 1929, and its minerals and commodities business was sufficiently diversified that even when I was there in the 1980s - a low point - there was obviously lots of locally owned stuff going on.

What's more, the Argentine economy was decently run in the 1990s, with the currency pegged to the dollar. At the time, free market policies were basically in force and the level of corruption was reduced to a manageable level under President Carlos Menem.

However, commodity prices were low throughout the 1990s, so the budget and balance of payments ran into difficulties. That resulted in a default on debt and a sudden devaluation of the peso from parity against the dollar to 4 to 1, wiping out many middle class savings which were forcibly "pesified."

The skills needed to run a decent economy in the two countries thus are different.

In Argentina, while commodity prices are high, you just need to run a free market system and keep the government from bloating itself. If you can stick to that, wealth will come.

Of course, since Argentina ran more or less free-market policies in the 1990s, which ended badly, and admirably free-market policies in the 1930s, which coincided with the Great Depression, the chances of the Argentine electorate accepting decent policies is pretty slim.

By comparison, Venezuela is more difficult.

If PdVSA is run properly (a job at which Chavez is failing - Venezuelan oil output is down by about a third since 2001), then there will generally be enough revenue to keep the place afloat.

However, it will all be concentrated in the government.

Even if PdVSA were fully privatized, a rational government would charge it huge royalties and produce the same effect. Thus Venezuela has not had free market policies since the 1950s, and is unlikely to get them as long as the oil lasts.

Even if the Venezuelan electorate underwent a mass conversion, Venezuela would still remain badly run; its troubles are far less the fault of its people's foolishness than in Argentina.

Argentina Takes the Lead
So while the two countries are fairly close on their road to ruin, Argentina has the lead.

Here's why.

Venezuela has nationalized almost all the foreign companies operating in the country, whereas Argentina has only begun by nationalizing the oil company. Indeed, in Argentina several mining companies are expanding, foolishly imagining they will avoid the treatment.

Both countries operate rigorous foreign exchange controls, both countries have "free market" exchange rates far lower than the official rates, and in both countries the governments have taken steps to seize the foreign exchange reserves.

Still, even though Venezuela has been slightly more hostile to foreign investment, my bet would be on Argentina running out of money first.

The reason is that Venezuela already controls its main source of export earnings through PdVSA, whereas Argentina is reliant on its agriculture sector and foreign mining companies to provide foreign exchange.

Thus bad behavior by the Argentine government will eliminate the flow of foreign money, whereas provided Chavez can find even a few top managers for the oil company, Venezuela's foreign money flow is guaranteed.

So here's the bottom line: unless Chavez gets sick again, Venezuela can probably stagger on for some years.

Argentina, on the other hand, could collapse within a year.

Needless to say, you should avoid investing in either one of these black holes.

Source :http://moneymorning.com/2012/10/17/which-one-of-these-losers-will-run-out-of-money-first/

Money Morning/The Money Map Report

©2012 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in