It’s a great word, Quilombo, the perfect Argentine slang for a total nightmare, disaster, cluster, mess.
And now, the Argentine economy is once again a total Quilombo. The economy was barely eking along before the primary election August 11, with inflation zipping past 50%, businesses strangled by high interest rates, and unemployment on the rise. But now, with the Macri government floating the idea of a debt restructuring, the AR peso is falling further, contributing even more to a vicious devaluation.
I’ve been doing business in Argentina since 1989, and I’ve seen all the cycles. This one reminds me, and many of my friends and colleagues, of the 2001 corralito in waiting. This was not supposed to happen.
President Mauricio Macri came from the business sector with a promise to bring his business sense to the Casa Rosada and reform the economy. He didn't. It’s that simple. He has failed completely. He didn’t effectively address inflation, which would mean fighting the unions and not printing money, and he had no stomach for the first, and couldn't resist the second. So, four years later, Macri is at risk of being voted out of office. Actually, I think it's certain he will lose….so once again we will have Cristina.
Right, she will technically be Vice President, but get real, she will call the shots. Everyone knows it. And the reason Argentina is in this mess is Cristina’s fault to begin with. But fault doesn’t make a difference in the daily lives of the Argentine people, who are the ones suffering their fools in government.
And so it’s come to this….a friend tells me he went to the bank yesterday to cash a check for 350,000 pesos. The bank tells him, sorry, we can only give you 100,000 or we’ll run out of cash. (FYI – at today's exchange of 59 AR pesos to 1 USD, that’s about $1,695 USD.) Another friend went to Western Union to collect about 59,000 AR pesos, about $1,000 USD sent by a relative from Spain. Sorry, Western Union said, they didn’t have enough cash to pay it out. Come back tomorrow. Maybe.
This is a super Quilombo. And this is the sort of situation that can lead to a run on the banks. Adios, amigos, the banks close just like the corralito, and no one can get their money out. And if you have a USD account, be aware of pesification. (The authorities declare your dollars to be AR pesos, have fun and enjoy the devaluation.)
And of course, worldwide markets aren’t thrilled about this situation. And the IMF, well, what were they thinking when they gave Macri his bailout? If you love irony, think it over. Macri was elected to take the government out of default and, upon leaving, he might be putting it back there.
So, will Argentina default again? Actually, that’s the least of the worries of the Argentine people. They just need to live; pay their gas and light bill, buy some food, make their rent, have an asado. And the government will have to step up subsidies; which is why the Fernandez-Fernandez ticket will win. All the people know this, and they know Cristina never meet a subsidy she didn’t love.
Que Quilombo. Que triste. The cycle repeats, the central bank will print pesos to pay for the subsidies, what else can it do. Cristina will call the IMF buitres (vulture) again, and the peso will continue its devaluation spiral.
So, default? That’s a political decision. It needs a legislative majority, and if it happens it shows a country that chooses default over economic reform, time after time.
Y bueno, veremos. We’ll see, another great Argentine expression, and one I’ve adopted over the years in coming to terms with living in and doing business in Argentina.
And that “perspective” means that none of this surprises me. People with access to USD, and the ability to play the devaluation and inflation game, have made a ton of money recently. It’s a tricky game, though, the way we play it, requiring genuine local knowledge, so not one we recommend to those averse to risk.
For now, if you are interested in investing in Argentina, there are some good plays to be made in real estate, as that is where everyone turns in times of crisis. Argentine’s believe in real property, since they can’t believe in their government or its currency, whatever its called. And here again you have brutal irony. Argentine’s know they have to hold real estate, yet their need for cash means they often have to sell at super low prices. That’s happening now.
But just wait. If/when Fernandez and Fernandez win the election, things will get worse. Blood in the streets, famous investors call it. I sit here now feeling horrible for many of my Argentine friends, that they have to go through all this again, and again. But I also know they are resilient, and they live by another great saying; es lo que hay. It’s what there is, or in slang English, it is what it is.
Advice for investors? Get in touch, plenty of opportunities in the works, and more to come. It could be 2003 all over again….in the very near future.
Advice for the new government? Easy, default, call all your creditors vultures, and abandon the AR peso. Be like Panama and Ecuador and adopt the US dollar as your currency. It’s the only way to end inflation because you can’t fight the unions, and the Argentine government can’t print US dollars. Cristina can do the first, but never the second. No way her unimaginable arrogance would ever allow it. Es lo que hay.
For Sale - Patagonia River Ranch - A World Class Fly Fishing and Adventure Activity Estancia- San Martin de Los Andes, Argentina
Imagine owning one of the world's finest riverfront properties in the heart of Argentine Patagonia. 500 hundred acres and over a half mile on the famed Chimehuin River. A luxury lodge that accommodates up to 18 guests with a staff of 35 to take care of your every want. Profitable business, all in USD, with one of the best guest mailing lists in the industry.
Southern Cross Advisors is delighted to offer this "one-of-kind" fly fishing lodge and ultimate retreat for a family, group of friends, or corporation. SCA is responsible for negotiating and facilitating this sale for the sellers, and also in a position to advise any potential buyer on the process, including best ways to proceed with the business/property once a sale is completed.
Here is the link to the PRR digital sale brochure which will familiarize you with the property, the business, and the area around the ranch along with providing some details of the transaction: Patagonia River Ranch Brochure. Contact Stephen directly with any questions or to begin your due diligence.
Super easy access to PRR (Private jets can fly in/out of all three airports below.)
45 minutes from San Martin de Los Andes
30 minutes from Junin de Los Andes
25 minutes from Chapelco International Airport
3 hours from Bariloche
4 hours from Neuquen
Chapelco/San Martin Airport, daily flights
Bariloche airport, daily flights
Neuquen airport, daily flights
Just published: Garden & Gun article on fly fishing in Patagonia, featuring Patagonia River Ranch. Click on the photos to see the PDF of the article.
With the first annual Argentina Business & Investment Forum wrapping up a couple of days ago, the event has been declared a success by the Macri administration, as several thousand attendees from around the world turned up to discuss a range of business opportunities, foreign investment, and the hope that Argentina can become the Latin American hub for start-ups.
The two sectors noted as top priorities for the Macri government in terms of foreign investment are Energy and Infrastructure. OK, energy makes sense, and is dramatically need to develop Argentina's tremendous oil and gas reserves, and to refine and store and distribute the products efficiently. Just look at the current gas pricing crisis, which is crazy, considering Argentina has the third largest gas reserves in the world. So how does it make sense that Argentina IMPORTS natural gas, and the the Macri government says it has to raise natural gas prices about over 200% to make up for ex-president Cristina's absurd decade long subsidies? It doesn't make sense, and neither does nafta (gasoline) and diesel prices three times what they are in the U.S. It's beyond crazy, and the only way to fix this is with foreign investment. For that to happen the Macri government will have to offer fair free-market contracts to large companies (France's Total would be great) to develop oil and gas the way we do it in Texas....with the best people and the best equipment using cutting-edge technology. That will mean allowing foreign workers also, not just foreign capital, and it will mean no import duty on any equipment imported into the country to develop oil and gas. I can hear many Argentine politicians crying foul already, but if Macri doesn't do it this way, it won't happen in any meaningful way, and Argentina will just continue to suffer. So we'll see how serious Macris is about really solving this problem. Easy to solve if Macri has the will and enough juice to keep his opponents from screwing it up. Note to President Macri: If you need help with this, let me know, as oil and gas development, done well and efficiently, is my specialty.
But Macri doesn't just want fossil fuels, he wants renewable energy, which is commendable. And his focus is on hydroelectric as well as wind and solar
Now on to the start-up situation. OK, so there are three things really needed. First, you need the human resources, so that means entrepreneurs. Argentine's believe they have this in spades, lots of smart people with the entrepreneurial spirit. I'm not sure I agree, as most Argentine's want a guaranteed paycheck whether they earn it or not, but ok, I'll stipulate that this is available. Second you need less regulation and more incentive to start new businesses, so less time to set up a corporation, less red tape to open bank accounts, etc. This is being addressed by proposed legislation in congress and is a Macri priority, but so far the legislation hasn't passed, so we'll see. And third, you need the actual capital, the foreign investment. Show me the money. And for that to actually happen, the government needs to be completely transparent regarding the rules of the game, and the government cannot change those rules at their whim as the Christina government often did. So this third one is hard, and it will take some time. "Poco a poco", we say in Spanish, little by little, and "veremos", we'll see.
The atmosphere is good, the attitude is good, people are encouraged, there is optimism in the air.....now lets see some action. Note to Macri: you really want to stimulate the economy, create competition, bring down inflation, and engage the entrepreneurial spirit.....just eliminate all import duties and stand aside. The Argentine consumer will be able to buy the highest quality goods and the best world market prices, and Argentine businesses will be able to do the same to create competitive companies, and those that don't can shut down and go home because they don't deserve to be in business anyway.
It's going to be an interesting year ahead, and we'll be keeping score in a number of sectors and placing our own bets on the sectors we see with the most potential.....bets meaning our own investments. Suerte!
As reported by Bloomberg, Carolina Millan: Argentina’s central bank moved one step closer to allowing the free flow of foreign currency when it removed a limit on how much of their savings individuals and companies can convert into dollars.
Policy makers, in a statement Monday August 8, also said they will cut the amount of paperwork companies must submit to justify dollar purchases and reduce the categories of foreign exchange transactions that must be reported to the government to 70 from 315. The central bank previously limited conversions to dollars to $5 million per month, so no more limits. There are no limits on dollars bought to pay for imports. Since taking office in December, President Mauricio Macri has lifted a currency peg and let the peso float as he seeks to unwind restrictions put in place by his predecessors.
"The central bank is driving these changes with the certainty that cutting bureaucracy in the foreign-exchange market will help the development of the finance sector and benefit all production activities connected in any way to international markets," the central bank statement said.
At SCA we see this as a big step forward, as the paperwork bureaucracy for foreign investment has been a big hurdle for most investors, and often it has been the factor that has deterred investment. SCA is familiar with all the new changes and ready to assist foreign investors through this much easier and achievable process.
And in further good news from an economic and conservation standpoint.......Argentina is promoting GREEN INVESTMENT by using the Decree of Necessity and Emergency number 882 of the Ministry of Mining and Energy, which puts into law exceptional measures to ensure foreign investment in renewable energy.This year the government has authorized the entry of up to US$1.7 billion for the execution of works that fall within the framework of energy production from renewable sources.
President Macri and his team see this move as something that goes beyond politics and should be supported by all political parties and affiliations. In general, Decree 882 provides significant guarantees to foreign capital arriving in the country under this legislation, including the ability for investors to obtain insurance with the World Bank to guarantee their investment.
SCA sees this move toward protecting the environment and encouraging Green Investment as another positive step forward for the Macri administration in rejoining the world community, and an important step in recognizing the future energy needs of Argentina.
The first edition of the Argentina Business & Investment Forum, a groundbreaking initiative launched by President Mauricio Macri and hosted by the Argentina Investment and Trade Promotion Agency, will be held in Buenos Aires from September 12-14, 2016, with a dedicated day for Innovation & Entrepreneurship on September 15.
Designed to highlight investment opportunities, attract foreign direct investment, and mark the country’s historical return to international markets, this important forum will be a major step forward in the implementation of the government’s business and investment reforms.
The Forum will serve as a platform for discussions, debates, presentations of investment opportunities and high-level meetings between Argentinean business and government leaders and international investors and partners, with the goal of stimulating the economy and improving the welfare of all of Argentina’s citizens.
Southern Cross Advisors is specifically focused on business and investment opportunities in the areas of adventure tourism, boutique hotel and resort development, corporate structuring, financial management, and a myriad of options for importing needed consumer products. SCA is also devoted to restoring middle class housing development, as Argentina's middle class suffered tremendously under the Kirchner government. Not only is there a shortage of middle class housing, but what is available is far too expensive and a strain on middle class families.
For more information on the forum, click here to visit the forum web site, or contact Stephen at Southern Cross Advisors.
President Macri, with Decree 820/2016 del 29 de junio, has modified the onerous Decree, N° 274/12, made by ex-president Christina Kirchner on December 22, 2011 that became known as “Ley de Tierras”.
While the Law of Tierras Rurales created many restrictions against foreigners owning rural land in Argentina (for example, no foreigner could buy more than 1,000 hectares, about 2,500 acres, in prime rural areas), it also created a National Registry for foreign land owners in Buenos Aires where Kirchner paid government workers (mostly managed by La Campora noquis) could just table all paperwork and let it sit forever. Further, the law placed an arbitrary 15% maximum ownership of rural land by foreigners, and intentionally created vague language so that 15% could be interpreted by the Kirchner people however they wanted; regardless of the law, or the calculations of the Provinces. Until this law passed, each Province had their own registry to register lands, including land owned by foreigners, so the law further eroded any participation or power of the Provinces.
The modifications Macri has made in the law, are just the beginning, and part of his campaign promise to encourage foreign investment in Argentina again. First, fair calculations of the 15% are being done (it turns out only 6% of rural lands are owned by foreigners), and additional decrees aim to raise or eliminate the ceiling, and also to increase the amount of rural land a foreigner can buy from 1,000 hectares, to 3,000 or more, and perhaps remove that restriction as well. Most importantly for the short term, is that Macri's decree, and his firing of the La Campora noquis (a noquis is a doughy pasta that does nothing, like the workers who were paid high salaries by the Kirchner government to do nothing), means that proper paperwork submitted by Argentine escribanos for the purchase of rural lands by foreigners will actually be processed and approved.
In short, it is now much easier again for foreigners to purchase rural lands, and a second Decree is being analyzed and prepared that will potentially take away all the speed bumps in a law that never should have been passed (it's unconstitutional). Further, Macri is traveling again throughout Latin America, the U.S., and Europe to encourage foreign investment in his country. From a buyers or investors perspective, this is an ideal time to begin due diligence on important rural properties for purchase and development.
Update on Economic Progress
The political and business environment has changed dramatically for the better in the first six months of Maurcio Macri's presidency. Argentina now has a savvy, pro-business, president, and since he was sworn in December 10, 2015, he has made important and high-impact changes that prove he is serious about improving the economic and political environment that has been hurting the country since late 2011.
To begin with, Macri has removed the export taxes on beef and other agricultural products. He has eliminated capital controls to allow Argentinians to own foreign currencies, and to create one market-driven exchange rate. The current exchange rate has been stable in the 13.75 to 14.25 range the past few weeks. This has realigned the value of the AR peso with worldwide markets. Macri has also lifted some import restrictions (more to come), and he is actively pursuing foreign investment to reinvigorate nationwide development. Part of his effort to bring in foreign capital has already paid off in opening world credit markets that were previously closed.
Foreigners are once again being courted to invest in the country – in real estate, business, tourism, and most other sectors. Throughout the country this has brought about renewed hope and a swelling of optimism. So far this year in Mendoza we've seen more property transactions than in the last two years combined, and we expect to see upward movement in real estate prices and in tourism-related business as the year progresses—especially in tourism areas like Salta, Cafayate, Mendoza, Bariloche and San Martin de Los Andes.
Moving money in and out of the country is once again a straightforward transaction, with market driven value and simple transactions fees. Buying and selling property is also a straightforward process, with logical steps to follow, which SCA can explain in detail. Based on my experience during the recovery in 2003 from the “Correlito”, I am expecting to see a slow but steady increase in high-end property transactions this year, with that trend accelerating two to four years out.
Special Note: to travelers and visitors with foreign currency or credit cards on foreign banks. There is no more hassle exchanging your foreign currencies or wondering what the blue market rate is. There is only one exchange rate now, the official rate posted daily and banks and exchange houses. Any foreigner can exchange their foreign currencies (USD, Euros, Reales, etc.) at banks or exchange houses by presenting their passports. Simple as that. And foreigners can also use their credit cards at hotels, restaurants, shops, wherever credit cards are accepted, and you'll also receive the official rate when your bill arrives. This is a huge new convenience as you don't need to carry as much cash to receive the best exchange rate. Any questions about how to exchange money or use credit cards, please contact us.
Argentina still faces a number of challenges, the number one being inflation (35%+), but it is an amazingly resilient country, and has so much to offer its citizens and foreign visitors alike. Should be a very exciting year ahead.
Stephen F. Vletas - Founder of Southern Cross Advisors.