Home > economic development > Argentina and the magic soybean: the commodity export boom that wasn’t

Argentina and the magic soybean: the commodity export boom that wasn’t

from Mark Weisbrot

One of the great myths about the Argentine economy that is repeated nearly every day is that the rapid growth of the Argentine economy during the past decade has been a “commodity export boom.” For example, The New York Times reported last week:

“Riding an export boom for commodities like soybeans, Argentina’s economy grew at an average rate of 7.7 percent from 2004 to 2010, almost twice the average annual growth of 4.3 percent in Chile, a country often cited as a model for economic policies, over the same period.”

Michael Shifter, the President of the Inter-American Dialogue and probably the most-quoted source on Latin America in the U.S. press, wrote in a disparaging article about Argentina this week that

“If the sales and price of soybean, Argentina’s principal export (mainly to China), remain high, then the country may be able to continue its path of economic growth. “

I haven’t seen any economists make the claim that Argentina’s remarkable economic growth over the past nine years – which has brought record levels of employment and a two-thirds reduction in poverty – has been driven by soybeans or a commodities export boom. Maybe that’s because it’s not true. 

I know what you are thinking: “Who cares?” Well, try to keep reading, because this does have implications beyond the sprawling soybean farms in the Argentine province of Cordoba.

What does it mean to have a “commodities boom,” or growth driven by the export of commodities? One possibility would be based on quantity: The production and export of these commodities grows so fast that it makes up a large part of the country’s real growth in output. Thus, as a matter of accounting, we could look at real GDP growth for 2002-2010* and ask, how much of this real (inflation-adjusted) growth is due to exports of commodities?

It turns out that only 12 percent of Argentina’s real GDP growth during this period was due to any kind of exports at all. And just a fraction of this 12 percent was due to commodity exports, including soybeans. So Argentina’s economic growth from 2002-2010 wasn’t an export-led growth experience, by any stretch of the imagination; still less a “commodities boom.”

The other possibility is based on prices: The price of soybeans and other commodity exports also rose during part of this period. This can boost the economy in various ways, even if the physical amount of exports doesn’t increase as rapidly as the economy. If this were driving Argentina’s growth, we would expect the dollar value of these exports to have grown faster than the rest of the economy. But this didn’t happen either. The value of agricultural exports (including of course soybeans), as a percent of Argentina’s GDP didn’t rise during the expansion. It was about 5 percent of GDP when the economy started growing in 2002, and 3.7 percent of GDP in 2010.

In other words, there’s no plausible story that anyone can tell from the data to support the idea that Argentina’s growth over the past nine years was driven by a “commodities boom.” Why does this matter? Well, as economist Paul Krugman noted yesterday, “articles about Argentina are almost always very negative in tone — they’re irresponsible, they’re renationalizing some industries, they talk populist, so they must be going very badly.” Which, he points out, “doesn’t speak well for the state of economics reporting.” It sure doesn’t.

The myth of the “commodities export boom” is one way that Argentina’s detractors dismiss Argentina’s economic growth as just dumb luck. But the reality is that the economic expansion has been led by domestic consumption and investment. And it happened because the Argentine government changed its most important macroeconomic choices: on fiscal, monetary, and exchange rate policies. That is what took Argentina out of its 1998-2002 depression and turned it into the fastest-growing economy in the Americas.

Now for the world-wide significance of how Argentina’s recovery actually happened: as I and many other economists have written, the policies currently being imposed on the eurozone economies – especially the weaker ones – are similar to what Argentina went through during the depression that led to its default and devaluation. These policies were pro-cyclical, meaning that they amplified the impact of the downturn. Together with a fixed, overvalued exchange rate, they made the economy worse. By defaulting on its debt and devaluing its currency, Argentina was freed to change its most important macroeconomic policies.

If the European authorities (the European Commission, the European Central Bank, and the IMF) continue to block the eurozone’s economic recovery with senseless austerity measures, individual countries will want to consider more rational alternatives in order to restore full employment. The people of Greece, Spain, Portugal, Ireland, and other countries are told every day that they must swallow this bitter medicine, and that there is no alternative to the prolonged suffering and high unemployment that they are going through. But the Argentine experience – in reality rather than in mythical portrayals – indicates that this is not true. There are definitely better alternatives – and they have nothing to do with soybeans or commodity export booms.

*The last year for which we have complete data on exports.

See article on original website

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Categories: economic development
  1. Myles
    May 4, 2012 at 9:26 pm | #1

    First, Everyone knows that Argentina’s official inflation figures are grossly underestimated. Inflation is closer to 30% than 10% therefore real growth is a fraction of the official figures.
    Second, They have spent the last decade sucking the economic rents out of their oil and gas industry (through subsidized prices and increased taxes) resulting in underinvestment in this sector. Production is dropping and the consequence of this has become apparent as they move from an exporter of energy to an importer.
    Third. Forced subsidized pricing by the rest of the public services has also resulted in underinvestment. The improved service dividend from the 90′s privatizations of has been spent, The level of services are declining. Now what? Where will the new investment come from?
    Fourth, The increased government expenditures available because of their decision to default on debt and interest payments, nationalize pension funds and takeover central bank reserves will become less relevant as these sources are drained. They no longer have have access to capital markets to fund their new increasing government deficits. How will they fund future deficits,…printing money? We’ve seen this story before and the ending is not happy.

    • May 7, 2012 at 9:59 pm | #2

      I support the Argentinean government, so I will use the pronoun “we”:

      1) Yes, inflation figures are underestimated. So what, we pay less for indexed bonds. The investor already knows that, and if he bought the bonds before the 2001-2 debacle, I don´t care at all about his “investment”. Inflation in Argentina has to do with structural production problems. We are trying to solve them.
      2) and 3) We took back YPF (Yacimientos Petroliferos FISCALES), because production was falling. Repsol was destroying the company. There is almost nobody in this country that believes that those that bought the state companies at bottom prices invested something in Argentina. I call them “pirates”. We don´t need them anymore.
      4) Private pension funds were going to fall in the 2008 mortgage pit. We saved them, and used part of those funds to promote local industry and for social policy (what you call “populism”). Now, in Argentina, poor elders have a (small) state pension. We will use our central bank reserves however we please, they are ours, thank you very much (and they are not falling as the “economists-priests” would want to).

      Thanks for participating, and don´t forget to tip.

  2. Myles
    May 4, 2012 at 9:47 pm | #3

    What you are essentially saying is that the recipe for the problems of the Eurozone countries is to renege on creditors, subsidize essential services and energy, under-invest in public service infrastructure, spend pension funds and central bank reserves, devalue to help some low value-added industries become temporarily competitive and do nothing to stimulate productivity or fix the underlying issues that caused the problems in the first place. I understand the Krugman/Stiglitz argument that austerity and austerity alone is bitter medicine that could very well be counter-productive, but the Argentine model is hardly a recipe for a sustainable return to prosperity.

  3. robert r locke
    May 5, 2012 at 4:03 am | #4

    So what are you saying Myles, that Argentina is an economic basket case unless they pay the bankers. That seems counterfactual. And that the Eurozone will only, someday, return to growth if a generation suffers austerity. Austerity does not produce prosperity — except for bankers. I’m reminded of the old nazi saying (paraphased). “When I hear the word “econnomist” I reach for my revolver.”

    • Myles McDougall
      May 5, 2012 at 11:41 pm | #5

      No, on the contrary, I said that I understand that austerity alone could be counterproductive. Those investors will need to pay their share in the overall solution which undoubtedly will involve taking a hit on the net present value of their investments. However, blaming your problems on those who helped invest in the countries infrastructure and productive capacity is not part of the solution. You can fault “the bankers” for being to quick to provide funding. For this they have and will pay a price. However, in the case of Argentina (not to be confused with the subprime mortagage fiascos), they were not the problem and will be indispensable in the future.

      Most of the blame lies squarely on poor government decisions on how resources were allocated, the lack of fiscal discipline and the inability to construct a set of coherent socioeconomic policies to provide the necessary environment for future prosperity. Unfortunately the current government has been more focused on finding scapegoats and expropriating private property than dealing with the complex and difficult measures that can generate the conditions for future success.

      Do you really believe that subsidizing the real cost of energy by over $10 billion per year is the best use of the country’s limited resources? Do you really believe that demonizing the private sector is the best way to increase the wealth of a country? Why are most Argentine savings kept outside Argentina and why does Argentina penalize those who keep or put their savings in Argentina? Is this good sustainable economic policy? Do you really believe that Argentina’s political elite are capable of managing multi-billion dollar enterprises more efficiently and with less corruption than those who put their own money into these businesses. Why does the government blatantly lie to their citizens about the true state of inflation, the cost of populist programs and the taxes they receive from their corporate citizens? ……Why?

      I firmly believe that we need to find solutions other than austerity to the problems that exist in Argentina and other countries. Economists and others who care about public policy will not find solutions by falling into the trap of simplistic sophistry and class warfare. Bad ideas whether they be “right” or “left” are still bad ideas. No matter what your natural philosophical infinities may be, the direction of Argentina’s current government is not part of the solution

      • May 7, 2012 at 10:07 pm | #6

        “Why are most Argentine savings kept outside Argentina and why does Argentina penalize those who keep or put their savings in Argentina?”

        Because local rich people do not like to pay taxes? To be fair, also the middle class saves in black-market dollars. But there are more controls now.

        “Do you really believe that Argentina’s political elite are capable of managing multi-billion dollar enterprises more efficiently and with less corruption than those who put their own money into these businesses”

        I would say that the politicians could manage at least as well as those “investors”. I wish I could create money as those people do (you know, with garbage MBSs, etc). And since when private CEOs invest their own personal money?

        “Do you really believe that demonizing the private sector is the best way to increase the wealth of a country?”

        The Argentinean Industrial Union loves this government. So you are wrong. Oh, you were referring to some multinationals, were you?

  4. Alice
    May 5, 2012 at 11:58 am | #7

    Its time some countries reneged on creditors. Creditors need to take responsibility for their own risky investments as well..
    Its not as if it hasnt been done in history by major industrial nations at that..

    Austerity, just to pay back banks is well proving itself not too helpful in paying back banks..
    Just wait a while longer and lets see how things play out here..

    No point in austerity to pay back banks when the country is so impoverished, and becomes further impoverished, that none can find work and everyone flees..

    Reneging is the better option Im afraid to say. There is no hard a fast rule here..for the ordinary man there is bankruptcy protections, for companies their is insolvency laws – and volunteer adminstration – why should it be any different for nation states?

    Sometimes shareholders have to face a 3 cent in the dollar return, so do creditors.

    Lets just get over this “what governments should (so normative and so prescriptive) do – ie saddle a country to a debt it cant pay for twenty or thirty years?”

    • Myles McDougall
      May 6, 2012 at 3:19 am | #8

      Alice, there is some truth in what you say, however if my company goes bankrupt due to my mismanagement or excesses, there is a consequence. It generally means my equity is wiped out and I will have a very difficult time finding investors for my next venture. It may happen if I had treated them fairly the first time. It will never happen if I had treated them badly. If I do get subsequent funding, I can expect that I will have to pay a higher price for the capital.

      If I ever expect to attract capital again, investors will want to feel comfortable that I learned some lessons from my last venture and won’t make the same mistakes again. More importantly, I would hope not to do the make the same mistakes. If I am fortunate enough to have good friends, those friends will give me straight advice as to what I did right and what I did wrong. If they see me making the same mistakes again, they would point it out.

      Every penny of debt the Argentine government issued, they asked for. I remember the howls of protest from the government, opposition parties and press in the late 1990′s indignant that the IMF and others were counselling the government to get their fiscal situation under control and reduce their borrowing commitments. You imply that the Argentine political class is blameless? I think not. Nor will they be blameless when their current misguided policies reap their inevitable consequences. It should be interesting to see they blame next.

  5. robert r locke
    May 6, 2012 at 4:37 am | #9

    People use collective nouns in the most careless way. What is Argentina? Is it the poor people, the pensioneers, the low-wage earners, etc. who made the contracts and borrowed the money? Were they Argentina? Or was it a government, a nondemocratic goverrnment that made sweetened deals with foreign bankers with handsome commissions who are now asking the Argentina of the economically pressed middle classes to pay it back. Don’t make Argentina into a morality play, with a lot of debt welsching middle class Argentines the perpetrators. Most people who live in a country are victims not doers. Don’t economists know that? The problem is ptactical; get the economy expanding again and tax collection will solve the problem. After 200 years of econnomic science, the economists seem clueless about what to. They just argue with each other. There is a magic bullet — put people to work and that is what the goverrnment of Argentina seems to have done by cancelling ill-conceived debts.

  6. kkalev
    May 6, 2012 at 11:05 am | #10

    I always find it interesting how Argentina MUST have done something wrong since it defaulted on foreign debt.

    If people took the effort of reading the links on the page they ‘d find that unemployment, povetry and all other economic indicators fell a lot after 2001. It seems that inflation is the new king in town now for a way to make Argentina look bad. Here’s the GDP deflator, inflation, GDP growth rates and M3 growth rates for Argentina:
    http://kkalev4economy.files.wordpress.com/2012/05/argentina-data.jpg

    I can’t see any hidden inflation, sorry.FX reserves have also increased since 2001:
    http://research.stlouisfed.org/fred2/series/TRESEGARM194N

    Oh and Myles, all countries spend by crediting bank accounts and ‘printing’. Nor do they actually need foreign markets to take on debt in their OWN currency. The foreign markets will just take on a loan from the central bank in order to pay for settlement after a bond auction like everyone else. Foreign markets are only necessary if a country takes on debt in foreign currency and we all know how that one ended.

  7. johnberk
    May 6, 2012 at 11:33 am | #11

    I will add my two cents as a political scientist.
    First I agree with Mr. Weisbrot that there is no real export from Argentina to other markets. It is basically because Argentina has strong agricultural sector, which produces goods that are not accepted in EU nor USA. This make it more difficult to sell anything except for soybeans, wine and yerba mate.
    Second the reason why the GDP could grow was due to the high domestic spending by both Kirchner governments. The numbers of people working for the government is extremely high. It counts for the state and for all 23 provinces. The political system is so corrupt that any comparison of its central pro-growth politics with any EU country are inappropriate. Almost nothing works the way it is supposed to do. This is why the statistics about the inflation is so flawed.
    Third – everything is super expensive. From food (last month the prices of food grew 30 %) to electronics, everything is probably more expensive than in US or EU. This artificially makes the market look stronger, but leaves very few possibilities for the Argentinian middle and low class. The inside growth helped them to get from the poverty, but their level of consumption remains very low and they are still endangered with poverty.
    Fourth, the “export growth” lie created the illusion of working market, which attracted many immigrants from Bolivia, Paraguay and Peru. Those people work now in black economy with no further prospects to get to a better position.
    Fifth and last point is that Cristina Kirchner has no idea how to give some stability to monetary and fiscal policies. So she turns to herself to one of the Influential Women of the world and starts talk about Malvinas (Falklands) and nationalizes the properties of Repsol etc.

    So the question is “Quo vadis Argentina?”

  8. May 6, 2012 at 12:39 pm | #12

    Perhaps Christina should attend the conference of the International Union for Land Value Taxation in Buenos Aires starting next Sunday. There she hear about the way that Cordoba province thrived under a system of land value taxation in the19th century until it was abolished under pressure from the landowners.

  9. Myles McDougall
    May 6, 2012 at 5:19 pm | #13

    kkalev,
    I have explained how Argentina economy grew from its very low base in a previous response. It is not a sustainable prescription and has severe long term consequences. The official inflation figures are a lie. Everyone, especially Argentines know that. FX reserves increased due to increased commodity exports, import restrictions, declines in capital investment and the unilateral cessation of payments on its foreign debt. Is this sustainable? You will notice from the statistics show that FX reserves have recently begun to drop. What happens to FX reserves as Argentina becomes a net importer of energy due to its anti-investment policies?

    Inflation is not a way to make Argentina look bad, it just is. It is real and can be easily forecast and explained by the Argentine government’s policy . Argentine’s have ample experience with inflation which serves as one of the fundamental reasons that their economy has historically under-performed its potential. Argentine’s rational expectations about future inflation will be informed by current real inflation rates and the government’s continuing policies. Are you suggesting that this potential inflation spiral is not a real danger and should not be a concern?

    I totally agree that it is healthier for a country to finance most of its debt domestically…., if it can. Where do you propose that Argentina find this domestic source of capital? Would you lend your retirement savings to the Argentine government? Most Argentine’s would not. Would you confiscate the savings? Well…high inflation effectively does the same thing. They already have nationalized the pension plans and confiscated one of the country’s largest investors. Hmmm.

    Yes, government’s print money and sometime dip into central bank reserves. The prudence of such actions is a question of degree and duration. There is plenty of history to illustrate the negative consequences of printing too much money and emptying out central bank reserves. It is is not a long-term sustainable policy. At best they are stop gap short-term measures. Argentina is running out of time.

  10. kkalev
    May 6, 2012 at 6:52 pm | #14

    @Myles… comments on paragraph:

    1) In floating exchange rate regimes, FX reserves are the direct result of central bank interventions in FX markets in order to avoid large swings on the exchange rate. They have NOTHING whatsoever to do with financing exports/imports. That happens in the private FX markets with importers exchanging local currency for foreign currencies.

    2) I already posted statistics on inflation. There’s nothing to suggest inflation rates much larger than the officially reported.

    3/4) You know, governments borrow (and spend) by creating new money, just like when private individuals take on loans. When a bank buys a government bond it increases its balance sheet by recording an asset (the government bond) and a liability (government deposit) and new money is created. At settlement the central bank provides a loan of bank reserves in order for the operation to be completed. No savings and grandchildren involved. If a central bank bought government bonds (which is something that Bank of Canada does all the time and BoJ, Fed, BoE have done through QE) the only difference would be that banks would end up with bank reserves instead of government bonds and the central bank might have to pay Interest on Reserves.

    • davetaylor1
      May 7, 2012 at 9:42 am | #15

      @ 3/4, your first sentence is how things are, but you really need more emphasis on “just like when private individuals take on loans”. Why should governments be beholden to banks, and indeed why should private individuals? If we fail to earn our keep, surely it is those who sold us real things rather than the banks whom we owe?

      Your last sentence looks as if (like I so often do) you have mistakenly thought you had completed an edit. Again, a pity this hasn’t come over more clearly, because the idea of the banks having to buy Reserves rather than Bonds, and having to pay interest on those used to the Government – in lieu of tax – especially if the commercial banks had to obtain 100% Reserves from the Central Bank), seems to combine nicely the good Keynes saw in Gesell, the practical way of collecting a Georgian single Land Tax, and what James Robertson is saying in “Future Money” about Seigniority: http://www.jamesrobertson.com/index.htm.

  11. Myles McDougall
    May 7, 2012 at 11:13 am | #16

    kkalev,

    1) I wasn’t referring to the financing of imports/exports. I was indicating that changes in the trade balance can result in a depletion of FX reserves if the country is following a fixed or “dirty float” exchange rate regime. If overall demand for the local currency declines the central bank is often required to spend its FX to bolster demand for that currency. This occurred at the end of 2011 as Argentine’s seeing a over valued peso moved to acquire property and assets abroad. The resulting decline in international reserves forced the government to introduce an array of capital and import controls. A declining trade balance could have a similar impact. This is not to say that the peso should not devalue, as it appears to be overvalued. The danger is if that an uncontrolled devaluation can turn into a devaluation / inflationary spiral, something the government will certainly want to avoid. A sterilized intervention against depreciation can only be effective in the medium term if the underlying cause behind the currency’s loss of value can be addressed. If this is not addressed, they will eventually deplete their FX reserves.
    2) “Nothing to suggest inflation rates much larger than the officially reported” Really? Except of course the IMF, “The Economist”, all private Argentine economic institutes (until the government made it a criminal offense to report numbers other than their official figures), all credible international economists, the Confederación General de Trabajo (CGT), and anyone who buys anything in Argentina. I’m sorry but you may be the only person, other than government officials who suggest the Argentine official inflation figures are credible.
    3/4) Sorry, I’m not sure what you are getting at. Is it a chartalist description of the the interaction between government and the banking sector?

    • kkalev
      May 7, 2012 at 11:37 am | #17

      1) I don’t see any unsustainable force in Argentina’s current account:
      http://www.tradingeconomics.com/argentina/current-account

      In any case, countries with free-floating currencies do face exchange rate movements.

      2) I posted data on Argentina’s GDP, deflator, inflation and M3. Suggesting that the real inflation is 30% actually means that even data such as the M3 are manipulated.

      3) I ‘m making clear that suggesting that governments ‘print money’ is something very far away from operational realities. The only difference between a central bank providing an overdraft/buying government bonds and banks buying the bonds (at auction) is that in the former case the central bank might have to implement an Interest On Reserves policy. Other than that, there’s no real difference between a central bank 1-month LTRO and a monthly T-Bill in the case of a sovereign government (with higher bond maturities just following the long-term path of the central bank policy rate along with a liquidity premium).

      • Myles McDougall
        May 7, 2012 at 12:21 pm | #18

        1) Large current account surpluses have become moderate deficits. Argentina’s increasing energy deficit will make things worse as its will deteriorating terms of trade. Argentina would like to manage the rate of its currency devaluation. Increasing domestic inflation will make this more challenging.
        2) Perhaps

    • May 7, 2012 at 10:12 pm | #19

      “until the government made it a criminal offense to report numbers other than their official figures”

      This is a lie. The government asked one private agency to show how they calculated their numbers. The agency did not complied with this requirement. There are vast economic forces (very greedy and harmful people) trying to topple this government. These kinds of agencies are part of those armies.

      Stop taking your information from modified versions of the Clarin “news”paper. It is like taking Fox News seriously.

      • Myles McDougall
        May 9, 2012 at 9:11 am | #20

        We agree that Fox News is not a reliable source of information. The information concerning the fines for publishing alternative inflation estimates has been widely reported in a number of reputable publications, but I will double check. Do we agree that the government inflation figures have been inaccurate?

  12. kkalev
    May 7, 2012 at 12:38 pm | #21

    @Myles

    Argentina is certainly a clear case of the Export Land Model. Still, it has a large production base and zero imports. An energy deficit would be extremelly gradual and only have implications in the long-run.
    http://www.eia.gov/cfapps/ipdbproject/iedindex3.cfm?tid=5&pid=53&aid=1&cid=AR,&syid=2000&eyid=2011&unit=TBPD
    http://www.eia.gov/cfapps/ipdbproject/iedindex3.cfm?tid=5&pid=57&aid=3&cid=AR,&syid=2000&eyid=2010&unit=TBPD

  13. Alice
    May 8, 2012 at 1:03 pm | #22

    I think I get the drift of Myles recommendations for Argentina. First convince Argentina it needs to revitalise its economy by having some large likely US firms come in and set up and run their oil, soybeans, dams, roads, electricity and anything else they “need”. Convince them to take a huge IMF loan on the World Bank’s recommendations, from which all these US egineering, construction and other corporations will be paid hansomely for “sharing their knowledge” and building the infrastructure to extract whatever resources Argentina has, enriching themselves in the process and impoverishing all but a few insiders in Argentina, and laugh all the way to Wall street with Argentina forever in their debt…

    I get it.

    • Myles McDougall
      May 9, 2012 at 9:02 am | #23

      If you would like to criticize a specific policy recommendation that I have actually made, please do. However sarcastic comments that attribute to me things I never said or would agree with does not lead to what I would hope to be a real exchange of ideas based on real facts. I presume we share the same end objectives which include a prosperous, just and free society.

      Events leading to the Argentine crisis in 2001/2002 clearly suggest that there were a number of policy errors. It does not necessarily follow that everything that was implemented in the 1990s was bad or harmful. It is important that we carefully analyse the individual elements based on the facts and not be clouded or blinded by philosophical leanings. I am a pragmatist. For example, I initially believed (as did the Kirchners) that “Convertibility” was a workable solution to end the systemic hyperinflation plaguing Argentina. In the first few years to seemed to function remarkably well and had broad public support. In retrospect it is clear that Convertibility was not sustainable, particularly in combination with large fiscal deficits, a rising dollar, turbulent international capital markets and domestic productivity well below the level required to maintain peso/dollar parity. While we may now agree that Convertibility was not sustainable or workable, it did slay hyperinflation and provide a period of stability. One unresolved challenge is to determine would have been the better way to bring Argentina’s hyperinflation/currency spiral under control. If Argentina’s annual inflation rate is truly up to 30 percent, the answer may become increasingly relevant. We already know that government edict or price controls do not work over the medium to long term.

      The question of privatization, while related, is a very separate matter. The primary impulse was the fact that most of Argentina’s public services by 1989 had deteriorated to a critical state after decades of under investment, and in some cases, gross mismanagement by the state. Brownouts were common. It took three years to get phone service, road, sewage, water, power and gas transmission and distribution systems were inadequate, YPF and the government owed power company were incurring losses, oil and gas production was stagnant and both provincial and federal governments were essentially broke. Corruption was rife. Solving these issues required huge amounts of capital and equipment, new technology and new management. There were not lot of options as to how the government could even begin to turnaround the situation and less to do it in a timely fashion.

      Based in part on the many successful experiences around the world, privatization was deemed to be the best, and possibly only viable solution. Contrary to some of the unsubstantiated allegations, there was a general consensus that the privatization process was well managed, transparent, competitive and that fair prices were received for the privatized assets. As part of the bids, companies had to commit to minimum investments and service standards. While most of the successful bids were led by foreign companies, their consortia often included strong Argentine partners like Perez Companc and Techint.

      By any standards, the efficacy and speed with which that the refurbishment of Argentina’s infrastructure place was more than impressive. Many billions of new investment, new equipment and technologies and poured into the country. In most cases Argentines were placed in senior management positions or groomed to do so. Oil and gas production more than doubled in just a few short years. Argentina became an exporter of energy becoming an important supplier of natural gas to its neighbor, Chile and electricity to Brazil. Increased natural gas supplies and expanded gas transportation network enabled the expansion of its domestic petrochemical industry and gave Argentina one of the world’s natural gas penetration rates. Subways and phone systems were expanded and modernized. Roads and water treatment plants were built. New power transmission lines provided access to power from expanded hydroelectric and thermoelectric plants. Importantly, instead of being drains on government coffers, the provincial and federal governments began to receive billions in new tax and royalty receipts. Argentines received the benefits of improved services and energy supplies.

      While the new source of corporate taxes imply that some companies had become profitable, Contrary to public perception, not all assets obtained in the privatization process turned out to be profitable for the successful bidders. Indeed some were spectacular financial flops despite their huge investments and best efforts. The good news is that it was private capital that was lost in these circumstances, not taxpayers funds. Some other companies made only moderate returns. The nature of private investment is that some win and some lose. The exclusive focus on only those companies that were fortunate to make financially successful investments provides a distorted picture of the overall reality. This overall reality does not support the generalized claim that the privatization investors made inordinate profits. Even if they had this would not necessarily be bad for Argentina.

      The sale of the last remaining government stake in YPF to Repsol took place a time when oil was around $20 per bbl and most experts including other oil companies were forecasting only moderate inflationary increases into the future. Production expectations and oil prices would have been the biggest determinants for calculating YPF’s market value. At the time the price paid by Repsol for its stake in YPF was considered within the reasonable range by most knowledgeable observers including those independent investors who agreed to sell their YPF shares to Repsol as part Repsol’s takeover package. If previous oil price forecasts had turned out to be accurate, any charge that YPF had been sold too cheaply would be laughable. The only reason that YPF’s true financial value has increased is because oil prices are well over $100 per barrel and the oil discoveries that were made since Repsol purchased YPF. These facts may not be consistent with the claim that YPF was “stolen” from the Argentine government but they are the facts.

      Whether or not Argentines will be better served by having their government own and control YPF, I believe it is important that people be honest with themselves and others about the facts. Policy decisions were made in the context of the economic turmoil, financial limitations and information of the 1990s. There were a number initiatives, some like Convertibility proved to be ill-advised. Some elements of the privatization process could be reasonably criticized, however there were important undeniable benefits that accrued to Argentina from the privatization process. There is no factual basis to justify the expropriation of YPF on the basis that it was scandalously stolen over a decade ago when neither party could have predicted the level of current oil prices or potential of Argentina’s oil shales. At this point expropriation is a foregone conclusion. It is appropriate that the Argentine government pay compensation to Repsol that reflects YPF’s value based on current knowledge and information. The only valid justification for expropriation is that direct government ownership of YPF will provide superior benefits to the Argentine people than what could otherwise be achieved. This was not the experience the last time the Argentine government controlled YPF, I am skeptical. For the sake of Argentina I hope that I am wrong. Time will tell.

      • davetaylor1
        May 9, 2012 at 11:06 am | #24

        Myles, from the way your contributions have come over to me, I see you as an orthodox economist with a particular interest (and perhaps “interests”) in Argentina. It seems to me Alice’s acid remarks sum up very well what such economists have done elsewhere, not least cover up the banking scam which leaves governments beholden to banks and thus bound to run short of money to invest. Mainstream economists pontificate on business without any thought for the reality of people and their natural worlds.

        When you end up here (in our environmental crisis) arguing compensation for YPF based on the potential for exploiting Argentina’s oil shales, I just want to puke. Not that I have any more confidence than you have in the Argentine government or state socialism generally. It seems to me we are all doomed without honest money representing our debts to society (its negativity revealing that those who take more owe more), and without an understanding of subsidiarity generating real democracy: low-power bottom up government advised and coordinated “from above” on Nature’s principles of cooperative diversity and “Small is Beautiful

  14. Myles McDougall
    May 9, 2012 at 9:26 am | #25

    Actually Argentina has great potential for production growth of both oil and gas but it lacks adequate economic terms to attract investment. Argentina imports natural gas from Bolivia and LNG from Qatar.

    • May 9, 2012 at 11:51 pm | #26

      This we will see, in the next 100 days. I bet that Argentina will get the investment it needs on those areas. By the way, do you know that Argentina is starting to develop its own lithium batteries? Since the country has the 4th biggest world reserves, it would be a shame to export the raw material to some developed country for processing. So next time you buy electronics, look at the battery. Maybe it will be one of ours.

      • Myles
        May 10, 2012 at 12:35 am | #27

        I genuinely hope that Argentina is successful in making the most of its oil and gas resource endowment. I predict that the government will change the sector’s operating parameters in order to capture a higher proportion of the economic rents help it generate the required investment. First on the list will be a reduction in energy subsidies (i.e. higher prices).

        I am very pleased that Argentina has found this new lithium opportunity. I understand the process is fairly energy intensive which fits in with the government’s desire to increase domestic energy production. If it can economically add value to this resource within the country, even better.

  15. Alice
    May 9, 2012 at 10:37 pm | #28

    Thankyou Dave particularly for your last sentence. How many people are displaced when major corporations march in under the guise of economic development but mainly for their own profit interests. How many of these corporations, mainly US have benefited by paying very low wages to make their shirts, jackets and shoes? How many governments have been saddled with horrendous IMF debts they were convinced they needed? Who really benefitted from the debts – the country and its people or foreign cortporations? (the debt merry go round cant go on forever as we have seen).
    Big isnt necessarily beautiful at all when it comes to development. The thing that galls me is that orthodox economists spruik this nonsense and probably still think of themselves as respectable advocates for the good of mankind.
    I would go as far as to say what goes on in many of these developing nations is little less than modern day slavery with people just like Myles able to convince themselves that making shirts, or jackets or shoes for some foreign firm for $1 a day or week is better than earning no dollars at all – yet in reality the foreign firm is extractin most of the innovation potential and the producivity of these people. Their modern corporate masters are little more than slave traders in far too many cases only they are probably getting the slaves even cheaper than in history seeing as they dont have to transport them to another continent or feed them. When their time is fully occupied working for some slave master at low wages where is their time and ability to innovate within their own society, instead of helping to boost the profits of some already rich firm?

    Im amazed some people can sleep at night with the views they have.

  16. May 9, 2012 at 11:54 pm | #29

    Myles McDougall :
    Do we agree that the government inflation figures have been inaccurate?

    Yes. But is not what the opposition says it is. I would sat on the middle (some 18%). It is a problem, but it is not serious at all compared with the alternative.

    • Myles
      May 10, 2012 at 12:40 am | #30

      Yes, the trade off between inflation and growth is something that is receiving much intention these days, certainly in Argentina but also Europe.

      • May 21, 2012 at 3:16 pm | #31

        Don´t you mean the classic trade-off between inflation and unemployment? Anyway, the economists in this forum can argue better than me about the Phillips curve.

  17. Myles
    May 10, 2012 at 12:19 am | #32

    Alice,
    Again please do not attribute ideas to me that I have neither said or believe. It is insulting but more importantly an intellectually lazy generalization that no basis in fact for me or the vast majority of those who see a important role for capitalism but who’s views are much more complex and compassionate than are represented by the right wing extremists that you describe.

    I’m curious; how it is that those world societies generally considered the most prosperous, just and democratic are based on moderate capitalist economic models, with progressive tax structures, minimum wages, generous social safety nets, universal healthcare, strong property rights, good regulatory systems, predictable contract laws, inclusive attitudes towards minorities, high education investments, environmental sensitivity and social mobility. There are differences between them but In general these countries have societal consensus that government’s role is to provide the environment where private interests can do what they do best i.e. create wealth, with the equally important government roles to protect and ensure that structures are in place to ensure that this wealth is reasonably and justly distributed.

    Can you tell me which country follows your preferred economic model but has actually achieved a superior overall quality of life than the countries that I have just described?

    For clarification, much of the attraction of Argentina’s previous privatization is that the private sector would finance the required investment in the relevant public service infrastructure and productive capacity so that the government did not need to take on debt to pay for these things itself. Argentina’s accumulated its debt from it’s deficit spending on other government services and priorities. Your criticisms have nothing to do with the actual facts of the Argentine situation or the policies that I defend,….including $1 per day salaries.

    My second paragraph is a short hand version of the policy prescription that I believe is optimal, realistic, achievable and…. righteous. The path would be much easier to achieve if it wasn’t littered by half baked extreme philosophies on both sides of the political spectrum.

    • davetaylor1
      May 10, 2012 at 5:55 am | #33

      But Myles, attractive though your “second paragraph” looks, you still show no signs (despite my pointing it out) of your understanding the significance of the environmental crisis and the scam of self-serving fractional reserve banking. Nor indeed of the financial clout of many international corporations being greater than that of most governments.

      Your final attempted put-down here has me wondering, with Alice, how you sleep at nights. The half-baked extreme philosophy is not mine but yours and that of most political economists today: the unconsciously absorbed “right”-minded 1740′s Humean empiricism which goes on today’s appearances in complete disregard of the reality of the matter, form, history and human intentions hidden inside them. I personally am and have been psychologically shown to be temperamentally sitting on the fence: neither your right nor your left but both, and to boot a practical scientist trying to decide which theories are both right and applicable in light of the best available interpretations of reality.

      It evidently hasn’t occurred to you that the possibilities you mention in that second paragraph are available to all capitalist societies but realised by increasingly few. Why? The significant factors you are omitting are: social ethos – self-centred vs. humanity and/or God-centred; and since Hobbes, Hume and Adam Smith, the embodiment of self-centred mores in law and in the theories of politics and economy.

      • Myles McDougall
        May 15, 2012 at 7:23 am | #34

        The fact of the matter is never in the history of mankind has more people risen out of poverty than has occurred in the last 20 years, overwhelmingly due to a movement towards more liberal economic policies in their countries e.g. India, China, Brazil. Not that these countries are perfect models (far from it) but the general tendency and results are clear. Therefore, I do not accept your assertion that the possibilities “are available to an increasingly few”. Yes, there are many different problems inflicting many capitalist nations. Each has their specific causes and solutions. Utopia eludes us.

        There is plenty of scope within my prescribed model for the social ethos questions that you speak. The debates takes place and are exercised every day by communities and individuals in words and actions. I accept the IHEU Minimum Statement on Humanism. I reject the implication that large corporations or fractional reserve banking are by definition negative. I am probably more environmentally aware than most although we may not agree on what are realistic and effective solutions to the myriad of environmental challenges we face.

    • Alice
      May 10, 2012 at 9:17 am | #35

      Myles – you asked me a question

      it went as follows

      “Can you tell me which country follows your preferred economic model but has actually achieved a superior overall quality of life than the countries that I have just described?

      My answer is as follows

      a) I dont think you know what my preferred model is because I have not described it here

      b) I am a believer in capitalist principles within a nations own sovereign rights over its own resources. I do not believe that any other nation has the right to pillage and plunder another nation and mask it as “economic development”. For this I hold US corporations in many cases to be unethical and immoral. That they seek to expand their own influence (and of course profits in the name of foreign aid, which is anything but is abhorrent to me.

      Did the oil companies ask the indigenous populations of the Amazon whether they would like to be relocated? Did they ask before drilling nin the rainforests? Did they forge the signatures of traditional owners to get access to lands they did not own. Did they attempt to move people from their homelands to missions and reservations depriving them of their heritage and culture? Did they ask small communities whether they minded being caste out in favour of a dam or electricity privatisation? Or did they resort to every scam under the sun, including bloodshed to drill where they wanted, pollute where they wanted, displace where they wanted, enslave where they wanted – all in the name of capitalist “economic development”

      Try telling that to people who have lived thousands of years quite happily without the sort of rapidfire economic development orthodox economists and US and other globally rapacious corporations would push upon them and which they never needed before.

      When the left reconciles with the right we may have a fighting chance to stop the wrongs being done in the name of greed. Until then we have no chance at all.

      • Myles McDougall
        May 15, 2012 at 6:11 am | #36

        I appreciate that the issues that you raise are quiet complex. At the end of the day, companies are run by people with all that this implies, good and bad. For this reason it is critical that governments provide their citizens well thought out regulatory protections whether it be for reasons of environment, safety, cultural sensitivities or the economic terms by which a company operates in their jurisdiction. While certain companies can be criticized and sanctioned for inappropriate behaviors at the end of the day it is the responsibility of governments to legislate, regulate and police their rules and laws. Often the issue is not that a company is operating in a certain location, it is that the government allowed or even invited them to work in that location. Often the issues really reflect conflicts within the society as who benefits from the company’s activities and who absorbs the often inevitable consequences and who is compensated. It is the primary role of governments to sort this out and find the optimal solution for their citizens. Sometimes this may mean development takes place despite objections of a minority. It is equally important to have a honest and clear assessment of the benefits e.g. increased government revenues as it is the negatives.

        We all recognize that there are some government’s that seem to manage these issues better than others. Corruption can be a factor as can a multitude of other internal political dynamics, including faulty information and unrealistic expectations. My point is that a default vilification of corporate interests often results in missing the real culprit, poor government, weak institutions and the dysfunctional society that yields them.

  18. Alice
    May 14, 2012 at 10:18 am | #37

    More news on Argentina’s nationalisation of Repsol – a path forward for Greece and other countries suffering financial sector exploitations.
    There are no shortage of new investors interests in Repsol after Fernandez has kicked out Repsol who expropriated most profits from Argentinian oil for shareholders not investment in new drilling (which was less than when the government owned it – so much for trcikle down – it trickled out of Argentina via Repsol to shareholders and worse than that Repsol’s main business appeared to be – you guessed it – speculating with diced and spliced oil derivatives (thinl Enron, think Wall street gambling)
    Hello?? – no wonder Wall street and the conservative financial media is so ticked off at Fernandez – it seems the nationalisation put an end to musical chairs gambling spree on these oil derivatives – but the Argentines should be damn happy – just to get the likes of Repsol out of their patch.

    http://www.guardian.co.uk/commentisfree/2012/may/02/democracies-stop-predatory-financiers-argentina-bolivia

    • Myles McDougall
      May 15, 2012 at 5:21 am | #38

      Wow…In reference to the Guardian article, I am stunned this kind of uninformed and misleading garbage gets printed. There should be a rule that you have to have a minimal understanding of the topic before you are allowed to publish. The writer makes the point that the numbers of wells drilled by Argentina’s YPF was higher in the 1990′s than it was in the 2000s with the insinuation that it was controlled by the government in the 1990s and by Repsol in the 2000s. Actually YPF was privatized between 1991-1993 and the increase in drilling occurred after 1993 when it was controlled by private investors. There was a lower number of wells drilled in the 2000s but primarily because the price of gas experienced a government imposed decline of 75%, while oil prices were also kept well below international price. Companies invest in drilling when it makes economic sense to do so based on assessments of geological risk and risk weighted return expectations. Finally YPF drilled more horizontal wells in the 2000s which are more expensive than vertical wells and generally result higher production. I notice the article fails to mention that in all cases that drilling and production was much higher in both the 1990s and 2000s than when YPF was owned by the government before the1990′s privatization.

      The articles criticism about derivatives makes no sense. Oil prices can be very volatile. Oil companies often hedge their oil price (in various ways, derivatives being one way) to provide a fixed oil price and stability to their cash flows. For the oil companies, it is not speculation, its the opposite. Are you suggesting this is a bad thing?

      How exactly did the financial sector exploit Greece? They lent money to Greece to finance the government’s deficits. Presumably the elected governments felt it needed these resources, it didn’t work out. Their economy simply can’t support the lifestyle they aspired to have. Private lenders then took a big loss on these loans as part of the restructuring package that was back stopped by the European community. It looks like Greece will not accept the austerity terms required by their European peers, so it is increasingly likely they will need to leave the Euro. It is unfortunate as the history of the drachma is less than promising but in retrospect this was probably inevitable. There are no villains here, just a country that will need to live within its means.

      • davetaylor1
        May 15, 2012 at 2:18 pm | #39

        So why should we believe your version?

  19. Alice
    May 15, 2012 at 2:23 pm | #40

    Exactly Dave.

  20. Alice
    May 15, 2012 at 3:04 pm | #41

    Myles – According to the article I posted
    “Morales noted that only $81m had been invested in Bolivia’s electricity grid since privatisation in 1997. YPF in the 1990s drilled three times as many exploratory wells in Argentina as it did in the 2000s under Repsol. Argentina’s oil and gas output was falling, and new reserves were not being found to replace exploited deposits.”

    You do seem to have a lot of knowledge of “your version” of Repsol Myles. Do you work in / for the oil industry by any chance? I guess the answer to that will be a resounding no.

    Firstly Repsol did not acquire YPF until 1999 and yes in the 2000s there was a reduction in drilling under Repsol. Interestig also that Repsol in 2006, was also signalling to investors it was considering the flotation of 15-20 percent of YPF on the local stock market ie it wanted out (and perhaps only because its hotter plays were elsewhere – like Alaska, Brazil, the gulf of Mexico and West Africa -

    WOW – this company is everywhere isnt it?

    Maybe its not fit to run the oil for one particular country like Argentina, its already been trying to bail out of prior to the nationalisation (bad timing they didnt float it off earlier iusnt it?). This is oil we are talking about. Its needed for the economy and people to get to their damn jobs and is too important to leave in the hands of some “global explorer and speculator” clearly.

    “Analysts urged Brufau to sell it all, but even offloading a small chunk proved challenging”.

    Hmmmm…

    Or maybe I should phrase it, yet again the way another commenter did to the guardian article (again)

    “Oil is discovered. The multi-national companies go to the country and tell them ‘this is going to make your country rich. But first, you’ll have to build all the infrastructure to get the oil out and export it’.
    The country thus borrows billions from the IMF to build airports, harbours, roads etc on the grandiose “economic forecasts” of foreign consultants. The multi-nationals get the fat contracts. The multi-national oil companies come in and start drilling and exporting the oil. Meanwhile, the country has to keep paying off all the money it has borrowed, using the money from it’s oil sales, of course.
    The oil runs out. The multi-nationals pull out and move on. The country is left with infrastructure it no longer needs, and a debt it is still paying off. The people have hardly seen a penny of their ‘oil riches’

    And taking their resources back is called ‘theft’??

    I dont think so.

    I think you need a lesson on who own’s a country’s natural resources. To me they fall under the sovereign rights of the nation concerned, and when it comes to necessities like oil, those resources deserve better protection from private international asset strippers, than they have been getting in many countries.

    • Myles McDougall
      May 22, 2012 at 7:44 am | #42

      As a matter of fact Alice, I am currently an entrepreneur in the oil and gas sector. I have previously worked in government, banking, and even as a business professor. Part of my previous banking career was focused on the Latin American oil and gas sector. At different times I also had responsibilities for U.S. majors, European oil majors (including Repsol and BG) and emerging market oil and gas companies (e.g. Russia, Asia). I was very involved in Argentina’s privatization process, the partial privatization of Petrobras and as an adviser to the Venezuelan government. In this capacity I had numerous discussions (often as an adviser) with Argentine regulators, cabinet ministers, oil and gas company executives and investors. I know a great deal what government, management and investors said and committed to each other in the 1990s because I read the documents or was in the room when discussions took place.

      As I also lived in Argentina for most of this process, I read the newspapers, listened to the TV talk shows and discussions around friends’ dinner tables. I think that I have a fairly good understanding of the reasons that the Argentine government pursued the privatization process, why the Menem government was overwhelmingly re-elected, and later why things began to go wrong. I clearly remember the indignant anger by the local politicians and editorial writers when certain “orthodox” economists dared to raise the alarm about Argentina’s increasing debt burden. To say that the IMF or the financial sector foisted debt onto Argentina is simply not an accurate reflection of reality. The government wanted additional resources to finance their agenda and the public’s demand for government expenditures. Some banks and investors continued to provide financing. These investors clearly did not properly gauge the risks and as a result have paid a price. In this regard Argentina is no different than Greece.

      In retrospect we can point to a number of defects in the economic model that was envisioned for Argentina. Pegging the peso to the U.S. dollar was simply not sustainable over the longer term. The fundamental problem is that despite Argentina’s incredible natural resource endowment it is unable to develop the level of productivity to achieve the standard of living it should have. There are a number of possible reasons for this; counter productive labour laws, difficult labour union relations, suffocating bureaucracy, corruption, the legacy of decades of previous bad governance, legal insecurity, poor private property protection, a private sector built through government connection rather than innovation and efficiency. There are also cultural and attitudinal realities that undoubtedly have an impact. There are many more potential reasons. One thing is certainly clear is that the high degree of government intervention and direct management of the Argentina economy has been a constant since Peron. I’m not convinced that an new dose of increased government involvement alone is the solution.

      I find myself befuddled by the characterization that you use from the Guardian article commentator as it has absolutely no parallels with Argentina or any other place that I am aware of. Argentina’ debt has very little to do with the building of airports or harbours. It has a lot to do with government social spending and the propensity of Argentines to evade paying taxes.

      Argentina’s recent decline in oil and gas production is solely due to the less-than-attractive terms the Argentine government imposed on industry, of which Repsol was only one of many players (albeit the largest). Argentina has always been the owner of its resource, this has never been the question. As the owner of the resource, it is their right to establish the economic terms for it exploitation. If they make it less attractive for companies to invest in Argentina than other places, they should not be surprised if companies re-direct some of their investment elsewhere. If they make it so prices are less than the cost of developing new gas reserves, it is natural to expect that new investment will decline. Now that Argentina has re-nationalized YPF, the government will have to find the funding to invest in the risky business of exploring, developing and producing its own oil and gas. My prediction is that Argentines will soon (within the next 12-18 months) be paying more for their natural gas and motor fuel so that the government (through YPF) can generate sufficient cash flow to re-invest in developing the required new oil and gas reserves.

      Expropriation is only called “theft” if appropriate and fair compensation in not made. What is fair compensation is a tricky and complex question and certainly involves some subjectivity. Nonetheless, there is a reasonable value range with which most experts can agree.

      I do not argue that there have been situations where countries made deals concerning the exploitation of their oil and gas that with time or changing circumstances turned out to be ill considered. I just don’t believe that Argentina was one of those examples. We will not know for another 7-15 years whether Argentina’s latest experiment in government direct management was prudent or not. I sincerely hope it is. A similar structure has worked out for Brazil although Brazil also has a much bigger resource and many other differentiated circumstances.

      I might point out that Mexico is moving in the direction of increased private sector involvement in their oil and gas sector. Mexico’s oil production is falling and Pemex the government owned monopoly does not have the funding (after transfers to the government coffers) to change the trajectory. Venezuela’s oil production has been declining over the last decade despite increased government ownership and direct control of its oil fields. The same is true in Ecuador. Peru and Colombia which have taken the opposite approach have received increased investments by private companies and corresponding dramatic increases in oil production and government revenues. Canada and the U.S. whose hydrocarbon sectors are wholly operated by private companies are also seeing increases in oil and gas production and government revenues. My point is that increased direct government intervention in a country’s hydrocarbon sector does not always lead to increased production or even government revenues. The opposite can be true. There are multiple factors that must be considered.

      • May 23, 2012 at 2:17 am | #43

        So, you where there. I am a little middle-class graduate just reading an Internet blog, not a powerful advisor, I mind you. But I remember those towns that died in the South, all those people that lost their jobs, all the misery, the broken dreams, the emigrants, etc.

      • May 23, 2012 at 4:00 am | #44

        You wrote “In retrospect we can point to a number of defects in the economic model that was envisioned for Argentina. Pegging the peso to the U.S. dollar was simply not sustainable over the longer term”. I can tell you as a fact that I knew about the failings of this system in 1994 when I was 18 years old, in my first year of college. How? Because that was the subject of my end-of-semester Economics 101 test. I explained how the peg worked, and what would happen when money runs out. I got the best grade of the class, and one year latter a position as an unpaid professor assistant.

        The privatization process and its pernicious effects were explained in a book we used in the left-wing Lujan National University, called “El desarrollo ausente”, by the late Daniel Aspiazu and Hugo Nochteff, from 1994.

        http://books.google.com.ar/books/about/El_desarrollo_ausente.html?id=HaFDAAAAYAAJ&redir_esc=y

        I left Argentina on August 1999, because I did not wanted to suffer the inevitable ending on my own body, which many people did during those terrible days of December 2001.

        Now I read this Blog because, as I did when I was younger, I know that some people here are right about what his happening, and what will inexorably happen, in Spain, in Europe, in the US. I know Myles that you are convinced that what you think about the economy is not ideology, but facts. When those “facts” destroy lives, it is not a funny theoretical discussion anymore. It is real. Real people, real human flesh-and-bones people, real houses being emptied, real children going to eat from dumpsters in the street. The only index I care is that one of happiness. If I see the people around me happier than before, I don´t care anymore about the contract that we as a country did not honored. Maybe in the long term we will face the consequences (which I think we will not). In any case, in the long term, you know how the saying goes…

  21. Alice
    May 15, 2012 at 3:16 pm | #45

    What we really need to dispel here is the erroneous (neoclassical) assumption that “the private sector is always and everywhere more efficient at running business than democratically elected governments”.
    A government privatisation of a state owned asset is like employing a subcontractor. In business if a subcontractor does a lousy job he gets fired.

    Failed privatisations of essential resources carry the same responsibility from government to its citizens. Governments have not only the rights but also the responsibility to nationalise “privatisations” that fail the citizens of that nation and should do it more often.

    • Myles McDougall
      May 22, 2012 at 8:15 am | #46

      The government complains that the certain privately run businesses are not re-investing at a level that the government has deemed desirable. The companies respond by pointing out that the government unilaterally lowered the prices that what they receive for their production so that now they cannot get a sufficient return to warrant further investment. If they did get a reasonable return on their investment, they would invest. It’s not that complicated. Argentine gas prices are now some of the lowest in the world. It currently costs more to replace the gas used in Argentina than what the gas producer receives for selling it. The price of oil in Argentina is a fraction of the international benchmark price. These are indisputable facts.

      The government has deemed it desirable public policy to provide its citizens subsidized energy but it is not paying the subsidy. The subsidies are being funded by private companies. Private companies are not designed to fund public subsidies. Is subsidized energy good public policy?

  22. davetaylor1
    May 15, 2012 at 5:54 pm | #47

    Myles @ #33. “The fact of the matter is never in the history of mankind has more people risen out of poverty than has occurred in the last 20 years, overwhelmingly due to a movement towards more liberal economic policies in their countries e.g. India, China, Brazil. Not that these countries are perfect models (far from it) but the general tendency and results are clear. Therefore, I do not accept your assertion that the possibilities “are available to an increasingly few”.

    Myles @ #31 para 2. “… those world societies generally considered the most prosperous, just and democratic are based on moderate capitalist economic models …”.

    Dave @ #32. “It evidently hasn’t occurred to you that the possibilities you mention in that second paragraph are available to all capitalist societies but realised by increasingly few.”

    So Myles doesn’t understand or is deliberately misusing either English or the fallacy of composition. Most COUNTRIES are not those generally considered the most prosperous, and are not based on moderate capitalist economic models but subject [by means of fraudulent reserve banking] to rapacious capitalism. Trying to subvert my argument about societies, he cites the three most populous countries and slipping from societies to individual PEOPLE. And still he mumbles on equating growth of national GDP with people “arising out of poverty” without any sign of being aware of what poverty means in the the real rather than the monetary world: the ecological and social damage, the corruption of governments, the deliberate provocation of financial crises and wars by a pack of hyenas waiting round to pick up the pieces.

    Which is being unkind to hyenas. They, Myles, are not evil humans, brainwashed killers and other hangers-on, who were once capable of knowing better, could still do so again and remain responsible for their actions and inactions. Perhaps these, like drunks, will need to “take the pledge” and forego the lure of filthy lucre completely if they are to regain their sanity.

    But allowing for the odd Myles, why aren’t most of our 789 bloggers here trying to help them by getting their heads round what money really is and proclaiming to all and sundry the root evil of banks being able to create money out of nothing and sell it as valuable? In truth it has NEGATIVE value. Our spending it indebts us further – not to the banks but to our societies and nature – and only providing and caring for each other and nature, not accumulating more debt money, can we in the end redeem our debts.

    It’s no good me just saying this. Given the mess we are in, you guys really need to understand and act on it. If you don’t agree with me, for God’s sake say why and let us argue it out.

    • Myles McDougall
      May 22, 2012 at 9:14 am | #48

      Frankly Dave I have no idea what position you arguing for. You say you are a capitalist but seem to have a problem with profits. You clearly have a problem with the banking sector. While they certainly deserve criticism, they are hardly the sole purveyor of pure evil that your comments seem to suggest. I do not understand your hostility to reserve banking, nor do I understand what you propose as a workable alternative.

      I stand by my comment that the world has experienced a dramatic overall improvement in poverty reduction. This has been accompanied by increases in standard of living, declines in child mortality, higher life expectancy, more education, higher literacy, etc. etc. The last I heard societies are still made of groups of individuals. This is not to say that the world does not continue to have all sorts of terrible injustices or that some people or societies are now worse off than before. I have no doubt that this is the case. I also know that the reasons for many of the deteriorated circumstances are numerous (religious intolerance, racism, ignorance, AIDS, quests for power, drought,..to name a few) and cannot be simplistically blamed on the reserve banking system, bankers or fiat money. Still, It is factually wrong to say or imply that the world, in it’s totality has not seen some amazing improvements in the last generation. Of course, there is still much more to be done.

      You state that you have some insight into “real” poverty that I do not understand. Perhaps, but I will assume that you are referring to quality of life considerations as opposed to simple monetary measures. I can assure you I consider these although we may disagree whether certain developments are inevitable or desirable.

      Enough of the high sounding rhetoric and sophistry. What do you propose? A return to a non-existent Luddite Shangri-La?

  23. Alice
    May 16, 2012 at 8:37 am | #49

    Dave I think what needs to happen is that people sort out the ethical behaviour of “development, aid, IMF loans etc – who benefits and who loses”…and the sham that it so often becomes, that a core group of already wealthy firms continue to reap fat profits by convincing nations they “need their sort of development”. This is economic war without the military. The battle lines are fought on flagrantly false economic reports (the weapon), the governments are spruiked to by men in nice suits from “davanced nations” who are mostly working for the enterprises and businesses of those advanced nations.

    This is plunder. It is greed. It is short term and it does not aid the country concerned but is masqueraded falsely as such. That is what makes it even more abhorrent. The emporers clothes.

    Lets just take this one fact and ponder it. In ten years after Repsol acquired YPF, Argentina went from a very healthy exporter of oil to an importer of oil by necessity.

    and this

    “The nationalization has been so warmly received here that Argentina’s Senate voted 63 to 3 early Thursday to take control of YPF, the country’s leading energy company, during a lengthy special session in which most senators used their allotted time to laud Mrs. Kirchner’s initiative. Some members of the political opposition from oil and gas-producing provinces came close to tears expressing gratitude for the measure. The expropriation bill will be taken up on May 3 by Argentina’s lower house of Congress, where it is also expected to pass by a large margin. ”

    Do we hear democracy (the people) talking (shouting?)? If some people dont it is because they think they have a better plan than the majority views of a country’s citizens.

    Really?

  24. davetaylor1
    May 16, 2012 at 3:37 pm | #50

    Alice, we are in danger of getting at cross-purposes here: you are quite rightly comparing privatised pillage to nationalisation in Argentina, whereas my interest in Argentina is as an example of how people think.

    So you think the issue is ethical; but what do you mean by ‘ethical’. and what relation does that have to ‘moral’? Isn’t the former about being honest about your aims and methods and the latter a stick to beat you with if you interfere with those of others?

    You say “This is plunder. It is greed”. You’ve used the words ‘false’ and ‘falsely’ but not the relations between lies and being deceived, self-deception and mis-takes (i.e. misunderstanding).

    It seems you are looking for a solution to problems created by the effects and I’m looking for the condition of solving the root problem. That involves not just being honest but is also about acquiring a true understanding of the problem. I’m in the middle of reading a book about the development of mathematics called “Finding Moonshine” by Marcus du Sautoy. He describes two kinds of mathematical mind:”those who look at a number and immediately start to work out whether it is prime [and] the other type of mind will look more for underlying structures and connections. Bith are useful skills. The ability to crack a great unsolved conjecture quite often goes with the first. But the ability to come up with the conjecture in the first place, to have a new vision about how things might look, goes with the second”.

    So let’s accept (since I cannot provide proof in a few lines) that I’m offering conjecture. State-based and (even more so) international corporate-based centralisation both involve absentee management unable to observe the truth and thus part of the problem (the international even more so than the national); but monetarised economics also absents real goods, eliminating our ability to see the true value of money.

    Hence my conjecture at #24: “It seems to me we are all doomed without honest money representing our debts to society (its negativity revealing that those who take more owe more), and without an understanding of subsidiarity generating real democracy: low-power bottom up government advised and coordinated ‘from above’ on Nature’s principles of cooperative diversity and ‘Small is Beautiful’”.

    Only if we look at the creation of money understanding the concept that it might have negative value, will we be able to decide whether or not it has. I conjecture that the reason people aren’t doing so is more to do with fear of maths than with having a better plan; though whether today’s equivalent of goldsmiths rent out largely non-existent pieces of paper in lieu of other people’s non-existent gold is a question not of mathematics but of fact.

  25. Alice
    May 20, 2012 at 9:22 am | #51

    Dave you remind me of someone else that has the same argument re gold and the value of money. It is not an argument I am unconvinced about. It is an argument Im still mulling over. I agree to some extent fiat money may be part of the problem ( a currency with no intrinsic value – that allows paper and more paper to be turned into money and from there into debts and more paper and from there into disasters).

  26. Alice
    May 23, 2012 at 10:19 am | #52

    Thankyou Pablo. You comments are pure gold. It is not the patronising views of people with respectability that work as advisors to the oil and gas industry, and the models that matter to them to wrench profit out of foreign countries reserves and assets.

    No matter how many words they use to try to persuade us, it comes down to one thing – whether the people of the country are any happier or are made miserable by it.

    Something Myles wouldnt even consider.

    • Myles
      May 24, 2012 at 10:27 pm | #53

      I have no doubt that you or Pablo’s heart are in the right place. However, history provides examples from very many different philosophical systems of delivering injustice, poverty and less than ideal happiness levels, including those based on Utopian, socialistic or capitalistic ideals Much of the unhappiness in this world is a result of unintended consequences. I certainly do not argue that systems based on capitalist principles should not be criticized, on the contrary. However, if we are really genuinely interested in building a better world, the criticisms should be based (as much as possible) on accurate information and a full and honest analysis of reality. I believe that the quality of the lessons that we obtain from history can only be good as the original analysis that led to our conclusions. Claims made that do not tell the complete story or that contain factual inaccuracies need to be challenged, so that the full truth can be revealed, however uncomfortable it may be to existing paradigms.

      The reversal of the privatization process in Argentina may be controversial but clearly has majority domestic public support. I assume that most of those who support this direction genuinely believe that this is the best road to a stronger and happier country. I also assume that the majority who supported the privatization drive in the 1990s also had the best intentions for their country and its people. The pendulum has shifted but most of the players are the same. I’d like to feel comfortable that the logic for this public policy shift is based on sound and factual analysis, rather than political scapegoating and selective short memories. No perspective has a monopoly on good intentions. To adopt the simplistic belief that good intentions are the defining difference is naive at best and detract from the required hard thinking about the efficacy of the specific policies previously implemented or newly proposed.

      If some of my comments came off as patronizing, I apologize. However I do find it frustrating to read unchallenged factual inaccuracies repeated until they become accepted truth. As I was once one of many idealistic people that witnessed and participated in a project that we believed would improve the prosperity…..and yes….happiness of Argentines, I have a personal interest in understanding what the real errors were and what could have been better. Not only because I have Argentine friends and family but also because such insights may provide solutions to problems elsewhere in the world.

      The question of happiness is actually something that some economists, including myself have given a great deal of consideration. Not surprisingly there is much debate on this matter. Jeffrey Sachs, a noted development economist has co-authored a UN report that makes an important contribution to this subject. In case you have not had the opportunity to read this, it can be downloaded from http://issuu.com/earthinstitute/docs/world-happiness-report?mode=window&backgroundColor=%23222222

      • May 26, 2012 at 4:41 pm | #54

        Does somebody have a good example of a privatization of a State monopoly or company with a captive market that worked out well in the end?

      • Myles McDougall
        June 4, 2012 at 7:31 am | #55

        There are 100s of examples, although the best examples occur when the privatization is accompanied by an opening of the monopoly to competition. Often the monopoly is not really a natural monopoly and is only kept that way due to previous government regulation. Still there are ample examples of utilities being privatized and performing well for their customers. AGT (now Telus) in Alberta Canada, Telebras in Brazil are two of many examples in telecommunications privatizations around the world. I would argue both TGS and TGN in Argentina and are good examples. There would be more in Argentina (e.g. Metrogas) except expecting the privatized entity to indefinitely subsidize its services is incompatible with privatization. In these cases the question is whether the poor results are an indictment of privatization or faulty government regulation. Why do private operations of utilities work well in so many countries but not in others?

      • davetaylor1
        June 4, 2012 at 11:10 am | #56

        I have 100′s of counter-examples, and thousands when one thinks within the scale of State monopoly of municipal monopoly. But your concluding question is a good one, Miles. If Mrs Thatcher was correct that there is “no such thing as society”, then there are no such things as state and private organisations. In botht there are people with motives and constraints, with a vicious circle promoting leaders with the ability to evade constraints and so reinforce the power of motives. When the people at the top are motivated by profit they select executives who eventually (as now) ptofit even at the expense of those who employed them. When direction is motivated by the satisfaction of achieving the well-being of others, those responsible for the achieving of it have to take account not only of the gullibility of customers but the well-being of their employees. In other words, it all comes down at root to the ethos of a culture and to the role of powerful individuals – war-lords or leaders – in establishing it. I don’t know as much about Argentina as you, but de Gaulle was right to try and keep Anglo-American Britain out of the Catholic-led European Community, especially now our post-war Socialist ethos of Commonwealth has been undermined by the Thatcherite ethos of money-making. Thank God after the intervening 60 years we still have a Queen conscientiously serving the nation she represents: still able to laugh in delight when another old lady of rather less substantial means presented her with a jar of marmalade (which we are told she subsequently enjoyed). presented to her by another old lady of rather less substantial means.

      • Alice
        June 4, 2012 at 11:19 am | #57

        You say

        “I’d like to feel comfortable that the logic for this public policy shift is based on sound and factual analysis, rather than political scapegoating and selective short memories.political scapegoating and selective short memories.”

        Id rather you preferred the overhwleming will of the majority in a democracy Myles who support this nationalisation, (as those in Greece supprt no further auterity measures) than a eslective version of the “facts” which as you and I both know can be selectively distorted depending on who hires the expert opinion.

        There is no such thing as facts when damned lies can be so easily paraded as “facts.”

        Its the peoples decision.

  27. davetaylor1
    June 5, 2012 at 5:54 am | #58

    Alice @ #57: “There is no such thing as facts when damned lies can be so easily paraded as “facts.””
    So Myles @ #48: “Frankly Dave I have no idea what position you arguing for. You say you are a capitalist but seem to have a problem with profits”.
    I must have missed this one.
    Anyway, I have never in my 75 years said I was a Capitalist, as I am still trying to find out what the word really means; nor do I have a problem with REAL profits to mankind – as against monetary ones to thieves, who include gamblers with other people’s property.
    Continues Myles: “You clearly have a problem with the banking sector. While they certainly deserve criticism, they are hardly the sole purveyor of pure evil that your comments seem to suggest. I do not understand your hostility to reserve banking, nor do I understand what you propose as a workable alternative. … Enough of the high sounding rhetoric and sophistry. What do you propose? A return to a non-existent Luddite Shangri-La?”
    So whose high-sounding rhetoric and sophistry? Must be Myles’s, as my arguments seem to be counter-persuasive.
    So what I propose is what, at #47, I wondered why we were not already doing: “getting our heads round what money really is and proclaiming to all and sundry the root evil of banks being able to create money out of nothing and sell it as valuable?” As I wrote at #50, “I’m looking for the condition of solving the root problem. That involves not just being honest but is also about acquiring a true understanding of the problem.”
    My hostility to reserve banking (justified factually post-1700 by world scale wars, the housing of financial speculators in palaces and the billeting of wage slaves in [comparative] slums), is that it is built on and persuades others to believe deceit. Without suppression of the history of usury, money laundering via bubble-blowing in the property and stock exchanges and brainwashing via theoretical obfuscation in schools, doctrines and habits of economic practice, we might have twigged the goldsmiths were now claiming once-forbidden interest on imaginary gold. Reserve banking is certainly clever, and serves a valuable purpose insofar as it eliminates constriction of the trade of growing and developing nations due to limitations on the availability of gold. The valuation of its reserves and securities in terms of international stock market and property prices is, however, a fatal flaw enabling speculators to induce, then undercut, price bubbles, enabling them to sell at a profit, buy cheaply and deprive nations wholesale of their resources, produce and even necessities.
    What I propose – or rather, what I envisage ending up with – is not a ‘return’ to a non-existent pre-monetary, pre- industrial Shangri-La but a progression to Schumacherian “appropriate technology”, with a monetary system that HAS NOT YET EXISTED, nor could have before the development of modern communications technology.
    But I’m an information scientist. What I have learnt is that practice will not change without someone invents a different way of doing things, and that won’t happen without a different understanding of what needs to be done. Powered flight wasn’t practicable until internal combustion engines were developed, and not then until Lanchester worked out where the power went – getting air not under but round the ends of the wing. Economics remained in unstable equilibrium, pulled this way and that by the tides of imperialism, until Keynes began to see it as an information-based control system.
    Sadly, with Keynes “late”, misrepresented and sidelined rather than intelligently developed, we’re back in a low tide of imperialism. My position (the one you “have no idea what I am arguing for”, Myles) is that it will remain that way until economists and intelligent people generally get their heads round the basics of how languages, communication circuits, control systems and self-control work. The function of money has to be linguistic, since it isn’t valuable and doesn’t convey power. There is no beginning and end of an information-based control system, but there are simple examples like driving a car – or more directly, the structure of household economics. Here different members of the family specialize in different functions, and feeding the kids rather than paying the rent is what it is all about.

  28. davetaylor1
    June 5, 2012 at 6:07 am | #59

    So copying into this from a typo-freed document strips out new lines? My apologies, folk. I hadn’t realized.

  29. Alice
    June 5, 2012 at 9:35 am | #60

    Dave, this is quite off track but legend has it in a lot of Australian “popular” writings (historical) that the feminist movement suddenly freed women of their chains and the pill in the 1960s hgave them choices they never had before so they all up and entered the labour force in mass numbers from that time.

    But even the supposed “facts” just dont get it right. The history of women’s footprints as a surge into the Australian labour force is more accurately described way befire that. From the 1950s, in fact.

    What was so interesting about the mid 1950s was that that was when “hire purchase” arrived.
    You could actually buy those vacuum cleaners and washing machines and lounge suites now, and pay later…

    So much more interesting that the rise of feminism was the rise of credit.

    Sorry but I have no idea how this idea connects with the rest of the thread exceot by the tenuous suggestion that popular facts arent necessarily facts at all…

  30. davetaylor1
    June 5, 2012 at 10:01 pm | #61

    Alice, Mark Weisbrot’s blog was about “One of the great myths about the Argentine economy: the commodity export boom that wasn’t”.

    In the part of the world I come from (Lancashire, UK) our “commodity export boom” was build on women’s and children’s labour but was long over by the 1930′s, with women somehow enabling families to survive on local credit. At http://www.thecatalogshop.co.uk/ I found this: “Already flourishing in America through Sears Roebuck, mail order shopping became an important sector of the retail trade in Britain with the entry into the market of Littlewoods in 1932″.

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