#152 – The Expat Files: Navigating Latin America’s Economic and Health Challenges

Automatically transcribed from the original recording; names and wording may contain errors.

[00:03] Hi everybody, I'm Johnny Mueller and you're listening to the expat files living in Latin America. The show that tells you what it's really like to live, work, play and or retire in Latin America. I tell it just like it is, not the version they give you in those glossy travel magazines or the picture they paint for you in those international traveler websites where they're only trying to sell you something. What's it really like for expats living in Latin America? Well if you stick around a while you'll find out. So, let's get started. Before I start with the show today I'd like to thank everybody for going to my new website www.expatwisdom.com and picking up my report on those 17 Latin American off the radar picks. Those undiscovered places in Latin America you can live, work, play and or retire and

[00:49] do business where the gringo advantage remains in full force. And if you've been listening to my programs for any length of time you know what that means. So for those of you who haven't picked up that report yet just go to www.expatwisdom.com and by the way you'll be getting a lot of other goodies there too. Freebies and audio reports, tweets and blogs and stuff, especially for expats and expat wannabes. Put together by me and my expat friend Robert Culpepper who's the expert on moving to old world Europe. Okay, so let's move on. On my last expat file show I answered some email questions regarding what you should and shouldn't do in terms of your banking and finances. Specifically questions were directed at me about what they should do with their mother load up in the first world once they get down here and start traveling or living.

[01:35] It's something that expat wannabes really want to know about and it concerns them because once they've made the move down to Latin America they want to of course have access to their funds and therefore are hoping that there's some easy way to transfer those funds down here in the country they decide to settle in. And some of them are wondering if it's even a good idea to do that. You know, bring it on down. In other words, they want to scoop on whether Latin American banks are safe and secure in the long run. And you know I get a lot of emails from people asking about Brazil and Argentina because in the minds of so many first worlders and expat wannabes, Argentina seems almost like a first world country to them. And even 20 some years ago when I was back up in the states, every Latin American country seemed to have some kind of reputation. The rumors about Argentina were that it was the most advanced Latin American country of all. And mostly those rumors came from the fact that it had practically all European ancestry

[02:25] with an almost zero indigenous population with large established expat colonies of Germans, Italians, and Spanish. People always said that Argentinos had the purest European blood in Latin America. And it was also rumored that Argentina had the highest literacy rate, that they had the most educated people in Latin America, the most college graduates, they even called Buenos Aires the Paris of Latin America. And you've probably heard those rumors too that Argentinos with their light skin and light hair and heavy European dominance actually have a European work ethic. So it does seem logical that they would be almost first world in the minds of expat wannabes. Well I'm going to dispel some of those rumors by revealing a few things about Argentina today that are really going to scare you. And the reason why I referred back to my program last week, which is about banking and financing

[03:10] in Latin America for expats and expat wannabes, about transferring that mother load and all those questions that came about, well today you're going to hear a couple of terrifically solid arguments on why you don't want to transfer any money, not only down to Argentina, but to Uruguay, Brazil, or Chile either. And I'm going to start by paraphrasing some excerpts from some recent news articles, in fact articles from some very solid sources like The Economist and Reuters. And I want to thank John Farrell and some of you other guys who sent me the first world versions of these articles, but I've been reading quite the same thing down here in the local papers and journals for the last three to six months, and it looks like things are just coming to a head. There's a big monetary crisis and shakeup coming on the horizon and it's going to kick off in Argentina. Boy doesn't that sound familiar. Isn't that exactly what happened about 12 or 13 years ago back in Argentina?

[03:58] Back then when they devaluated the currency 50% shut all the banks and forced all dollar bank accounts to be converted at the 50% devaluation rate into pesos, I'm sure most of you don't remember that, but it affected everybody down in South America to a huge degree. And guess what? It's coming again, so listen up. But before I get into bits and pieces of these news articles, and by the way almost no one seems to be reporting it up in the first world, except in places like The Economist and Reuters. And those sources are out of the average man's reach, and the average guy doesn't want to read that stuff anyway. But let me just mention one thing. If you've noticed, you don't see much about Argentina at all in the first world press. In fact you don't hear much at all about South American or Central American countries, unless there's a gigantic drug bust, it's the end of an election so you get to find out who the new faces are in government, or if there's a war going on down there.

[04:48] Like the Falklands, we all remember that now don't we? Well before that nobody talked about Argentina did they? So in the first world media you don't get much information about Latin America at all, nothing in depth anyway. However, you might have seen lately in the first world press here and there, some stories about Argentina's president, Kirchner, nationalizing the country's biggest oil company. Which they had a small stake in but it's mostly owned by big European oil companies. Now you gotta wonder why would they do that? Because when you start nationalizing things, like Hugo Chavez did in a big way in Venezuela, it makes every private investor nervous, and it certainly scares off foreigners who have any ideas of investing there. But here's the thing, there's only two ways that Argentina makes US dollars to trade on the world markets, through their oil and through the selling of their beef and farm products.

[05:34] In case you didn't know it, they're the second biggest exporter of beef and chicken in the world. In fact those crabby McDonald's and Wendy's hamburgers you're eating right now up in the first world have Argentine beef in them. In fact if you go down to any Argentine port, you'll see hundreds of big 40 foot shipping containers getting stacked on ships on their way to North America. All those containers filled with frozen Argentine beef, already dressed and compacted into solid rectangular blocks of meat the exact shape of a 40 foot container. All solid meat, no air pockets or voids. And these things are shipped up to meat packing plants up in the midwest in the United States where they're loaded right off a boat or a train car and shipped directly to the processing plant where they're loaded into one end of a gigantic computerized hamburger patty making

[06:21] machine that's two stories high. In one end of the machine goes a solid frozen block of Argentine beef and in the other end of the machine goes a solid frozen block of pure white animal fat. That also comes from Argentina. And depending what company they are processing the order for, whether it's Wendy's or McDonald's or Jack in a Box or White Castle, the plant manager dials in the fat content and the machine automatically mixes the Argentine beef with the fat and puts out hundreds of thousands of perfect hamburger patties with the absolute correct percentage of fat. And the only real difference in the hamburger patties themselves, whether they come from McDonald's or Wendy's or our White Castle sliders, is the percentage of fat in every hamburger patty. For every brand it's slightly different. So there you have it all you red meat lovers, yum yum.

[07:09] So in effect for North Americans anyway, you do have an intimate connection with Argentina whether you know it or not. So if Argentina wants and needs US dollars, which other countries like China seem to be rejecting right now, anyway, one of the fastest and dirtiest ways to do that is to nationalize your biggest export industry, which in their case is oil. And since Argentina is more than self-sufficient in oil and they export billions of dollars worth each year, well then why not do what Hugo Chavez did and scare off all would-be first world investors in the process. Which of course doesn't make good business sense at all. So why would Argentina do that? Jump into the same black hole with Hugo Chavez. Well let me tell you a little secret, Argentina is desperate for US dollars right now. In fact because of terrible government corruption and mismanagement, their entire monetary system

[07:56] is on the verge of economic collapse, a nearly exact repeat of what happened 12 or 13 years ago when they shut down the banks and devalued the peso by 50%. So the rumblings in Argentina right now on the street and with people in the know are that a devaluation is coming again. But you know, Argentinos are used to it, it happens every 15 or 20 years like clockwork. However this time it's going to slam all the countries around it, like Brazil, Chile and Uruguay too. Because this is how it stacks up right now. You see, since that last big devaluation, some 12 or 13 years ago, Argentinos with money haven't been putting their money into Argentine banks, but moving it over to Ecuador, Brazil and Chile. And on top of that Argentina has big inflation and they're lying about it too, just like the US government does. Officially the Argentine government says in the last year or so, inflation's been hovering

[08:44] around 8 to 12%, which even at those rates really sucks. But all economists outside of Argentina are saying that it's actually double that, more like 20 to 25%, and that's 20 to 25% a year. And there's only one other Latin American country out of the 20 that has higher inflation than that. Take a guess, it's in our old buddy Hugo's country, Venezuela. And over there they've got 35% inflation a year, which is about triple the highest yearly inflation that the US government has ever reported in its own 235 year history. And here's a quote from a long time financial analyst from The Economist magazine. He says, first comes inflation, which Argentina already has, and they're lying about, and then comes devaluation, which will be terrible for Argentina and all the surrounding countries.

[09:31] It's going to be a big mess, but it's not being mentioned abroad. So far it's just the local newspapers, magazines, and commentators down here. It's all being ignored by the first world as usual, until one day you wake up and you read in the papers that there's a bank holiday and you can't get in and out of any bank in the country until the government shuffles the monetary system around and devalues your money. And here's another fact that proves that point. The Economist magazine, which is kind of the international bible for financial analysts, well just recently that prestigious magazine, The Economist, made a tough editorial decision and decided not to use the Argentine government statistics about inflation anymore. They don't trust them and they think they're bogus. That's a vote of confidence for the Argentine government now, isn't it? Boy does that sound familiar.

[10:17] That's what the US government does too. It lies. And if you want to see some blatant lies in your own country, check the US employment statistics. Whatever the percentage of unemployment is now, just double it and it will be closer to reality. So anyway, what's going to happen to the surrounding countries if Argentina devalues again? That's the question. Well this is what will happen. Since most of the wealthy Argentinos have their money out of the country in banks in Uruguay and Chile and such, if their foreign accounts are dollar accounts, which most of them are already, they'll start repatriating those dollars back to Argentina to take advantage of the blowout in the real estate and other markets, the fire sales. And since Uruguay is a very small country, when that money flows out of those Uruguay banks back into Argentina, there's going to be a rash of bank failures in Uruguay. A country that small with only a few million people can't take that kind of a financial

[11:05] drain. Because in a sense it'll be like a run on those Uruguay banks, only no one will be standing in line to get their money. Those Uruguayan banks will get sucked dry through wire transfers and internet banking. And here's another thing I'm sure you didn't know. Because Argentinos, since the last big crisis, have learned not to trust their own banks with their own personal mother loads, especially not in pesos. The cash that they shifted to adjacent countries, where the economies and banks are more stable, like for example Uruguay and Brazil, well all that money flowing in those adjacent countries in the past 10 years or so, has created a lot of mini real estate bubbles. Because since the banks in those countries are flush with Argentine money, banks do what banks always do and lend that money out at nice low interest rates with easy terms for anyone who wants to build or buy a house or start a construction project.

[11:53] Sound familiar? That's exactly what happened in the United States right before the housing crisis. So now you got all these mini real estate bubbles in the surrounding countries, not to mention a real estate bubble in Argentina itself, because a lot of people there with money, instead of putting it all into foreign bank accounts, decided to invest in the next best thing, at least what they thought was the next best most stable thing, and that's the housing and the building and construction market. You know, malls, subdivisions, commercial towers, which is also exactly what happened in the United States before their bubble burst. And not to say that these mini housing bubbles in Brazil and Uruguay and Argentina and Chile are as gigantic or severe as the one that happened up in the first world, but let me just point out that in Buenos Aires, houses and condos that used to go for $120 to $140,000

[12:40] back in the late 1990s are now going from $250 to $400,000. So in a lot of cases and in a lot of neighborhoods, in the last 10 years or so, housing has increased 2 to 300%, and Argentinos have discovered the art of flipping properties. And that first world kind of thing never happened before down here in Latin America. Not until these mini real estate bubbles started appearing. Now does that sound familiar? And if that isn't a repeat of the first world housing bubble, I don't know what is. And finally I'm sure a lot of you folks up there know that China has been buying up millions and millions of acres of farmland down in Brazil, Argentina, Uruguay, and all the fertile farmlands in South America, including spending billions on mining property leases and rights. And before that news filtered into the media in a big way, they were buying that stuff

[13:25] up clandestinely for 5 or 10 years. And what it's done in the last couple years is caused huge price inflation on farmland. And now in South America there's almost no deals to be found if you're interested in buying raw farmland. The Chinese beat you to it. And what you might not have known is that all the while the Chinese weren't just buying up land and mining rights. They were making deals with South American governments to negotiate very low tariffs. Which allowed Chinese products to enter South America as cheaply as they entered the states in Europe some 10 or 15 years ago when the doors to Chinese products were thrown wide open. And now we know the consequences of that. The first world bought their cheap stuff like it was going out of style and the Chinese became the manufacturing powerhouse of the world. But now with first world economies faltering in Europe and the states, going through their

[14:12] bubbles in their bus, first world countries aren't buying Chinese products like they used to. They're not buying anyone's products like they used to because of the financial downturn. But if you notice, the Chinese are still steamrolling along with their economy always advancing in the black year after year, even though the first world is buying less and less of their products. Well, if the Chinese are still steamrolling along, who do you think is making that possible? It's South America. They've picked up the slack where the first world has fallen behind. And now Latin America is the biggest market for Chinese goods. And aside from the fact that it's wiping out a lot of local industry down here, the Chinese too are starting to get a bit worried about their own Latin American investments. Because if the Argentine peso devalues and in a chain reaction the banking systems get gutted down here in the adjacent countries, guess what happens to the Latin American market

[14:59] for Chinese goods? It takes a nosedive. So again, this is just a preview of what some analysts think is happening right now down in South America. That when, not if, Argentina devalues its currency again, anyone holding dollars or euros will be able to clean up on the coming fire sale. Only it's also a warning not to have your mother load down in Argentine banks and definitely not in pesos. Though like I said in last week's show, you will need to have an Argentine bank account if you're going to live, work, or start a business down there. But have your money in dollars or euros somewhere else. Like in a first world bank that has a branch down there. And believe me, every big city in Latin America has at least a half a dozen first world bank branches. Okay, enough about that. Now I'd like to talk about a few things that are a little bit more practical.

[15:45] Something you can use right away. Some good information that you'll have when you first get down here on a Latin American trip. Now, like I mentioned in other shows, Latin Americans are getting fat. Fatter by the year, just like first world people are. In fact, I think you're going to be very surprised. It seems like everybody over 25 years old is starting to get a belly on them. And of course, it has everything to do with diet and that people aren't eating at home anymore. Instead, eating cheap junk food on the street. However, when you go up into the farms, the fincas, or what they call the campo here, the coffee, the tobacco, the sugar plantations, it's a whole different story. People are still living off the earth, they're skinny and lean, and most are quite excellent specimens of health. However, in the city, like I said, it's much different. But the people you see that have jobs out in the hot sun, like what they call the Avenil, the construction workers, guys on the road and construction crews and such, well the

[16:32] only fat guys you see amongst those groups of people are the bosses or the hefeis. And by the way, the word hefei or boss, you're going to hear that word a lot around here in Latin America. When someone pumps your gas at the gas station, when a guy is washing your car, or in fact from anyone you hire to do anything, they always call you hefei or boss. It's a polite common term used to address somebody that's about to pay you something. The term is usually used by people you just hire temporarily or just once or twice. And it's only used man to man or boy to man. Women won't use that term at all, it's a bit crude for them. Your cleaning lady will never call you hefei. Instead she'll use a different term of respect, she'll call you Don, like Don Johnny. And you can't help but think of Don Carleone, the godfather, because it's exactly the same thing. The term Don, in Italian and Spanish, is the respectful term for boss.

[17:22] And this is how it works. If you're just having a guy doing a job for you one or two times, let's say a plumber, he probably doesn't know your name very well, so he'll just say hefei. For example, if you say to a plumber, can you please move that pipe over there and put it in your truck? He'll answer, si hefei, which means yes boss. But if you said the same thing to your gardener, would you please move that pipe over there and put it in the truck? He'll say, si Don Johnny, because he knows my name. And it won't be Don Johnny Mueller or Don Mueller, it'll always be Don Johnny. It's only your first name that comes after the Don. So cleaning ladies and cooks and any women you have employed for a long time will call you Don whatever, as long as they know your first name. It's just how they address people down here, that's all. But getting back to that fatness bit, now one big problem that's happening in Latin

[18:08] America here, besides the fact that they're eating more and more junk food and McDonald's and all that, is that there's a new scary epidemic in every country down here. It turns out in the last five years or so, adult onset diabetes has hit practically every single family. But the funny thing is this, there's almost zero childhood diabetes. You know, the type one kind they used to call brittle diabetes when we were kids. The fact is, they've got so many fat and really obese people down here, that diabetes is out of control. In fact, I was talking to a doctor the other day and he told me some other startling news. He said at least 70% of the diabetes in Latin America is undiagnosed. The type 2 diabetes of course. But that he can predict just by walking down the street and looking, who has diabetes and who's a likely candidate. And he said the vast majority of people in Latin America who have type 2 diabetes are

[18:57] second generation indigenous people who came off the farm, skinny and in good shape as youngsters but when they come to the big city, they quit eating all that natural farm food, they lead sedentary lives and get fat. And here's the sad thing, they have the symptoms but they don't go to the doctor. They never have regular checkups because it's crisis care only. Because indigenous people are at the bottom end of the social ladder and most of them don't have formal jobs where they pay by check and are registered with the government's social security system. They work of course in the grave market but they're not registered to pay taxes. And that means they can't even take advantage of the substandard medical care and the free hospitals and clinics that working people are entitled to who are registered in the system. Sure, they make use of those facilities in emergency situations but they have to pay

[19:42] for them. They aren't free like they are for the rest of the population. And believe me, when I say they have to pay for medical services, it's not as if they're paying first world prices. In fact, they're paying about 10 to 20% of first world prices. And that's why they never go to the hospital or the doctor unless it's a crisis. Because even though prices are 80 or 90% cheaper than they are in the first world, they can't even afford that. So anyway, here's what that doctor told me. He said he's very afraid for the future of Latin America because there are literally millions of people walking around who are pre-diabetic or diabetic right now and don't even know it. And if and when they finally do get diagnosed by a doctor, they won't be able to afford the daily insulin injections. And they'll never go on diets and lose weight and they won't change their eating habits. Because the only way that would happen is if they went back to the farm and they're

[20:27] firmly entrenched in city life now. So what does the future hold for these people? It's the same as with any untreated diabetic. You develop circulation problems, eye problems, and a host of other medical problems, not the least of which is poor healing, infection, and the eventual amputation of limbs. A very bad future indeed for these people. And the doctor told me it's only going to get worse. And since public medical systems are completely fractured down here now, and this is well before the predicted epidemic that doctors are saying is going to hit in a big way in the next 10 years, well it's just another crisis that lower class Latin Americans are just going to have to suffer with. Meanwhile upper middle class and wealthy Latin Americans use the private medical system which is really first world. And of course all expats use private medical health care down here too. And I'm going to devote a future show to that because I have some new news about just

[21:16] that, first world style private medical health care and insurance coverage down here for expats. And it's really very good news so stay tuned for that. But meanwhile the middle and lower classes in Latin America, that 70% of people that have to use that fatally broken public health care system, well you really have to feel sorry for those people. They've got no alternative. But like that doctor finally said to me, when you're dealing with the lower and middle classes like that, they're quite uneducated and rarely do they listen to or follow their doctors instructions long term. They fall right back into the same old sedentary and dietary habits that caused most of their problems in the first place. So it's kind of a vicious cycle. And like he said there's another huge problem down here in Latin America called dysnutrision which means the majority of the indigenous population is undernourished.

[22:01] But he's talking about indigenous population living in the cities, not out in the campo again. Because the people living out in the sticks on the farms have plenty of food. I mean this is the tropics so you get 4 growing seasons a year. And for example in my own backyard I have 2 lemon trees, 2 avocado trees, an orange tree, a banana tree, 2 mango trees and a spice garden. And at least 2 or 3 of those trees are producing fruit at any given time. And I don't do a single thing to them when they keep growing and growing. But you see you're not going to get fruit trees growing like that in the city. And that's the difference. And talking about malnourished people, the doctor told me that all Latin American governments make deals with first world charitable organizations to distribute sacks of rice and beans and corn to the poor people. In fact every week or so you see in the paper about some distribution point where the government

[22:49] and some first world charitable organization are distributing sacks of rice and stuff from trucks to the poor people. Which the doctor said sounds like a very good idea but it really isn't in practice because this is what happens he says. These are people whose kids don't have enough calories. So they grow up a little bit stunted, a little bit short and a little bit short on brain power too because they don't have 100% of the daily requirement of minerals and vitamins it takes for the brain's neural connections to form properly. And you see a lot of evidence of this in the big cities. When you're driving around some of the poorer sections of Latin American big cities, if you take a look at the little kids playing on the street or with their mothers you'll see they're in many cases awful skinny, too skinny. And it's obvious they're undernourished. And some of these kids are undernourished all their childhood lives.

[23:34] And they grow up to be short adults, often with less brain power than they would have had if they had good nourishing meals as they grew up. But here's the real problem as the doctor says, it's education. As governments and charitable organizations hand out sacks of rice and corn and beans to mothers of these kids, they do make good use of it and feed their families, however the freebies don't last forever. And then some months go by where they don't have that food assistance and they fall back into that undernourished phase again for some months until the next hand out comes whenever that is. But you see during that time when they have a lot of food assistance and they are fat and happy, when things are going well and nobody's hungry, a good portion of the young women in the area get pregnant again. And then like the doctor said, the cycle repeats and times get even tougher for these people.

[24:22] And it's all about education. And believe it or not, people blame it on the women but it's not their fault at all. You see, after they've had one or two kids, they really don't want anymore. They know how tough it is and they're trying to bring up the kids they have and break the cycle. But they're men, that's another story. They're mostly Catholic and if Pope tells them they shouldn't use contraception, and generally they're not going to spend the money to buy condoms if they believed in it. Because they're on the bottom end of the socio-economic scale and if they have a little extra money, these men aren't going to buy condoms, they're going to buy booze. Which is the other big epidemic in the lower classes and indigenous communities. In nearly all of these indigenous and mixed Ladino communities, we're talking about that 50% of people in the lower socio-economic classes. But anyway, when they're all crowded together in chaotic developments in big cities, on

[25:08] weekends when the men aren't working, women stay home and the guys go out and get drunk. And when they come back from the cantina at night and they meet up with the woman at the house, well a lot of times she ends up pregnant again and that's the vicious cycle. Another unwanted mouth to feed. And you know I've been talking about the lower socio-economic classes in the big cities. But now the curse of government and do-gooder intervention is affecting the farmers in the boonies too. What stupid governments and do-gooders have been doing in the last few years is that they've been handing out not food, but nitrogen based fertilizer. You know, petroleum based nitrogen fertilizer like they use up in the states. Now this started out 10 or 15 or even 20 years ago as a method to buy votes in the rural areas. So you give a guy a sack of fertilizer and his whole family will vote for you.

[25:55] And traditionally Latin American governments will get tons and tons of this free fertilizer every year from the United Nations and big non-profits and church organizations up in the first world. Anyway, what started out as a good idea some years ago is having its bad secondary effects and is now threatening the whole livelihood of farmers down here in Latin America. Because you see before the advent of petroleum nitrogen based fertilizer, the local farmers down here used what they called a bono for fertilizer which was a mix of cow, chicken and horse manure or they just rotated their crops because naturally this is volcanic soil and it's the best soil in the world. But you still can deplete it if you use the same crop over and over and over and you can do that if you keep applying nitrogen based fertilizer every year. So when that kind of fertilizer came along and farmers saw that one or two crops were

[26:43] very pricey in the marketplace like coffee and sugar, well they found they could beat mother nature to the punch and do the monocrop thing over and over if they had plenty of nitrogen based fertilizer. And then of course after the soil is depleted you get to depend on that fertilizer because nothing will grow without it. And that's the state that many of these farmers are in now down here. Which is the exact same situation first world farmers have been in for years and years. But you know it's pretty easy to reverse that situation and do some crop rotation like they always had done in the old days. But when the government and non-profit organizations give out free sacks of fertilizer every year or every six months, that's just not going to happen. And like the doctor said, that's another calamity right around the corner. Oh and by the way that doctor, a nutrition specialist, looked exactly like a lot of first

[27:29] world doctors I know. He was about 50 pounds overweight. You've been listening to The Expat Files, living in Latin America. Coming to you each week from somewhere south of the border. And don't forget you can email me on anything at all about Latin America, The Expat Files at gmail.com. Once again, The Expat Files at gmail.com. See you next time. Nos vemos!