#452 – The Expat Files: Life in Argentina’s Economic Turmoil

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

[00:00] South of the border down Mexico way That's where I fell in love when the stars above came up to play and now as I wander Hello there all you expat wannabes. I'm Johnny Mueller and you're listening to the expat files living in Latin America The show that tells you just what it's like to live work play and or retire down here in Latin America It's a mix of the good the bad the ugly and the great and it's all right here. So let's get started I want to start out now by reading some excerpts from an email from a guy who's been living down in Argentina a very long time Here's what he says and this just came in by way of our mutual friend John Galt And if you don't know who John Galt is well, I ain't gonna tell you yo John

[00:49] I'm originally from Brooklyn but moved to Argentina in 2007 it's a bit complicated here now nearly eight years later dollars have in fact been illegalized if That's a real word. They're no longer supposed to be used not to mention inflation is now around 40% a year Corruption is rampant and crime is totally spiking, but I still love it here Thankfully homicides are still rare in Argentina, but lots and lots of petty theft Central America, however is on my list of regions to visit but not sure when or where more on Argentina later Now as you probably know over the last year or so I've talked a bit about Argentina here and there and you too may have seen it pop up in the news lately in that

[01:38] Inflation is out of control. There have been towns where there have been actual riots in the street and mass lootings But not yet in bigger cities like Buenos Aires and man That is one big city at 13 million people Argentina has all kinds of problems It wants to be first world in the worst way and just can't seem to keep its financial house in order So it has a grand boom and bust cycle that runs about every 10 years Meaning it goes into default stops paying its debts and goes technically bankrupt While the rest of the world just shakes its head and says how can they let that happen over and over? Just like a so-called reformed drunk who continuously falls off the wagon. And right now it's about to happen again I mean, it's got 40%

[02:24] Inflation now the problem is when us first world people hear that term 40% inflation It doesn't really mean much to us since we never have lived under those conditions though sooner or later We will here. I'm referring to the first world. It's inevitable Now, of course, some say we'll go through it steep depression every spiral first and then we'll pop into hyperinflation or whatever Maybe overnight maybe gradually depending on the tipping points. The fact is whichever you believe both will be right eventually anyway now 40% inflation is a terrific deal for people who've got dollars to spend But like the emailer said the US dollar has been made virtually illegal So you have to be mighty careful when you hold and spend dollars in Argentina

[03:10] But there are ways for example If you can somehow get the US dollar in and load up a bank account or use debit and credit cards to make purchases Of course having those cards issued outside of Argentina from a dollar account in a non-Argentine bank Then you could really live the high life It would be like having a bank account or a CD paying 40% interest as if you were on the right side of a loan shark deal I know it's hard to imagine but it's true though every year you'd have to switch it to Argentine pesos to realize the profit So then why not go down and do that because technically you'd be doing something illegal now, wouldn't you? In fact, I've been hearing conflicting stories from gringos down there who are getting their social security checks direct deposited to

[03:58] Argentine banks because you know every Latin country has one big bank that allows US Social Security direct deposits because you know, they all want retirees and pensioners from foreign countries spending their money there Now as to those conflicting stories I've heard that once your pension dollars or Social Security dollars have been direct deposited to an Argentine bank They only let you take out a hundred bucks a week and unlike ATM machines in the rest of Latin America You don't have the option to take out dollars just pesos Then I've heard from others that as soon as your money arrives, it gets immediately switched into the Argentine peso So now you've got a bank account full of pesos Not bad, you might say because the dollar is gaining like three and a half percent every month inflation, of course

[04:43] However next month if you haven't spent all your pesos you instantly lose about three and a half percent on your money Again, that's the latest monthly peso inflation rate against the dollar So then retirees and pension autos and people getting Social Security checks have a dilemma, don't they? So I guess those conflicting report depends on which bank you're hooked up with in Argentina Just know that president Kirchner and her bureaucratic scumbag thieving two-faced sociopathic politicians Are there any other kind have slapped heavy currency controls on the US dollar which in turn has spurned a tremendous black market dollar exchange Now listen to this from Argentina's central bank chief Alejandro Vannoli He said the government would soon begin to normalize its currency exchange rate market in 2015

[05:31] Raising hopes among importers that they might have more access to dollars But so far there has been no apparent easing and restrictions Indeed the year began with a public outcry over a shortage of imported tampons The government was forced to promise it would keep that supply chain filled how they do that who knows? Maybe they followed the US example and just created a tampons are or perhaps government employees Impounded all the Tampex machines on incoming cruise ships. Who knows shades of Venezuela, huh? That's what you get when you screw around with the free market. It hits you or it hurts or worse So what about president Kirchner? Does the tampon shortage affect her frankly reporters are afraid to ask though

[06:18] It is rather amusing to a lot of us expats to see her lately in the news in the act of kicking out Citibank from the country. You've probably seen that in the news Maybe you haven't now I have absolutely no love for Citibank at all In fact, I like to see him crash and burn and they would have back in 2008 if it wasn't for the US QE bailouts up in the States and the fight between Kirchner and Citibank is all about the fact that there was a big bond Right down last time Argentina collapsed and burned Economically and an international court says Argentina has to pay up now and they said no not under those terms Yada, yada. Anyway, it doesn't make much difference only to say that there are bigger issues here Why I'd never moved to Argentina number one just a few months ago The country signed a deal with China national nuclear company to construct a fourth fifth and sixth nuclear power plant in

[07:11] Argentina because after all that's who you want to have construct your nuclear power plants, right? China those illustrious masters of quality control By the way, have you bought a Chinese car or any Chinese Hong Wang poo power tools lately? See what I mean Not only that since the government of Argentina is always on the brink of collapse and bankruptcy I mean just look at how predictably they crash and burn Anyway, they actually borrowed the money for those Chinese built nuclear power plants from guess who? Nope, not the US not the World Bank. They didn't want to do the deal. It was believe it or not China So who's the bigger fool here China or Argentina? And by the way Fukushima gets about zero press coverage in Latin America

[07:58] So that gives you an idea of the truly narrow Latin worldview In fact mentioned the word Fukushima to even an educated Latin American and he'll think it's something that was mixed in with the stir-fried rice Oh, and by the way down here in Latin America You do see Chinese here and there because they're buying up everything right and just as an aside I happen to know a guy who owns a computer company in Central America He's half Chinese and half Honduran his dad from Mainland China And one day we got into a little discussion about Fukushima and you know what he told me every Chinese person He knows and he knows a lot of them are more than pleased that it happened In fact, he says when you bring the subject up at dinner all the Chinese faces in his family light up Which says a lot about the hatred and animosity that still exists between the Chinese and the Japanese population

[08:48] In fact, this guy told me soon enough Japan's gonna get theirs But I digress as usual though a worthwhile digression. I must say or not Oh and one more thing about that Chinese Argentine nuclear partnership It says here in the press release Argentine companies will fabricate many of the components up to 70% will be produced in Argentina And the second part of their agreement China agrees to transfer nuclear technology and design to Argentina along with resources and Technical aid so that Argentina has the capacity to greatly advance and step up their nuclear program for the future Hmm sounds great, huh? Sounds like Argentina is in the market for nukes isn't everybody, you know

[09:35] They never did sign that international nuclear non-proliferation treaty But what do I know? Maybe Paraguay is ready to attack and they just have to nuke them and by the way, it's not nuclear It's nuclear one of the most commonly mispronounced words in the English language and on that subject It's espresso not expresso If you're gonna be an expat in the land of coffee, you might as well get it Right and by the way, the Chinese have already lent Argentina two billion dollars for the first phase of construction and over the next eight years They'll be loaning Argentina another thirty two billion pesos to pay for the local infrastructure improvements necessary like roads and bridges electrical transmission lines and dams and concrete breakwaters

[10:22] Etc. Etc. Etc. Etc. That's not Etc. It's Etc. Oh You're a pain in the ass Yeah, I know I get that way sometimes anyway that massive infrastructure project will be constructed simultaneously Along with the reactors now since we're talking about the energy sector in Argentina. Listen to this I don't think that 99% of you listeners out there ever get this kind of information because I'm translating from the Spanish For example, this one comes from one of the biggest Argentine newspapers La Nación the nation It's about Argentina's economic minister. His name is Axel Kilichoff a highly un-latin name note that especially in South America when you look at the top of the bureaucratic governmental chain

[11:08] These people almost always have some kind of European surname and remember in Latin America when you write your name You always write your first name your middle name Then your father's last name and then your mother's maiden name That's the way they do things down here and because there was such a huge European influx from Italy Germany, Spain Etc. There are just loads of German and Italian surnames in Argentina Venezuela Colombian such and since Europeans are considered higher class and pure blood and all that by Latins down here Somehow they nearly always ended up as landowners with wealth and power and in high levels of government And of course some of that has to do with the Nazi connection that steady trickle of unwanted

[11:55] Fascist Europeans who so easily slipped in both during and after World War two But right now we're talking about Argentina's economy minister Axel Kilichoff Sounds like he's got a German first name and a Russian last name, doesn't it? Anyway, according to this article in the Argentine newspaper at La Nación It says that Kilichoff is a Marxist economics professor who was instrumental in the Argentine Republic's controversial takeover of the Argentine subsidiary of a Spanish energy company called YPF now remember Argentina Occasionally follows the lead of Venezuela in that they've been known to nationalize foreign corporations and foreign interests Which is not the best way to seduce foreigners to invest there now, is it?

[12:43] Anyway, the article goes on to say former Marxist economics professor and now Argentine economic minister Axel Kilichoff plans on a presidential bid once Kirchner's term is over near the end of 2015 None of this bodes well for the continued court ordered Negotiations between the Republic of Argentina and the hedge fund creditors whose u.s Lawsuits set Argentina on the path to its second default in just over a decade as it turns out the creditors in this lawsuit known collectively as NML capital won their lawsuit in an international Arbitration court ordering Argentina to pay them a hundred cents on the dollar for sovereign bonds purchased after the country's

[13:29] previous default in bankruptcy Argentina has been refusing to pay NML despite the court order because its creditors would not take a 70 cent on the dollar haircut on these bonds as more than 90% of other investors did so NML sued Argentina in an international Arbitration court and won yet Argentina refuses to pay Experts say quote if Argentina continues on her current path It's likely that her next economic crisis will look frighteningly similar to the domestic crisis of debt in 8991 while few outside Argentina Remember that period and the broad suffering that it caused most middle-aged Argentines. Remember the pain that resulted from a

[14:19] 54% currency devaluation at that time a 200% tax increase and the countless wage and price controls that went into effect So bottom line Argentina is broke again and on the verge of collapse Meanwhile, it's bread and circuses for president Kirchner who has an estimated wealth of 200 million bucks Gee, how'd that happen? I wonder is it in dollars or pesos? Hmm. Meanwhile There's another round of tax increases in the works I mean, come on, that's how you become first world, right? You know text the hell out of them and make them debt slaves But then again, you've heard me say over and over Tax evasion is a national sport in Latin America. Ah, ha

[15:04] But here's the new Argentine twist on that listen to this the title of this recent news article also Translated from the Spanish is quote Argentina uses high-tech drones to root out wealthy tax evaders Unquote, ah, and you thought it couldn't get any worse, right? It says the Argentine government has used high-tech drones to catch wealthy tax evaders who had not declared Mansions swimming pools and capital improvements these unmanned aircraft are now being dispatched over upper-class areas of Buenos Aires and other major cities and so far have discovered over 200 homes and a hundred pools that have not been detailed on tax returns The article says tax officials say that drones take pictures of luxury houses

[15:53] Some of which stand on lots that are registered in the books as empty as of January 1st 2015 tax officials say Evasions found by drones amount to extra tax assessments of over two million dollars in Buenos Aires alone Then it says the use of high-tech drones has been vastly expanding in Argentina and the rest of South America Most heavily though in Argentina, Chile and Colombia Hmm with the unmanned vehicles being deployed for purposes as diverse as Locating drug smuggling and of course looking for unregistered building and land improvements in the end government agencies are Expecting to collect a windfall in delinquent taxes, then it says

[16:41] According to the Council on hemispheric affairs, whatever that is Most of this high-tech drone technology is being sold to South American governments and companies from one guess Time's up Israel by the way more than 500 million dollars worth that's a half a billion have been sold to South America between 2005 and 212 with over a billion dollars in drone purchases twice that of all earlier sales Coming between 2013 and the present and it says here naturally enough the best drones come from Israel But some cheaply produced lower grade drones are coming from guess where nope, not China

[17:27] Mexico who to thonka and then it says surprisingly enough speaking to a South American political magazine editor One Alejandro Sanchez senior research fellow at the Council on Hemispheric Affairs says quote Anyone thinking drones are financially unattainable for less developed third world countries Obviously hasn't looked at the latest models a drone that might have cost $50,000 in 2010 could cost three to five thousand dollars today In fact, he says many precision drones are available in the thousand dollar range Hmm, maybe I'll get me one and finally he says quote. There's definitely a need for technology That's both cheap and can have some positive effects

[18:12] but obviously There's the possibility that this technology can be used for all the wrong reasons and unfortunately throughout Latin history The abuse of political power happens quite often and if that doesn't scare you listen to this in another very recent article in Argentina's big newspaper la nación. It says quote Argentina will expand military drone project for quote peaceful purposes Argentina's national government is developing unmanned aerial drones or Military drones and ones much more sophisticated and powerful than those ever built so far This is a project that is causing distress among specialists and privacy rights advocates since

[18:58] legislation regulating the fabricating and usage of drones in Argentina does not exist the Control and future of these devices is a matter of debate in Countries such as Mexico Peru and Colombia though the use of drones is being denounced by human rights organizations Now in this article which came out only three weeks ago. It says Argentina will manufacture Locally designed military drones according to an official announcement in the government Gazette these new drones Argentina says are expected to fly as long as 12 to 24 hours without refueling This program has already got an initial investment of two hundred and thirty eight million dollars That's a quarter of a billion dollars. The government contract is with state owned in vap

[19:46] Which makes complex technological products they designed Argentina's first communication satellite, which was launched in October Well, that's it. I can bet that drones are flying right now over Doug Casey's property up in northern, Argentina You know that pre-planned wealthy community way out in the boonies called Caffeat if you get any of Doug Casey's info You know what I'm talking about and you also know that you have to be a multi-millionaire to even think about buying into that complex It's basically a scenic wine and country club community Excellent if you've got that kind of dough, but I don't think that's what 95% of expat wannabes and gunna bees had in mind But I can tell you I'm sure the Argentine government is very interested in what's going on up there since we certainly got their eye on

[20:36] All that Doug Casey literature, too Remember when a government's broke technically bankrupt and ready to take another big fall Who did they go after the people within their jurisdiction who've got assets and money? That's not my opinion either just a well-observed historical pattern desperate governments desperate for money do desperate things Now when I mentioned that the economic minister of Argentina is a Marxist professor Well, in fact stranger things have happened in Argentina. Believe me in June 2014, for example, not so long ago President Kirchner created a new post called get this secretary for strategic coordination of national thought Sounds like a chapter title right out of Orwell's 1984 doesn't it and when she did that the head of the conservative block an

[21:27] opposing member in the lower house said quote it's pathetic and deplorable to designate a Strategic secretary for national thought that's just old-style fascism. So bottom line when you've got corrupt warped out Sociopaths in high office, we're all used to that because we lived up in the States But when third world countries try to tow that line Especially desperate ones like Argentina with 40% inflation ones that are on the verge of economic collapse Let's just say it's good to be as far away from that imploding epicenter as possible However in any country whose economic system is teetering like that. There are huge opportunities That's only true if you're the chance-taking adventurous type not to mention if you're gonna go there to wheel and deal You better know Spanish that said if you're sitting on the fence up there in Wabash or Cleveland

[22:15] Looking for a place to start your plan B I'd say Argentina is not by any means a good place to start However, if you've got some friends or contacts down there already Who've got something going or can grease the skids for you when you get down there? That's a different story However, if Argentina always was your dream in your fantasy by all means go down and get your boots on the ground But remember there are a lot less expensive and much more stable Latin countries to dry your hand at now Most people will say when you go to a place like Buenos Aires You'll find the most cultured and educated people in all of Latin America and you will so then why is Argentina always teetering on? The verge of economic collapse. Well people in Argentina will tell you only a group of highly intelligent and

[23:01] Sophisticated people could create a mess like this while their neighbors like the Brazilians will tell you it's what goes around comes around The Argentine karma because they think they're better than every other Latin country Brazilians say Argentines have this enduring sense of being born special and Thus are forever being punished for that attitude and according to a Nobel economist Simon kernitz He says there are four kinds of countries in the world developed countries undeveloped countries Japan and Argentina now another analyst named Rafael de Tella who's editing a book on Argentina's decline He says people always ask why a country like Argentina

[23:46] Nearly first world highly sophisticated highly educated people with beautiful European style cities How is it that it always remains on the edge of economic turmoil and chaos and de Tella says quote? Look at it this way if a guy's been hit by 700,000 bullets, it's hard to tell which one of those bullets actually killed him That's Argentina and he also says never never trust Argentina government statistics Man, doesn't that sound familiar? Oh, and by the way, speaking of drones They seem to be everywhere these days. Listen to this news about Belize The story starts out saying drones take flight over Belize coastline to monitor illegal fishing activity

[24:32] Hmm sounds innocuous enough, right? It says Unsustainable fishing in Belize has placed growing pressure on local anglers and the country's celebrated coral reef system as of January 1st 2015 in an effort to better regulate the industry the Belize Fisheries Department a government agency Has begun to use drones to monitor coastal areas for unlicensed and unlawful Fishing activities it goes on to say they began testing the drones in July 2013 and now they are fully implemented The drones in question are able to fly Autonomously for more than an hour at a time with a range of 50 kilometers about 31 miles capable of capturing high resolution photo and video These aircraft will enable government officials to monitor areas along the coastline

[25:20] Often obscured by mangrove forests where fishermen stash illegal catches By using the drones to detect such activities authorities can more efficiently conduct the searches and deploy patrol vessels However, the use of such drones raises many objections including serious privacy issues So bottom line drones have made it to Latin America, too In fact the other day I was at a very big Latin American mall where they just Installed a new first world franchise called Carl's Jr. Never touched his stuff But however, even though on either side of it was a Pizza Hut and a Burger King This little Carl's Jr. Mall kiosk had people standing in two or three lines 10 deep yet on either side there were only two or three customers at the Burger King and the Pizza Hut

[26:09] So what makes Carl's Jr. a virtually unknown new franchise down here so popular They had their own little drone flying around in the mall Dropping off little prizes and food orders to customer tables a great bit of marketing that had people in the mall simply amazed I'm sure was the very first time ninety nine point nine percent of the people in that mall ever saw a drone up close Now I'm sure that could never happen in the states because if it crashed There's always someone to sue down here. There's simply no one to sue. Yeah, gotta love it, huh? Okay. Now since we're near the end Let me mention again that my July 2015 expat wisdom seminar will launch in about three months I know a lot of you listeners are lining up your ducks now and some of you are on the fence

[26:55] Bottom line if you ever plan on becoming an expat you have to get some boots on the ground And this is the perfect way to get started So just go to expat wisdom calm click on the Latin seminar link for full details And don't forget the early bird discounts in effect till May 1st after that the price increases $500 per person so get your ducks lined up and come on down You know the doors are closing slowly, but surely on opportunities like this Don't be a victim of those famous sad last words. I would have should have coulda, but I didn't Etc. Etc. Oh, you're a pain in the ass South of the border Even listening to the expat files living in Latin America coming to you twice a week from somewhere south of the border

[27:42] Email me the expat files at gmail.com and don't forget to check out expat wisdom calm to sign up for your free Reports on Latin America. See you next time. No swaymos