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Argentina Report '04
The Real Story

This article was originally found on:
www.ascotadvisory.com

The Argentina Report 2004: The Real Story

By John Schroder of Ascot Advisory Services
email: js@ascotadvisory.com
www.ascotadvisory.com 

I have to admit that I was warned not to go to Argentina by a number of people. Some said, do not go - there is a rampant crime problem. The people are arrogant and prejudiced. I was also told that the country is in economic chaos, and basically a basket case. In fact, I read a recent report on Argentina by a male - female duo, which offers their report from a well known International publishing form, that put the fear of god into me about leaving my hotel (they advised not to take taxi's in the street, the driver will kill you and take your money, etc., etc., rampant crime, take an armored truck, and so on). The honest truth is that I am glad I did not listen to any of them. Although still pulling itself out of an economic mess caused primarily by the politicians, the people themselves are probably one of the best and most interesting natural resource, and some of the friendliest people I have met - with an incredible zeal for just living (food, wine, the arts, tango, theater, dogs - they love dogs in Argentina, and literature are the daily pursuits). On the topic of literature, by the way and not to go off on a tangent, there are probably more bookstores in Buenos Aires that the majority of other Latin-America cities I have visited. That should tell you something.

Argentina has somewhat of a very similar history to the United States. Complete with cowboys and Indians, lots of European immigrants, and free land grants by the government to anyone that was willing to show up in the 1800's (single men got 100 acres and married men got 200 acres - those were the days). Interesting enough, someone told me that an Argentine is a South American, who is really a transplanted Italian secretly wishing he were British. As odd as that might sound, it about sums it up (and this is not a negative statement by the way, just a way to explain the Argentines to so extent). In this regard, about 35 percent of the population could trace roots back to Italian immigrants that landed in the past to do the construction work, probably about 20 percent or so can trace roots back to one of the English Isles (England, Ireland, Scotland and Wales), with the rest coming from where-ever else. Meaning, the Spanish may have discovered the country and controlled it for a while, but the Italian and English influence is deep rooted everywhere, with a bit of other Europeans sprinkled in. One comment I read in the same report I referenced earlier stated that Buenos Aires was a cheap imitation of a European city (and that the author prefers the so-called real thing). European city yes, in terms of both architecture and ambiance. However, Argentina is a true melting pot and something unique on its own - plus a heck of a lot cheaper than living in Europe. To each his own I suppose.

The burning question that you have on your mind is of course the economy. So, I will tell you what I found out, and will offer my take on the situation. But for just a bit of a preface, I have to tell you I am a bit odd in that anytime I visit a new place, I try to stay off the tourist track. I like to take the subway and bus system (at twenty cents you cannot beat it), I like to speak with the average man in the street and I like to go where most tourists would probably never venture - into the real world of the real people that live there. I even spoke with the police on the street outside of the main police headquarters, and I found them to be very polite and professional. In any event, when you visit someplace new, my advice is to go out and meet people. Do not be foolish of course and do not take chances with personal safety. But, people are people, no matter where you go and speaking with them can give you more information than whatever comes out of a politician's mouth or what you find in the newspaper (or a real estate agent trying to sell you something also).

In a nutshell, my sense was that the politicians and some of the bankers basically sold the country out (sound familiar?). As one Buenos Aires taxi driver told me (who was a former white collar accountant, now driving a taxi cab albeit still wearing his accustomed white shirt and tie), we were arrogant and God has punished us for our arrogance. In other words, most citizens of Argentina thought nothing ever negative could happen to them because they were not like any other Latin-American country (after all, they were a well educated, and according to some, perhaps even a European country that just happened to be in South America, or this was the thinking anyway). They let the politicians operate un-checked and paid no attention to many of the policies and things that were going on. That has changed and the middle-class especially, are no longer asleep when it comes to what the government is doing, not doing and if fulfilling the slightest promise, or not. They also no longer trust any of the foreign banks, as it was the foreign banks that for the most part walked away from their responsibilities, not to mention outright disregard for local banking laws in terms of liquidity and other issues (and the politicians let them do it). In fact, while the Argentines do not dislike Americans per say, they do feel the US Government also refused to put the pressure on US Banks that were operating in Argentina to comply when some of the economic problems unfolded. Interesting enough, in terms of solvency and trust, the local banks seem to have weathered the storm fine. That had to, they could not simply walk away in the same way foreign institutions could.

On the issue of real estate and general cost of living, I would say Argentina is a mixed bag, some things are a bargain and some things are certainly not. Upper end real estate and cattle ranches are NOT on sale. While prices have come back down from highs in the pre-devaluation period, they are still very expensive in comparison to other cities and countries. For example, it is difficult to find anything in the exclusive Recoleta area of Buenos Aires for less than US$250,000 or so. However, you can still find decent apartments in some of the other well heeled middle class areas of the city starting at about US$40,000 for a one-bedroom and go up from there. So, I would say for high-end luxury apartments, Santo Domingo (Dominican Republic) is still a bargain compared to both Buenos Aires and Santiago (Chile). Middle class housing in decent working class neighbors (one that does not have a Gucci Store) is probably about the same in the US$50,000 to US$85,000 range (for a 2 to 3 bedroom middle class home or apartment). So it really all depends. However, just as in the Dominican Republic, while devaluation of the currency has for sure hurt the local middle-class and working poor, foreigners with Dollars or Euros will find the country a fairly inexpensive or reasonable place to live. One thing very different about Argentina in comparison to the Dominican Republic is that prices in Argentina are almost always reflected in Pesos (the local currency) and no attention is paid to the exchange rates in terms of pricing. Although, in all fairness, while the Dominican Peso has been going up and down like a ping-pong ball over the past 18 months, the Argentine Peso has pretty much remained at a stable 3 to 1 exchange rate, so this has some influence. However, I think the real reason is that the Argentine Government has put pricing controls in place and neither the US Dollar nor US tourism is a concern. In other words, there really is no US influence in Argentina economically speaking, and prices have to be kept to where local citizens can afford to buy. So, going out to have some excellent steak and wine at a local café in Buenos Aires will cost you about US$25 for 4 people (you read correct, I did say four people). However, for locals who still mentally equate things when the Peso was 1 to 1 with the US Dollar, we are talking about AP$75 (or what is US$75 in local terms if you can understand the concept). In other words, the meal I just described cost AP$75 Pesos, but in US Dollar equivalent it is US$25. However, for citizens of Buenos Aires who obviously have not had any salary increases to keep pace with the devaluation, this is a seventy-five dollar meal, speaking in terms of previous exchange rates. Hotels as well are a bargain if you stay away from the US hotel chains such as Mariott, Hilton and Sheraton that price a room at anywhere from US$180 to US$275 per night. These are not the real local prices. In Buenos Aires, as an example, you can find a very nice Hilton quality hotel room for US$65 up to US$125 for a suite. So, there are tourism bargains right now in Argentina, and you will find Buenos Aires to be very reasonable (if not downright cheap) for you the foreigner with Dollars or Euros.

On the subject of banking, while the government has recently lifted the restriction on withdrawals from Peso accounts (you could only take 2,000 pesos per month maximum from your savings account before, now you can withdraw whatever you want) - there still is the freeze on US Dollar accounts. So, banking in US Dollars is not an option at the moment, although I do believe we might see the restriction on Dollar accounts also removed if not this year, then in 2005. Obviously if someone were to decide to live in Argentina at the moment, you might consider a small local peso savings account, while conducting your US Dollar (or other currency) banking in another jurisdiction. Generally speaking, even though unemployment stands at about 24% at the moment, the longer-term economic outlook is what I would call cautious optimism. Things are looking up, there are more help wanted ads in the newspapers than before and the economy has improved by about 20% over the last 18 months, although arguably enough it has some way to go. So, my overall assessment of Argentina, especially Buenos Aires (if you want to live in fairly inexpensive large European flavored city) as a place to live - is positive. However, in such an environment, one needs to consider other liquid investment options outside of Argentina right now and play it by ear, as they say, for the future.

                        By John Schroder of Ascot Advisory Services
                        email: js@ascotadvisory.com
                        www.ascotadvisory.com