A couple interesting stories caught my attention this morning in my own “catch up.”
First i'd like to talk about Argentina... one of the primary South American countries China has a strategic interest in developing relations with, both political and economic. The country is well endowed with energy related commodities ranging from hydro-carbons, hydro-power and natural gas. The country has a substantial supply of many metals, such as tin, zinc, silver and gold. Last, and most important right now for China and many countries in the world is their incredible capacity and un-tapped capacity as well in food production.
Argentina, at one point in time was known as the "break basket" of South America for a reason, people compared Las Pampas in a Argentina and the vast lush land with other similar areas such as the Midwestern United States or the Ukraine in Europe. With the South American countries of Brazil, Uruguay and Paraguay-- Argentina is well poised (as the rest are), to benefit from rising food prices around the world. Not only because they can sell them at higher prices, but because if domestic capacity can be increased the countries can help themselves fight both rising food prices and inflation in general.
It would be a nice thing to see countries which are no where near their productive capacities emerge and help alleviate what is in reality a global shortage of everything (food, metals and energy). Food prices, especially of particular products like Soy or red meat, are not exactly controlled in a cartel like oil is with OPEC, or related to big petroleum companies (state or private) which can affect prices with far greater ease, and also increase output in a more synchronized fashion.
This is why it is discouraging to learn that Argentina is unable to fulfill its beef export quotas to the EU, as described in full detail in Mercopress's article from Friday, June 13. Anyone whose tried Argentinian steak knows it is the best in the world (ok... maybe i'm bias), and they used to have a over-supply of it, that I recall as a child it being very difficult to find actual Argentinian meat in the United States due to many US beef producers being worried of competing with Argentinian producers and import quotas or some form the US has on Argentinian beef. For the full article click here to access it from Mercopress.
The Kichners, called by some the King and Queen of Argentina now, are keeping price controls in place on a array of goods ranging from gas to food. The historically cranky and rather powerful Argentinian unions, "strike again," you might say. Just reflecting for a moment from their recent crisis... Unions in Argentina can in part be held accountable for being too powerful and fickle back in the early 2000's when the economy crashed. Protests prevented the government from abandoning the dollar peg, rising prices, firing workers, decreasing salaries and spending less. This was all necessary due to the fact Argentinian workers and goods/services had to sell on the global market priced in US dollars. As the dollar rose in the 90's, when the peg was in place, it helped quell inflation and allow Argentina to borrow in dollars from international lenders, however with no exit strategy and internal protest the economy crumbled. Debt could not be repaid, the Argentinian goods/services and workforce where not efficient enough and did not modernize enough to support the economy having such a strong currency, and thus I personally feel they where a large part of the problem. Regardless, for the peg to have worked it would have been very difficult, but the fall out would not have been as severe if the work force could have modernized further to become more productive.
It seems once again the Argentinian government seems to be on the same path of self-destruction, which could be cushioned in part by the commodity bull market, but even this is under threat thanks to unions once again. Cordoba, which is Argentina's 2nd largest and influential province , and 2nd in GDP next to the capital of Buenos Aires, has reported, protests from the Agricultural sector are now disrupting the metal sector in their regions, preventing production and exports. Additionally, the transport sector began to protest recently due to global fuel prices rising to record highs, furthering the problem. Reported on Business News Americas (click here for full article) the unions and workers of the agricultural sector remain in protest due to government taxes on their exports.
Argentina military police clash with farmers who staged a road blockade to protest a controversial export tax.Photo provided/ accessed from CNN news story
http://www.cnn.com/2008/WORLD/americas/06/14/argentina.violence/index.html
The government like those of other South American countries is trying to take advantage of record high prices, and behind the scenes also raise the state coffers a bit which have decreased as of recent. In reality, the agricultural sector could still probably find buyers with the new export duties, considering global prices... as usual though, Argentinians have become used to the current system and lives they live, and would probably prefer almost universally, to take advantage of higher prices directly by charging higher prices themselves, as opposed to having the government spend the new tax revenue. Latin American governments have a historic tendency to spend badly, the people know this and feel it is unfair, as they should.
However, the economy as a whole can not be expected to maintain the healthy growth rates of recent if it is not producing, working and functioning. Just as Latin America missed out on the energy booms in the 70's from not developing their energy sectors in the 50's and 60's, here too, if Argentina can not settle these problems, the country will miss out being able to benefit from both record high metal and food prices. Energy wise, the country can not even produce enough for its own demand, export of natural gas or petroleum probably will not be possible... so the country SHOULD concentrate on where it can generate income (metals and agriculture), so far its failing and with inflation over 10%, and the central bankers constantly re-arranging CPI and PDI baskets in which to gauge inflation, it is probably a great deal higher. Argentina needs to get its act together, out of all the South American countries it seemed very well positioned after their rebound in 2004-2006 to take the stage as a leader in the continent, instead it is retreating to its roots of populism, spending, price controls, inflation, and protest. I personally hope it can ride this storm out, but at the moment I continue to loose faith.
A business executive from Cordoba, Argentina explained the problem to BA Americas reporter; "The conflict with the agro sector has been going on for more than three months and has slowed investments in the metallurgical sector. Now add to that the protests being carried out by the transport sector, which are causing us to not receive the supplies we need for our processes," the executive said.
-- Source Business News America's article by Harvey Beltran
A unrelated side note...
A interesting book discussing what will come of China-India-Japanese cooperation in Asia. The three, never before friendly power houses of Asia are warming up to one another, but, whether or not it's only “skin deep,” as Bill Emmott, author of the book and former editor of the Economist writes, time will tell. The book from reviews from the Asia Times Online say it does a pretty decent job exploring many dynamics of international relations of these 3 countries. The book is more about inter-state rivalry, which is more along the lines of foreign policy. This site does pay attention to FP, but as readers know, it is simply not the focus of chinasouthamerica.blogspot.com.
Click here if you'd like to learn more about this publication and read the full book review from Asia Times Online.
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