MexDFmagazine

News, features, and commentary from the biggest city in the Americas, Mexico City.

Latin America’s Great Divide

Santiago de Chile. (Photo: Darren Popik)

Santiago de Chile. (Photo: Darren Popik)

By Darren M. Popik

(SANTIAGO DE CHILE) — The Andes are an imposing mountain range, rising to 22,837 feet (6,961 meters) at Aconcagua, the highest peak in the Americas, which sits between the Chilean capital and the Argentine wine country of Mendoza.

These impressive mountains also mark a stark division between a land that has found economic and political stability and prosperity, and one that languishes in precisely the opposite of this state.

This is the reality of Chile and Argentina today. It’s true both on the political and economic front.

It’s even mirrored in the national airlines of the two nations — Chile’s privately-held, profitable, well-run carrier, LAN, which now includes operations across South America; and Argentina’s money-losing, government-owned carrier, Aerolíneas Argentinas, which has become the poster child for terrible management, dreadful service, and which nobody in any other country wants.

Yes, I’ve heard plenty of stories from my good friends in both countries, and I’ve seen first hand the differences they tell me about.

Here’s how the scene looks.

Going Forward

Chile has become a model for Latin America, a country of responsible politicians who honor contracts and agreements, regardless of their political persuasion.

The country has signed on to a significant number of free trade agreements, including accords with Mexico, Canada, the United States, the European Union, China, and Japan. Chile was also the first South American nation to become a member of the Organization For Economic Cooperation and Development (OECD).

Chile has opened itself up significantly in the past few decades, and has become a major exporting nation. Chilean fruit finds its ways to grocery stores in the US and Canada, as do Chilean wines. Add to this the country’s salmon exports, a thriving mining industry, forestry, pulp and paper production, financial services, and tourism.

In summary, there are a lot of very positive things happening in the Chilean economy these days.

Going Backward, Fast

Argentina, meanwhile, continues to be ruled by political leaders who are simply incompetent at best, or a combination of ignorant, delusional, and dangerous at worst.

It’s become one of the most protectionist nations on the planet (so says Global Trade Alert, an organization that tracks global trade), and under President Cristina Kirchner, even signed contracts aren’t worth the paper they’re written on.

Last year, Kirchner unilaterally canceled the Mexico-Argentina automobile accord. She’s “nationalized” companies — a sanitary term for politicians who want to steal something that isn’t theirs, like the 2012 case involving oil company YPF. And there have been other measures to stop imported goods from entering the country.

Dollars? Not in Argentina

Added to this is the matter of the severe restrictions that Kirchner imposed on the ability to exchange Argentine Pesos for other currencies — namely, U.S. Dollars. This has had the effect of creating a black market where the value of the dollar has climbed to 8.05 pesos to the dollar — this compared to the current “official” rate of 5.10.

In other words, the real value of the Dollar is 58% higher than the allegedly official rate. This does not happen in a stable economy.

(EDITOR’S NOTE: As of the close of trading March 20, the real rate has jumped further, to 8.75 — making the gap between the “official” and “actual” rate 70%.)

Keep Sticking it to Your Citizens

As my Argentine friends have struggled to deal with the devastating hit on their wallets, courtesy of their own President, the government has found a clever new source of income.

Now, when the holder of an Argentine credit card uses it to buy anything outside of the country, the government is forcing banks to charge an extra 20% on the purchase price. (Note: This rate was 15% at first, but has just been raised to 20%.)

This of course goes right to the government’s bank account.

Even the mafia would be impressed by this scam.

Bottom Line

What this all means is that everything costs significantly more in Argentina. Inflation is out of control, running around 25%. Prices change monthly.

Real life example: When I was in Buenos Aires two years ago, I rented an apartment for a few months. I recently found the same apartment online — and indeed, it’s now listed for about 55% more than I was paying. (And like other properties I found, it was already overpriced back then.)

I don’t want to say the government lies about prices, but they do seem to have an awful habit of telling “the opposite of the truth” when it comes to numbers, refusing to admit to the real cost of goods. They refuse to acknowledge any number in the double digits.

And when all else fails, they attempt to impose phony, ineffective price controls, that only damage the economy even further. Rather than build confidence, this just shows that the President and her people who have no clue what they’re doing.

Take No Responsibility — Blame Everyone Else!

The routine of late on the part of Argentina’s president is to lash out and blame everyone else for all of these things that are going wrong.

One of Kirchner’s primary targets is the media. Apparently they’re all out to get her. So, she has tried to silence them — notably the leading newspaper, Clarín, which she has been trying to put out of business.

Last year, she made an embarrassment out of herself at Harvard by berating students who asked her critical questions during an appearance she made on campus.

And when the blame game stops being effective, she resorts to the old standby — invoking the never-ending cause of the Falkland Islands (Malvinas), in hopes of diverting attention from her abysmal failure as the country’s leader.

This, of course, ends up being an exercise in “blaming the British”, and calling island residents squatters and other degrading names.

Ms. Kirchner has apparently never heard of the word “diplomacy”.

But that’s surely someone else’s fault too.

In short, the other side of the Andes (Argentina) is a case study of how not to run a country.

Meanwhile, on the Pacific Coast …

While things go from bad to worse in Argentina, the economic situation keeps improving in Chile.

Inflation last year stood at a mere 1.5%. That’s one POINT five. Not 25%.

And in another sign of the country’s fortunes, a report this week from the United Nations Development Program indicates that Chile has now surpassed the level of “developed nation” status, based on measures of education, health, incomes, equality, social integration, and governance, among other measures.

According to the report, Chile has joined the club of nations enjoying a level of “very high” development.

The Chilean Peso, meanwhile, has remained stable. It does not continue to fall like its Argentine counterpart. Chile has no black market for US dollars, and they most certainly do not want Argentine pesos.

Earthquakes or Not, Chile is the Stable One

If there’s a lesson to be learned for the rest of Latin America, it’s that you never achieve prosperity by closing your borders to the rest of the world.

The path forward means opening up, welcoming trade and people, and dealing with the present and planning for the future. This is happening in Chile.

Aside from the ever-present threat of earthquakes, this Pacific rim nation has achieved stability. (And, their leaders don’t blame the earth and threaten it when it shakes.) Chile’s economy is stable, and more importantly, its political leaders are mentally stable.

Can we say the same about Argentina?

Um, no comment.

Twitter @darrenchannel

One comment on “Latin America’s Great Divide

  1. Pingback: Notes from Chile (Part II) | MexDFmagazine

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This entry was posted on March 18, 2013 by in politics and tagged , , .
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