There Are Four Kinds Of Countries In The World

According to Simon Kuznets, a Noble Laureate. There are developed countries, underdeveloped countries, Japan... and then there is Argentina. If you go back to just before World War I, Argentina was one of the wealthiest countries in the world. Its income was greater than Germany, Italy or France. The country had enormous agricultural resources be it wheat, soybeans, cattle or sheep.

But since World War I Argentina has been in a 100 year funk. No one can say exactly why, there has simply been unending decline. The old wag goes that Argentina is the only country that has gone from underdeveloped to developed and back to underdeveloped!

Source: photoseek.com      The Fitzroy Range

Source: photoseek.com      The Fitzroy Range

The Economist did an excellent piece on Argentina back in February. They list a number of factors leading to the decline. The country has had a series of populist governments who put in short term fixes without the requisite long term thinking. There was never a concerted effort to promote education. Argentina was rich but not modern as The Economist says. More than any one thing however, Argentina did not develop the institutions necessary for good government and democracy.

I was in Argentina recently hiking in Patagonia and visiting the far southern reaches of Tierra del Fuego. Argentina is a beautiful country, well worth the trip but not a place right now for portfolio investment. Brazil and Mexico are the better options and we are keeping an eye on both. Still, Argentina has world class assets. The wine country in the north around Mendoza rivals its more famous western neighbor, Chile. Argentine Malbec is considered a class act. The country is still blessed with great agriculture, both soybeans and beef, and tourism is doing well especially with the recent currency depreciation.

If you like hiking and mountains then you will like Patagonia. El Chalten is the center of hiking activity in Patagonia with many hotels and restaurants and hiking trails leading up close to the spectacular Andes (see above). And if you want to drive to the end of the road head down to Ushuaia on the Beagle Channel. Ushuaia bills itself as the southern-most city in the world. There are many good books to read on Argentina but if you are going to Patagonia the classic is still Bruce Chatwin’s, In Patagonia.

Buying the Dip - Argentine bonds have rallied as investors gobble up high-yielding debt. But some observers warn of a possible reversal amid low investor confidence.

Source: The Wall Street Journal

Source: The Wall Street Journal

Back to the economy, Argentina defaulted on its debt in 2001 and has been trying to recover since. The husband and wife presidential team of Nestor and Cristina Kirchner have not been the best. The economy is slipping today with inflation anywhere between 20% and 40% depending on whose numbers you believe and the currency dropped 20% in January. Using The Economist Big Mac index as a guide I priced a double cheeseburger, fries and a Coke in Buenos Aires at $9.20. Here in Burlington, Vermont it is $6.57, a 39% difference. The official exchange rate at the time of my visit was 7.60 pesos to the dollar. Using McDonalds as a guide, the real exchange rate should be more like 10.50 pesos which is exactly the black market rate now. The country’s Vaca Muerta shale oil deposit is one of the biggest in the world and this could be a real game changer for Argentina but for now my bottom line is: by all means visit the country, but avoid the investments.