Argentina is a country heavily marked by the ideas of the Perón family, which gained popularity in the late ’50s. Peronism is a political philosophy that favors protectionism (or, as Juan Perón would prefer, economic independence), confiscatory taxation, and corporatism — government control in disguise. When Juan Perón rose to power in Argentina, foreign firms and investment capital were driven away, entire industries were nationalized, and freedom of association and exchange were limited. Juan Perón was a big fan of Mussolini, had a military background, held strong anti-Western convictions, and championed the idea of absolute dictatorship. His intellectual successor might very well be Hugo Chávez, currently president of Venezuela.
Most of the administrations following Juan Perón are touched by his ideas, including the one in office today and headed by Cristina Kirchner. Ironically, Argentina was an economic giant about just a century ago, with higher GDP per capita in 1909 than Germany, Scandinavia, and Japan. What is now left is a beautiful and unique country in absolute misery thanks to a century of policies that discourage capital formation. Read about my experiences in the country of tango and wine.
Buenos Aires – The Paris of the South (2008)
Already in 2008, the defective economic policies of Kirchner were wracking havoc on the everyday life of an ordinary resident in the Argentinian capital. Living in one of the most wealthiest neighborhoods of Buenos Aires, something astounding happened. Recoleta was flooded by an almost unstoppable inflow of transsexual prostitutes harassing locals. During the night you could find transsexuals on every street corner of the major avenues in affluent districts, especially at bus stops, clearly not just blowing on bubblegum.
I imagine that their success rate was slim to none, but somehow they figured that great treasure was laying before them. Of course, I do not rule out that they actually could count on a significant clientele in the equivalent of Mayfair in London. Why else would they show up in such enormous numbers so persistently? Or was it a conspiracy to soothe the explosion in housing prices with ten to twenty percent annually due to an enormous credit expansion at the time? Who knows.
Puerto Madero, a neighborhood built on the Río de la Plata riverbank, is almost surreal. In a city with plenty of violence, especially robberies, it appears to be an utopian paradise set aside for the wealthiest of Buenos Aires. It is a neighborhood separated from the rest of the city by a canal. The area and the access bridges are protected by marines. It is arguably safer than many European neighborhoods, at least it was in my perception. This coastal district was revived in the 1990s with the assistance of local and foreign investment making the renovation of antique warehouses into luxury lofts and the construction of many luxurious high-rise buildings possible.
I recall that somebody once tried taking a chair with him that belonged to a local bar with a rather admirable view of the water side. Figuring he could come away with this small criminal offense, he walked across the neighborhood until a group of marines curbed him. The offices of the marines are strategically located on the access bridges to Puerto Madero and every brick is continuously monitored through an elaborate system of cameras, making it next to impossible to come away with unsocial behavior. The effectiveness of these guards contrasted with the “do-whatever-you-wish” entourage in other parts of the city.
It was obvious that the policies followed by Kirchner were inhibiting capital formation. Despite its wide array of natural resources, Argentina always has been a country of populist socialist leaders making promises no politician can ever fulfill. Travelling to the south of Argentina, towards the Antarctic south pole, I came to experience perhaps the most revealing sign of such decay.
After stopping at a small-scale restaurant in the middle of nowhere, surrounded by the at times beautiful scenery of the Argentinian pampa, the bus driver tried to start the engine. The bus wouldn’t butch. It had broken down after twelve hours of hard work and decided that it wouldn’t go anywhere. We were stranded.
This obviously happened because of a lack of proper maintenance of the vehicle. It happens when capital formation is discouraged through fiscal confiscation and profits are being taxed as if assets have an infinite lifespan without ever needing to be replaced or repaired. Inflation worsens things as depreciation charges are nowhere near enough to cover the purchase of a future replacement. Fortunately, the upside is that people in such circumstances tend to become quite creative.
“All women and children, out of the bus!”, yelled one of the two drivers. Their solution was simple yet effective. “Guys, come down and help us push the bus!” Nearly asleep, I found myself stranded in the middle of far-stretched Argentina pushing the bus for which I just paid with some other folks. I still felt groggy from my nap. After ten minutes pushing a miracle occurred: the engine was running again. With everybody on board we continued our trip. I sat down again in my seat, wiping the sweat of my forehead and reflecting on what just happened.
I couldn’t help imagining how customers would react if the same happened in my country. My guess is that at the very least some harsh complaints would be filed. Here, however, people continued as if nothing strange has happened. Nobody complained. It was clear that customer expectations were quite low.
I had a lot of fun in Puerto Madryn, not to be mistaken with the neighborhood of Puerto Madero in Buenos Aires, where I stayed for a couple of days. This small town with Welsh roots is located in the province of Chubut in the Argentine Patagonia, next to the Atlantic Ocean. While the city is small and quiet, it is an astonishing place to see some wild animals. I had the opportunity to see whales, sea lions, seals and penguins from up close.
The southern right whale is an impressive sea creature. Besides going after this colossal sea creature by boat, you can see (and hear) the whales from the beach, as they come within 200 meters. Being one of the bigger whale species, its length varies from 12 to 15 meters. Even the “babies” are enormous.
After drifting off coast in a boat half the size of the whale, looking for one of our big friends, we were lucky and finally spotted one. With the captain stirring right into the whale, it was coming nearer and nearer, making for wonderful vacation shots of an animal with the size of a bus heading exactly our way. He was’t planning on changing his course however. Coming dangerously close, it finally had to make a last-ditch move by diving under the boat and finished with an amazing jump in the air on the other side of the vessel, with water splashing in the faces of unknowing tourists. I saw the face of the captain becoming paler and paler, quickly stirring away from the whale. One unfortunate move and the boat would have capsized. Promising to see these gigantic sea creatures from up close, the captain figured that this was more than he had promised.
The Andes (2008)
Laying on the mountaintops of the Andes, Bariloche is labeled by some as “Little Switzerland”, mainly because of its architecture and historical setting. It’s one of South America’s top ski destinations, flooded in particular by young Brazilian tourists.
According to the data, however, Bariloche has had its peak. In 2006 it reached a record of more than 800,000 tourists. Four year later, this number dropped with 15% and the tourists spent less time (four days on average) too. Hotels have closed and business is slow. 50% of the economic activity in Bariloche originates from tourism. But both the swine flu epidemic as the tragic consequences of volcanic ashes from the nearby Chilean volcano Puyehue took a large toll. The volcanic activity has recently appeared to have calmed down. Tourism is still depressed, with record low occupancy rates, as are asset prices. With restaurants and hotels closing up everywhere, for a contrarian it seems to be a great moment to buy some real estate. Tourists should come back over time.
Nearby there is a small town which was almost newly built and popular with the most affluent. Villa La Angostura has astonishing views and is surrounded by natural beauty. It is where Dutch prince Willem Alexander travels to every year with his Argentinian wife, princess Máxima. Enjoying the breathtaking scenery, I understand why this place has so much appeal to the wealthy. Of course, Willem Alexander is presumably enchanted by the local hot chocolate milk and sweet pastry as well, which are indeed of Swiss quality.
Someone made a lot of money buying these hotels, shops and cabins during the crisis of 2001 when real estate prices were overly depressed. Before the crisis, its number of visitors increased steadily with more than 15% a year and this growth didn’t slow down after the Argentinian devaluation in 2001. Located right next to the Chilean border, it wouldn’t surprise me if Villa la Angostura would profit from the increasing wealth of the average Chilean. Nothing seems to stop Villa La Angostura. Except for volcanoes. Temporarily, though, I suspect, making it an interesting opportunity for investors to get on-board. Just as monetary crises, episodes of volcanic ashes do pass. It did way better than Bariloche with regard to occupancy rate, which signals the potential of this small mountain village.