7 ms·

Lessons from Argentina's Crazy Economy

76 points by mchafkin 15y ago

warseph 15y ago
My 2 cents :) The article gets right both the inflation and the corruption problems in Argentina. However, it seems to be a bit biased, as it shows only one real case of success and several failures, and the fact that one of the interviewees is the son of a former Minister of Economy of Argentina (Domingo Cavallo), whose economical model was the main cause of the 2001 crisis, which the author seems to have forgotten to mention in the article. I've worked in both argentinean and US founded companies here in Argentina, and the reality, at least from my experience, is that the economic environment isn't as hostile as the article describes. I've been in companies that made millions (dollars, btw) and I've also seen some that lost everything (specially in the 2001 crisis), but the truth is Argentina is a cheap country for investment and with a lot of highly qualified man power. I have to agree, investing in Argentina is kind of a bet, and making your company work well involves a lot of work, but, specially if your objective is to export the product/service, it might provide an awesome ROI.
loboman 15y ago
Surprisingly accurate
missing_cipher 15y ago
A big problem is the lack of regulation, IMO. That owner who is doing things "en negro" hurts the rest of the country and should be fined accordingly. Since no one takes a big step forward to stop it, people see their colleges do it and the trend continues. Inflation is also pretty bad, but I don't think it falls completely on the shoulder of the Government. Some items are simply overpriced. I'm not talking between a big store and a simple corner store, I mean between two big chains you can see price differences of 50% or more sometimes. Again, taking advantage of the lack of regulation. And we don't all see the U.S. as THE economic model, far from it.
- wslh 15y ago
  "That owner who is doing things "en negro" hurts the rest of the country and should be fined accordingly". This is a chicken/egg issue. People try to avoid taxes also because past governments confiscated their savings. Speaking from the entrepreneurship perspective, there is a big issue having employees, if you fire them you need to pay a salary for each worked year. So a employee with 10 years of work receives 10 salaries if he's fired.
  - missing_cipher 15y ago
    This is a very good point, entrepreneurs have a lot to loose and history has taught them to be wary of the Argentinian government. Can't say I blame them. I suppose it's up to the government to "show" them that they can be "trusted" again.
- potatolicious 15y ago
  I'm not Argentinian, but based on the article it seems like there is plenty of regulation as it is. The problem is that these regulations change like the direction of the wind, and are unevenly enforced, and easily dodged via bribery.
  - iwwr 15y ago
    Bribery is also something of a safety valve. When the state stands in the way of (otherwise peaceful and voluntary) exchange, paying a bribe may be a better outcome than not having these productive activities happen (indirectly as well, the state may benefit from increased tax revenues later on). Of course, some bribery can be evil, but the problem is not corruption itself, rather the power that fosters it is.
    - william42 15y ago
      At least part of the issue, from what I can tell from the article, is that the majority of the people cheat on their taxes, so the Argentine government has to raise taxes in order to get enough revenue to pay operating expenses, which leads people to cheat on their taxes more, which...
johnwatson11218 15y ago
Does anyone think that something like bitcoin could help these people out? It seems like the government there is not doing its job and providing infrastructure to conduct business. Why not use a distributed payment system?
- wslh 15y ago
  Government? what a joke! please visit Argentina, it's a beautiful country but there is a big disconnect between the different Governments and the reality.
- kragen 15y ago
  The problem is not that it's too hard and expensive to transfer money here. It is hard and expensive if you do it legitimately (like we do), but a huge fraction of the economy is underground. Like a third. The problem, if I had to sum it up in a soundbite, is that you can't trust anybody. And so nobody trusts you. Unless you're family. You can imagine the effect that has on the competence of officials and executives. The crazy laws are a big problem, but not as big as the endemic non-government corruption. Bank financing? We had to get a personal recommendation from our accountant to open a corporate bank account. Bitcoin isn't going to help with that. If anything, it will make it worse. The funny thing is, living here is pretty good, if you can afford the bare minimum needed to survive.
iwwr 15y ago
"A crisis is an opportunity, what's my opportunity?"
briggsbio 15y ago
My in-laws left Argentina 30 years ago and still have much of their family there. I showed this article to them and their reply was simply, "the US is heading this way. We've seen this movie, and we don't like the way it ends."
- wslh 15y ago
  US is a very different country. I am not saying better or worst, just can't compare them. Argentina is completely corrupt. You can bribe a policeman in the street, you can bribe the customs personnel while everyone is there. Justice? US has bad economic signals, unjustice, etc but nothing compares to a simulated and passive state.
- paganel 15y ago
  > "the US is heading this way. We've seen this movie, and we don't like the way it ends." I grew up in post-communist Romania, and I've also seen this movie before. Immediately after 1990 (the fall of communism) money started losing their value. At the beginning money were losing their value by "only" 40-50% per year, to a maximum of ~150% inflation rate in the late '90s. It was only in the mid 2000s' that the inflation rate first dropped to single digits. I can still remember reading Malthus in high-school, and about how he was saying that the middle-class people are always the worst affected by the economic crisis. What can I say? My parents went from a secure, middle-class position (apartment, car, country-house) to relying on subsistence-agriculture in the space of maximum 10 years. And they weren't the only ones.
  - berntb 15y ago
    You scare me. :-) I moved to Cluj (Transylvania) this spring. I am thinking about looking for another job, but would like to stay here. I am scared that telecommuting will make me unhappy. Good food, wonderful nature, good weather (ok, most anywhere has better weather than Scandinavia), nice people, a hot girlfriend, etc.
    - paganel 15y ago
      > You scare me. :-) Relax, things are a lot better now (even for me, I'm on HN, ain't I? :)). What I'm talking about happened 10-15 years ago. And congratulations for choosing Cluj. I'm usually trapped in Bucharest but I'm happy that tomorrow I'll go to Sibiu for a 4-day vacation. It's only a 2-h drive from Cluj I think, I highly recommend it for when you have time to discover the rest of the country :).
kragen 15y ago
I thought this part was pretty funny: > "...I wasn't going to put all of my risk in Latin America again in my life." At the end of 2002, he left the company and moved his family to Miami. I think Miami is a lot more Latin American than Buenos Aires.
- diego 15y ago
  In terms of culture and lifestyle, yeah. Many people call Miami "the Capital of Latin America." Buenos Aires is not particularly representative of Latin America, it's more like a hybrid between LatAm and Europe (you probably agree). In terms of economic stability, Miami is still part of the US so it's less risky for running a business. Not the greatest place for a startup, but a good compromise for someone who wants to travel to South America frequently.
  - tsuipen 15y ago
    Again, stereotypical and prejudice. Last I checked, Spain was in Europe.
    - hugh3 15y ago
      Has the parent been edited, or is this remarkably non-sequiturial? I read the parent several times looking for a mention of Spain, couldn't find it.
      - tsuipen 15y ago
        Could it be you're (gasp!) not informed instead of it being "non-sequiturial"? Saying Miami is more Latin American than Buenos Aires is stereotypical and prejudice because this statement suggests there is something intrinsically Latin American about Latin America. Latin America is a huge space (a population of 580,086,590 which the parent seeks to generalize), there are various cultures and subcultures, various languages and dialects. Whatever J. Lo has brainwashed people into thinking is "Latin American" is not all-encompassing and should not be representative of it. Thus, Buenos Aires is just as very Latin American as La Paz or San Juan or Rio de Janeiro or Havana. The fact that more Italians immigrated to Argentina does not make them more "European", since Spain, the country that colonized most of Latin America is European. Since its colonization, Latin America adopted a lot of traditions from Spain and the rest of Europe, thanks to many Latin American governments asking for more European immigrants to "fill the void" and work the land. However, not all countries adopted the same traditions to the same degree and some preferred other European traditions (that could also be shared with Spain, Portugal and the rest of Western Europe). Thus, the statement "Buenos Aires is not particularly representative of Latin America, it's more like a hybrid between LatAm and Europe" is wrong because most of Latin America includes Europe in its transculturation, acculturation, syncretism, miscegenation and hybridity.
meow 15y ago
It's surprising that business owners are complaining about inflation. I always thought its the fixed salaried employees who usually complain (because their salaries don't scale as fast as the inflation).
- wslh 15y ago
  With inflation you're constantly bargaining salaries. Also, the unions push hard for yearly increases in salaries.
- nl 15y ago
  That's when it's "normal" levels of inflation (less than say 10%/year). At higher levels of inflation everything breaks because of the lack of predictability.
- Duff 15y ago
  High inflation means you can't get loans and have to spend money immediately. Also, those salaried workers have rights. If you can't pay them, the government shuts you down.
  - meow 15y ago
    aah.. sort of like the credit crunch then.. it kind of feels counter intuitive because the usual cycle would be: a) credit crunch with loss of demand leading to deflation b) governments pump money c) money loses value pushing inflation higher.. d) Governments try hiking rates and pull back money.. But some how in this case it seems the order is all jumbled up..
    - Duff 15y ago
      Yup. Problems materialize faster. Deflation is different -- basically everyone gets scared and stops spending money. As a result, the "velocity" of money slows down and prices drop in a race to the bottom. (The best example of this was the car market in 2009. If you had cash, you could get unbelievable deals on cars.) With inflation, there is plenty of money out there, but evaluating risk gets difficult. High inflation tends to have a snowball effect, so you don't want people owing you money -- think of it as compounding interest in reverse. So you end up with informal contracts... "Give me a car today, and you get 15 goats or hunks of aluminum in July." A creditor wants informal contracts, because like in the US, paper money is "Legal Tender for All Debts, Public and Private." But to have informal contracts, you need a personal/trust connection... and that encourages corruption and nepotism.
itswindy 15y ago
Buy a couple of acres of land somewhere, at least you might not starve. But EU is going to go down first.
sespindola 15y ago
As an Argentinian, here are my two cents on this matter: 1) From reading this article, one could asume commercial and financial regulations change by the hour, while in fact is the opposite. We have a gargantuan commercial code of byzantine complexity that has not really been modified in the last 50 years. We also have a terribly regressive and unfair tax system that includes 21% VAT even for food products and wealth tax even for salaried employees with more than 1400 dollars of monthly income. 2) It is my sincere wish, from the bottom of my heart, that "entrepreneurs" (I doubt they deserve the honor if being called that) who operate "en negro" rot in jail. They are bringing all of us down with their disregard for the rule of law and they are increasing the costs of doing bussiness for those of us who pay taxes. Regardless of the recurrent crises, starting up a successful tech company here is possible, as proven by Globant, OfficeNet, MercadoLibre, et al.
rabble 15y ago
Thank god Uruguay's not Argentina. This article is why i've refused to open up an office on the other side of the river. Argentina's an amazing country where just about every institution in society is in some sort chaotic collapse.

76 points by mchafkin 15y ago

My 2 cents :) The article gets right both the inflation and the corruption problems in Argentina. However, it seems to be a bit biased, as it shows only one real case of success and several failures, and the fact that one of the interviewees is the son of a former Minister of Economy of Argentina (Domingo Cavallo), whose economical model was the main cause of the 2001 crisis, which the author seems to have forgotten to mention in the article. I've worked in both argentinean and US founded companies here in Argentina, and the reality, at least from my experience, is that the economic environment isn't as hostile as the article describes. I've been in companies that made millions (dollars, btw) and I've also seen some that lost everything (specially in the 2001 crisis), but the truth is Argentina is a cheap country for investment and with a lot of highly qualified man power. I have to agree, investing in Argentina is kind of a bet, and making your company work well involves a lot of work, but, specially if your objective is to export the product/service, it might provide an awesome ROI.

loboman 15y ago

Surprisingly accurate

missing_cipher 15y ago

A big problem is the lack of regulation, IMO. That owner who is doing things "en negro" hurts the rest of the country and should be fined accordingly. Since no one takes a big step forward to stop it, people see their colleges do it and the trend continues. Inflation is also pretty bad, but I don't think it falls completely on the shoulder of the Government. Some items are simply overpriced. I'm not talking between a big store and a simple corner store, I mean between two big chains you can see price differences of 50% or more sometimes. Again, taking advantage of the lack of regulation. And we don't all see the U.S. as THE economic model, far from it.

wslh 15y ago
"That owner who is doing things "en negro" hurts the rest of the country and should be fined accordingly". This is a chicken/egg issue. People try to avoid taxes also because past governments confiscated their savings. Speaking from the entrepreneurship perspective, there is a big issue having employees, if you fire them you need to pay a salary for each worked year. So a employee with 10 years of work receives 10 salaries if he's fired.
- missing_cipher 15y ago
  This is a very good point, entrepreneurs have a lot to loose and history has taught them to be wary of the Argentinian government. Can't say I blame them. I suppose it's up to the government to "show" them that they can be "trusted" again.
potatolicious 15y ago
I'm not Argentinian, but based on the article it seems like there is plenty of regulation as it is. The problem is that these regulations change like the direction of the wind, and are unevenly enforced, and easily dodged via bribery.
- iwwr 15y ago
  Bribery is also something of a safety valve. When the state stands in the way of (otherwise peaceful and voluntary) exchange, paying a bribe may be a better outcome than not having these productive activities happen (indirectly as well, the state may benefit from increased tax revenues later on). Of course, some bribery can be evil, but the problem is not corruption itself, rather the power that fosters it is.
  - william42 15y ago
    At least part of the issue, from what I can tell from the article, is that the majority of the people cheat on their taxes, so the Argentine government has to raise taxes in order to get enough revenue to pay operating expenses, which leads people to cheat on their taxes more, which...

johnwatson11218 15y ago

Does anyone think that something like bitcoin could help these people out? It seems like the government there is not doing its job and providing infrastructure to conduct business. Why not use a distributed payment system?

wslh 15y ago
Government? what a joke! please visit Argentina, it's a beautiful country but there is a big disconnect between the different Governments and the reality.
kragen 15y ago
The problem is not that it's too hard and expensive to transfer money here. It is hard and expensive if you do it legitimately (like we do), but a huge fraction of the economy is underground. Like a third. The problem, if I had to sum it up in a soundbite, is that you can't trust anybody. And so nobody trusts you. Unless you're family. You can imagine the effect that has on the competence of officials and executives. The crazy laws are a big problem, but not as big as the endemic non-government corruption. Bank financing? We had to get a personal recommendation from our accountant to open a corporate bank account. Bitcoin isn't going to help with that. If anything, it will make it worse. The funny thing is, living here is pretty good, if you can afford the bare minimum needed to survive.

iwwr 15y ago

"A crisis is an opportunity, what's my opportunity?"

briggsbio 15y ago

My in-laws left Argentina 30 years ago and still have much of their family there. I showed this article to them and their reply was simply, "the US is heading this way. We've seen this movie, and we don't like the way it ends."

wslh 15y ago
US is a very different country. I am not saying better or worst, just can't compare them. Argentina is completely corrupt. You can bribe a policeman in the street, you can bribe the customs personnel while everyone is there. Justice? US has bad economic signals, unjustice, etc but nothing compares to a simulated and passive state.
paganel 15y ago
> "the US is heading this way. We've seen this movie, and we don't like the way it ends." I grew up in post-communist Romania, and I've also seen this movie before. Immediately after 1990 (the fall of communism) money started losing their value. At the beginning money were losing their value by "only" 40-50% per year, to a maximum of ~150% inflation rate in the late '90s. It was only in the mid 2000s' that the inflation rate first dropped to single digits. I can still remember reading Malthus in high-school, and about how he was saying that the middle-class people are always the worst affected by the economic crisis. What can I say? My parents went from a secure, middle-class position (apartment, car, country-house) to relying on subsistence-agriculture in the space of maximum 10 years. And they weren't the only ones.
- berntb 15y ago
  You scare me. :-) I moved to Cluj (Transylvania) this spring. I am thinking about looking for another job, but would like to stay here. I am scared that telecommuting will make me unhappy. Good food, wonderful nature, good weather (ok, most anywhere has better weather than Scandinavia), nice people, a hot girlfriend, etc.
  - paganel 15y ago
    > You scare me. :-) Relax, things are a lot better now (even for me, I'm on HN, ain't I? :)). What I'm talking about happened 10-15 years ago. And congratulations for choosing Cluj. I'm usually trapped in Bucharest but I'm happy that tomorrow I'll go to Sibiu for a 4-day vacation. It's only a 2-h drive from Cluj I think, I highly recommend it for when you have time to discover the rest of the country :).

kragen 15y ago

I thought this part was pretty funny: > "...I wasn't going to put all of my risk in Latin America again in my life." At the end of 2002, he left the company and moved his family to Miami. I think Miami is a lot more Latin American than Buenos Aires.

diego 15y ago
In terms of culture and lifestyle, yeah. Many people call Miami "the Capital of Latin America." Buenos Aires is not particularly representative of Latin America, it's more like a hybrid between LatAm and Europe (you probably agree). In terms of economic stability, Miami is still part of the US so it's less risky for running a business. Not the greatest place for a startup, but a good compromise for someone who wants to travel to South America frequently.
- tsuipen 15y ago
  Again, stereotypical and prejudice. Last I checked, Spain was in Europe.
  - hugh3 15y ago
    Has the parent been edited, or is this remarkably non-sequiturial? I read the parent several times looking for a mention of Spain, couldn't find it.
    - tsuipen 15y ago
      Could it be you're (gasp!) not informed instead of it being "non-sequiturial"? Saying Miami is more Latin American than Buenos Aires is stereotypical and prejudice because this statement suggests there is something intrinsically Latin American about Latin America. Latin America is a huge space (a population of 580,086,590 which the parent seeks to generalize), there are various cultures and subcultures, various languages and dialects. Whatever J. Lo has brainwashed people into thinking is "Latin American" is not all-encompassing and should not be representative of it. Thus, Buenos Aires is just as very Latin American as La Paz or San Juan or Rio de Janeiro or Havana. The fact that more Italians immigrated to Argentina does not make them more "European", since Spain, the country that colonized most of Latin America is European. Since its colonization, Latin America adopted a lot of traditions from Spain and the rest of Europe, thanks to many Latin American governments asking for more European immigrants to "fill the void" and work the land. However, not all countries adopted the same traditions to the same degree and some preferred other European traditions (that could also be shared with Spain, Portugal and the rest of Western Europe). Thus, the statement "Buenos Aires is not particularly representative of Latin America, it's more like a hybrid between LatAm and Europe" is wrong because most of Latin America includes Europe in its transculturation, acculturation, syncretism, miscegenation and hybridity.

meow 15y ago

It's surprising that business owners are complaining about inflation. I always thought its the fixed salaried employees who usually complain (because their salaries don't scale as fast as the inflation).

wslh 15y ago
With inflation you're constantly bargaining salaries. Also, the unions push hard for yearly increases in salaries.
nl 15y ago
That's when it's "normal" levels of inflation (less than say 10%/year). At higher levels of inflation everything breaks because of the lack of predictability.
Duff 15y ago
High inflation means you can't get loans and have to spend money immediately. Also, those salaried workers have rights. If you can't pay them, the government shuts you down.
- meow 15y ago
  aah.. sort of like the credit crunch then.. it kind of feels counter intuitive because the usual cycle would be: a) credit crunch with loss of demand leading to deflation b) governments pump money c) money loses value pushing inflation higher.. d) Governments try hiking rates and pull back money.. But some how in this case it seems the order is all jumbled up..
  - Duff 15y ago
    Yup. Problems materialize faster. Deflation is different -- basically everyone gets scared and stops spending money. As a result, the "velocity" of money slows down and prices drop in a race to the bottom. (The best example of this was the car market in 2009. If you had cash, you could get unbelievable deals on cars.) With inflation, there is plenty of money out there, but evaluating risk gets difficult. High inflation tends to have a snowball effect, so you don't want people owing you money -- think of it as compounding interest in reverse. So you end up with informal contracts... "Give me a car today, and you get 15 goats or hunks of aluminum in July." A creditor wants informal contracts, because like in the US, paper money is "Legal Tender for All Debts, Public and Private." But to have informal contracts, you need a personal/trust connection... and that encourages corruption and nepotism.

itswindy 15y ago

Buy a couple of acres of land somewhere, at least you might not starve. But EU is going to go down first.

sespindola 15y ago

As an Argentinian, here are my two cents on this matter: 1) From reading this article, one could asume commercial and financial regulations change by the hour, while in fact is the opposite. We have a gargantuan commercial code of byzantine complexity that has not really been modified in the last 50 years. We also have a terribly regressive and unfair tax system that includes 21% VAT even for food products and wealth tax even for salaried employees with more than 1400 dollars of monthly income. 2) It is my sincere wish, from the bottom of my heart, that "entrepreneurs" (I doubt they deserve the honor if being called that) who operate "en negro" rot in jail. They are bringing all of us down with their disregard for the rule of law and they are increasing the costs of doing bussiness for those of us who pay taxes. Regardless of the recurrent crises, starting up a successful tech company here is possible, as proven by Globant, OfficeNet, MercadoLibre, et al.

rabble 15y ago

Thank god Uruguay's not Argentina. This article is why i've refused to open up an office on the other side of the river. Argentina's an amazing country where just about every institution in society is in some sort chaotic collapse.