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What happens with the Argentine economy is that everybody who actually kept it afloat (not the corrupt politicians, crony CKD assemblers passing as "industry" o

by JVIDEL 13y ago

What happens with the Argentine economy is that everybody who actually kept it afloat (not the corrupt politicians, crony CKD assemblers passing as "industry" or the masses of unskilled and unemployable public employees who can make or break an election) just plain gave up This is very difficult to explain to people in developed countries, but what you have to understand first and foremost is that in Argentina there is no "plan" at all, is a country in a permanent state of improvisation, and because of that you have things like this which are literally implemented overnight with no warning let alone debating about it, you know like democracies are supposed to do... Because of crap like this many Argentines give up and either live off savings or just leave. And really, with an effective tax-rate of over 60% with virtually no rebates and a VAT/sales tax in the mid 20s you reach a point where your income no matter what you do is lower than your expenses, so why keep going? you are actually acquiring DEBT in order to WORK. The current dolar reserve crisis is being handled in such a stupid sloppy manner that is difficult to explain, because it makes no sense whatsoever. For example the government wont let you buy or sell any foreign currency, but it subsidizes every operation in foreign currency at between 40% and 50% lower than real value. The excuse is to avoid an inflationary spiral but it actually created one, and destroyed the reserves of the central bank.

nickff 13y ago
I could not agree with you more, but I do have a simple explanation for the currency exchange regulations. The government is taxing exports by underpaying exporters for their goods, while collecting market prices from the foreign customers. The government achieves this by overstating the value of the Argentinian peso, which the exporters are forced to accept as payment (at government dictated exchange rates). This would be a problem if the government allowed citizens to purchase USD at the artificial (low cost per USD in pesos) price, so the government restricts USD purchases in Argentina. The Chinese government implemented this policy before Argentina, which is why they are always accused of manipulating their exchange rates.
- wslh 13y ago
  There are a lot of differences with China. For example, China produces a lot of goods locally where Argentina "can't" produce a reliable refrigerator... and depends on a lot of foreign components in every industry. Argentina, obviously, produces some high quality goods but in another scale.
- rahimnathwani 13y ago
  The alleged manipulation by China is the reverse: China has been accused, by western politicians, of keeping the value of its currency lower than it would be if freely floated. This, if true, would effectively be a subsidy for exporters: they receive dollars for exports, whilst paying (cheap) local currency for labour and rent.
  - nickff 13y ago
    I apologize if I am not being clear, but this is precisely what Argentina does. Argentina keeps the value of its dollar much lower than its official exchange rate by giving exporters less pesos than the real exchange rate would dictate. The government pockets the extra USD. You could also look at this is as if the exporters got fair market exchange rates for the USD they earn, and the government took some of the pesos the exporters were given, and immediately converted them back into USD. The effect is the same, as the exporters end up with less money than they earned, and the government pockets USD. Overall, this reduces the resources available to people holding (the same number of an increasing pool of) pesos, thus devaluing the currency. The fixed official exchange rate also allows for less obvious increases in the money supply (inflation).
    - rahimnathwani 13y ago
      From Forbes: Argentina's black market offers some 10 pesos per dollar, instead of nearly seven at the fixed exchange rate. So, the open market value of a peso is about 0.10 USD. The official value is 0.15USD. The official value of 1 peso (0.15USD) is higher than the open market price (0.10USD). Thus the government is overvaluing the peso. In contrast, 1 CNY is currently worth (0.17USD), i.e. similar to the official value of 1 peso. However, some people argue that it should be worth much more (e.g. 0.25USD). In your example, exporters are getting screwed through an implicit tax. In my example, exporters are getting an implicit subsidy.
      - nickff 13y ago
        If the exporters are being subsidized, China would have to be depleting its foreign currency reserves for as long as the policy is in place.
altero 13y ago
Some European countries have tax around 60% and VAT over 20%...
- wslh 13y ago
  But you don't need to rely on private health, private security, and private education there. The taxes in those countries have a counterpart.
  - altero 13y ago
    In less developed parts you do. Most people here have gun, since it takes about 1 hour for police to show up. Local hospital sucks (once they forget scalpel inside patient) so most people pay bribes to get better hospital. And there is school here, but I would not dare to send my kids there. I think "people just give up" well describes situation here.
    - wslh 13y ago
      What country are you talking about? In Argentina the issue happens in the whole country not in some specific places.
      - rahimnathwani 13y ago
        Serbia? Wikipedia says it has: - 20% VAT rate - Roughly 60% marginal payroll taxes for highest earners (including both employee-paid income tax and employer-paid payroll taxes) - 58 guns per capita in 2007
        levosmetalo 13y ago
        Wikipedia is wrong regarding taxes. In Serbia everyone counts salary in after tax amounts, not before tax like in most of the Western world. For example you get paid 1 RSD netto, and employer pay 0.6 RSD in tax, health and retirement insurance combined. Tax is the least amount there. Calculated by western standards that would mean ~35-40% of the gross salary take away for tax, health and retirement contribution. Still much, but comparing to other countries it's not that bad. Regarding 58 guns per capita? It's ridiculous, that would mean that every 4 member family would need a dedicated gun storage. It's not USA. 20% VAT is higher rate. For basic needs like food, drugs and electricity VAT is only 10%.

by JVIDEL 13y ago

nickff 13y ago

I could not agree with you more, but I do have a simple explanation for the currency exchange regulations. The government is taxing exports by underpaying exporters for their goods, while collecting market prices from the foreign customers. The government achieves this by overstating the value of the Argentinian peso, which the exporters are forced to accept as payment (at government dictated exchange rates). This would be a problem if the government allowed citizens to purchase USD at the artificial (low cost per USD in pesos) price, so the government restricts USD purchases in Argentina. The Chinese government implemented this policy before Argentina, which is why they are always accused of manipulating their exchange rates.

wslh 13y ago
There are a lot of differences with China. For example, China produces a lot of goods locally where Argentina "can't" produce a reliable refrigerator... and depends on a lot of foreign components in every industry. Argentina, obviously, produces some high quality goods but in another scale.
rahimnathwani 13y ago
The alleged manipulation by China is the reverse: China has been accused, by western politicians, of keeping the value of its currency lower than it would be if freely floated. This, if true, would effectively be a subsidy for exporters: they receive dollars for exports, whilst paying (cheap) local currency for labour and rent.
- nickff 13y ago
  I apologize if I am not being clear, but this is precisely what Argentina does. Argentina keeps the value of its dollar much lower than its official exchange rate by giving exporters less pesos than the real exchange rate would dictate. The government pockets the extra USD. You could also look at this is as if the exporters got fair market exchange rates for the USD they earn, and the government took some of the pesos the exporters were given, and immediately converted them back into USD. The effect is the same, as the exporters end up with less money than they earned, and the government pockets USD. Overall, this reduces the resources available to people holding (the same number of an increasing pool of) pesos, thus devaluing the currency. The fixed official exchange rate also allows for less obvious increases in the money supply (inflation).
  - rahimnathwani 13y ago
    From Forbes: Argentina's black market offers some 10 pesos per dollar, instead of nearly seven at the fixed exchange rate. So, the open market value of a peso is about 0.10 USD. The official value is 0.15USD. The official value of 1 peso (0.15USD) is higher than the open market price (0.10USD). Thus the government is overvaluing the peso. In contrast, 1 CNY is currently worth (0.17USD), i.e. similar to the official value of 1 peso. However, some people argue that it should be worth much more (e.g. 0.25USD). In your example, exporters are getting screwed through an implicit tax. In my example, exporters are getting an implicit subsidy.
    - nickff 13y ago
      If the exporters are being subsidized, China would have to be depleting its foreign currency reserves for as long as the policy is in place.

altero 13y ago

Some European countries have tax around 60% and VAT over 20%...

wslh 13y ago
But you don't need to rely on private health, private security, and private education there. The taxes in those countries have a counterpart.
- altero 13y ago
  In less developed parts you do. Most people here have gun, since it takes about 1 hour for police to show up. Local hospital sucks (once they forget scalpel inside patient) so most people pay bribes to get better hospital. And there is school here, but I would not dare to send my kids there. I think "people just give up" well describes situation here.
  - wslh 13y ago
    What country are you talking about? In Argentina the issue happens in the whole country not in some specific places.
    - rahimnathwani 13y ago
      Serbia? Wikipedia says it has: - 20% VAT rate - Roughly 60% marginal payroll taxes for highest earners (including both employee-paid income tax and employer-paid payroll taxes) - 58 guns per capita in 2007
      - levosmetalo 13y ago
        Wikipedia is wrong regarding taxes. In Serbia everyone counts salary in after tax amounts, not before tax like in most of the Western world. For example you get paid 1 RSD netto, and employer pay 0.6 RSD in tax, health and retirement insurance combined. Tax is the least amount there. Calculated by western standards that would mean ~35-40% of the gross salary take away for tax, health and retirement contribution. Still much, but comparing to other countries it's not that bad. Regarding 58 guns per capita? It's ridiculous, that would mean that every 4 member family would need a dedicated gun storage. It's not USA. 20% VAT is higher rate. For basic needs like food, drugs and electricity VAT is only 10%.