Economy woes pile up for Latin America's leftists

Protesters in Buenos Aires, 18 April 2013 Down with inflation, more decent jobs: Argentines have been growing dissatisfied

Related Stories

Since the start of the global economic crisis, left-leaning Latin American politicians and pundits have been foretelling the end of economic "neo-liberalism" in their part of the world.

But now, five years after the collapse of US bank Lehman Brothers, we may instead be witnessing the twilight of economic "neo-leftism" in Latin America.

The two nations that have embraced it most fervently are Venezuela and Argentina, which have both seen increasing state intervention in their economies.

Despite wide-ranging price controls, they have the highest levels of inflation in the region, amid other serious problems.

And before the end of the year, voters in both countries will have the chance to express their frustrations at the ballot box - although not yet to change their respective governments.

Argentina holds mid-term congressional elections on Sunday, while Venezuela has local elections on 8 December.

Economic 'war'

After nearly 15 years of the late Hugo Chavez's "Bolivarian revolution" - now in the hands of his successor, Nicolas Maduro - Venezuela faces chronic shortages of basic goods, intermittently alleviated by emergency imports from more productive nations.

Venezuela's Nicolas Maduro and Argentina's Cristina Fernandez de Kirchner The Venezuelan and Argentine leaders have been losing popularity

This week, for example, it was announced that the country is to import Nicaragua's entire crop of black beans for this year.

Nonetheless, the government has accused its political opponents of causing the shortages, as part of what Mr Maduro calls an "economic war".

Venezuela has long been Latin America's inflation league leader, but its rate has surged strongly this year and is now close to 50%.

According to some definitions, the country is now entering hyperinflation territory, something last seen in the pre-Chavez days of the 1990s.

All those imports are taking their toll on Venezuela's foreign currency reserves, with just $21.4bn (£13.2bn) in the central bank's coffers, the lowest level in nine years.

But the government is making some heroic assumptions about its ability to turn the economy around.

The country's finance minister, Nelson Merentes, drew laughter from opposition politicians this week when he announced his 2014 budget, based on an inflation rate target of between 26% and 28%.

Price controls

That's roughly equivalent to the "true" level of inflation in Argentina, as measured by independent economists, although the government's own discredited figures put it at just 10.6%.

However, President Cristina Fernandez de Kirchner's administration has done its best to make life difficult for those who dissent from the official view.

Her chief enforcer, Commerce Secretary Guillermo Moreno, has attempted to take legal action against anyone who compiles an alternative inflation index, alleging that the aim is to manipulate the markets by publishing false data.

Supermarket in Buenos Aires The Argentine government has intervened to hold down food prices

Mr Moreno is also in charge of forcing Argentina's supermarkets to sell staple goods at artificially frozen prices. Since the beginning of June, 500 products have been subject to price controls.

In July, he went as far as imposing the temporary closure of four supermarkets for not complying fully with the price freeze, although the reason was that they had run out of some of the products, which is what tends to happen when goods are sold at below the market rate.

In fact, as in Venezuela, price controls have tended to provoke shortages of the items affected, including bread, while other basic goods have also been scarce.

In July, Mr Moreno's office issued a statement calling on Argentines not to eat tomatoes for 60 days because of a seasonal shortage.

But the commerce secretary's heavy-handed ways have been catching up with him. Last month, he was formally charged with abuse of power over his efforts to stop the publication of independent inflation figures.

Mr Moreno has always maintained that he was acting within his responsibilities.

But if found guilty, he could be jailed for up to two years and be barred from public office for twice as long.

Political cycle

Argentina and Venezuela are travelling on similar political and economic paths. But Argentina has not suffered as badly.

Guillermo Moreno Argentina's Guillermo Moreno is known for his combative style

The country is still expected to register GDP growth of more than 3% this year, while Venezuela appears to be heading for recession again, with negative growth expected for the first time since 2010.

Politically, both countries have leaders struggling to uphold the legacy of an ideological soul mate. While Mr Maduro is the inheritor of the Chavez mantle, Ms Fernandez is following in the footsteps of her late husband, Nestor Kirchner.

But the Argentine president is set to disappear from the political scene at the next election in October 2015, since she is constitutionally barred from running for a third term. With her brand of Peronism expected to do badly in Sunday's polls, she is unlikely to secure the two-thirds majority in Congress that would allow her to quash that ban.

Ms Fernandez has lost popularity since her re-election in October 2011, when she secured 54.1% of the vote. However, recent opinion polls are suggesting she may have regained some sympathy from the electorate after she had surgery to remove a blood clot on her brain earlier this month.

Mr Maduro, for his part, was elected in April and does not have to face the voters again until October 2018. But opinion polls have indicated that if that election were re-run now, his narrow and hotly disputed victory over opposition leader Henrique Capriles would be definitively overturned.

In the meantime, there are signs that both leaders are holding back unpopular measures until after voters go to the polls this year.

Argentina's supermarket price freezes are due to expire at the end of this month, once the mid-term elections are out of the way.

At the same time, the Venezuelan currency, the bolivar, still appears overvalued, despite a devaluation in February, when Hugo Chavez was still alive and in power.

In fact, there have been seven devaluations of the bolivar since Venezuela embraced Chavez's "21st Century socialism", and analysts are forecasting that there will soon be an eighth - but not until the local elections have taken place.

More on This Story

Related Stories

More Business stories

RSS

BBC Business Live

  1.  
    Bank culture Via Email David Stanley from Richmond

    writes: "Where does all the money [from fines] go? Presumably some goes in compensation to the victims, but the rest? To pay off the deficit?"

     
  2.  
    Via Twitter Lauren Davidson, business reporter at The Telegraph

    tweets: "From Times Mag profile last month: CEO Harriet Green fixed Thomas Cook, earned less than her male predecessor."

     
  3.  
    07:40: Thomas Cook
    Green

    A little more on Harriet Green's departure from Thomas Cook. "I always said that I would move on to another company with fresh challenges once my work was complete," she says. "That time is now." The statement adds that when Ms Green joined, the company's share price was 14p. Today, it is 137.9p.

     
  4.  
    Via Twitter Simon Jack Business correspondent, BBC News

    tweets: "Harriet Green steps down as CEO of Thomas Cook after only 2 years. She once told me she never stays anywhere for long but this is very brief."

     
  5.  
    07:30: Thomas Cook
    Thomas Cook

    Overall, Thomas Cook, which has been struggling to compete with the rise of internet travel agents, made a statutory pre-tax loss of £114m for the year to the end of September. It's an improvement on the year before, when it made a £163m loss.

     
  6.  
    07:24: Compass profits
    Students receive their lunch at Salusbury Primary School in northwest London

    Global catering and support services firm Compass group - if you have never eaten their food, there is a very strong chance your children will have eaten it at school - has reported a 5.4% rise in pre-tax profits to £1.16bn for the year to the end of September. "Food is and will remain our core competence and is backed with some strong support service businesses," the company says.

     
  7.  
    07:18: SAS enlists Flybe
    SAS

    British low-cost airline Flybe has announced it has signed an agreement with Scandinavian carrier SAS, to operate some of its short haul services. It's a white-label deal, meaning SAS insignia will be displayed on the planes, and the flights will seem to the outsider like a regular SAS service.

     
  8.  
    07:08: Thomas Cook

    Holiday travel company Thomas Cook has announced that its boss, Harriet Green, is to step down. She will be replaced by Peter Fankhauser, currently the chief operating officer. Ms Green only joined the firm two years ago.

     
  9.  
    07:04: Royal Mail goes to Parliament

    That's all happening at 9:30, by the way.

     
  10.  
    Royal Mail goes to Parliament 07:02: Via Blog Kamal Ahmed BBC Business editor

    Royal Mail chief executive, Moya Greene, will for the first time appear in public to make the case about why the universal, UK-wide postal service is in imminent danger. And if the written evidence Royal Mail has sent to the committee is anything to go by, her words will certainly be punchy. The written evidence calls for urgent intervention by regulator Ofcom and warns if not: "A tipping point could be reached. The universal service could become unviable before effective changes can be implemented."

     
  11.  
    06:52: Bank culture Radio 5 live
    UBS

    One more from Lord McFall on Wake Up to Money. He says senior managers at banks "have often pleaded ignorance or stupidity rather than culpability" and that has to change. He cites an example of four top executives at Swiss bank UBS who came before the Committee on Banking Standards. Asked if they knew the name of their "star performer" who had just lost the bank $2bn, they replied that they didn't, he says. "The first they had heard of it was on the Bloomberg wires," Lord McFall adds.

     
  12.  
    06:46: BG boss' pay BBC Radio 4

    Mr Walker adds that BG Group's pay offer illustrates "poor corporate governance", and "puts fund managers in a position where they are forced to approve" the £25m remuneration package for new boss Helge Lund.

     
  13.  
    06:44: Bank culture Radio 5 live
    Air force

    The £27bn that banks have paid in fines for the mis-selling of Payment Protection Insurance (PPI) outstrips this year's defence budget, says Lord McFall. Since the start of the financial crisis, banks have paid out more than £38bn in fines, for a litany of sins. What makes matters worse is that he and other MPs were warning the banks over the dangers of PPI for 20 years, before the mis-selling scandal broke, he adds.

     
  14.  
    06:32: BG boss' pay BBC Radio 4
    Mr Lund

    "A red rag to anti-capitalists," is what Simon Walker, from the Institute of Directors (IoD), calls the proposed £25m pay packet for the incoming head of gas explorer BG Group, Helge Lund. He tells Today "you could not calculate a measure that is more likely to inflame" politicians, and the general public, who will balk at the sum, which is "more than 10 times [Mr Lund's] pay in Norway", where Mr Lund ran the state's oil firm.

     
  15.  
    06:24: Bank culture Radio 5 live
    McFall

    Lord McFall tells Wake Up to Money initiatives to change the culture in banks are "fledging and fragile". He adds: "Rhetoric at the top has been implemented, but not carried down the line [into bank departments]". The aggressive sales culture of the banks will be eliminated eventually. But the banks can't do it alone, he adds. He is also calling on the banks to provide annual progress reports to Parliament's Banking Standards Committee.

     
  16.  
    06:14: Welfare reforms

    The UK's National Audit Office has warned that the cost of introducing major welfare reforms could run into billions of pounds if the IT system needed to deliver the changes isn't completed on time. The Universal Credit programme has been beset by IT problems, and the chairman of the public accounts committee, Margaret Hodge, has accused the government of throwing good money after bad. Ministers insist they are getting value for money.

     
  17.  
    06:10: Bank culture Radio 5 live

    UK think tank New City Agenda says it will take "a generation" to fix the culture of the banking industry, in a report published today. The organisation's chairman, Lord McFall, who is also former chairman of the Treasury Select Committee, tells Wake Up to Money the report is the first to have gone inside the banks - it visited 11 of them - so provides a real insight into what is going on, and it's not pretty.

     
  18.  
    06:05: Clegg on immigration
    Clegg

    The UK's deputy prime minister, Nick Clegg, has said he supports further restrictions on benefit payments to migrants from elsewhere in the European Union. Writing in the Financial Times, the Liberal Democrat leader also warns David Cameron against trying to limit the number of EU migrants coming to the UK.

     
  19.  
    06:00: Matthew West Business Reporter

    Plus Moya Greene, chief executive of the Royal Mail, will be giving evidence to the Business Committee - as will a number of her rivals - on competition in the postal sector and the government-mandated obligation to deliver to all UK addresses. As always, get in touch on email at bizlivepage@bbc.co.uk or on Twitter @bbcbusiness.

     
  20.  
    06:00: Joe Miller Business Reporter

    Morning. The president of the European Commission, Jean-Claude Juncker, will set out details this morning of a €300bn plan intended to revive Europe's flagging economy. Most of the money is expected to be provided by the private sector. More on that in the next few hours.

     

Features

From BBC Capital

Programmes

  • Ladybird - a robot designed to help with farm workClick Watch

    From weed detecting to a robotic dairy - the tech that could help farmers be more efficient

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.