Venezuela and Argentina increasingly similar

Editor's Note: Argentina and Venezuela ... grow thanks to the international price momentum? Are they making the necessary structural reforms they need to weather adeversos times when they arrive? Why so similar? I can send your comments to: paola@moneyweekes.com

Venezuela and Argentina increasingly similar

Buenos Aires, Argentina

April 7, 2008

Two Latin American countries that have grown during 2007. Also these two countries are "enjoying? of the boom in international commodity prices, in the case of Venezuela and Argentina oil to agricultural commodities.

The economic boom originated in an international context will generate positive cash these governments to pursue populist economic policies. But the ambition they can play tricks on the future because their funding sources are at risk. And the problems begin to pile up at the door of their houses waiting for government and fundamental solutions that would otherwise threaten to generate strong tremor in his efforts. For now, both Cristina and Hugo, think they can control the problems using their "home recipes?.

What else are like Venezuela and Argentina? In the inflation rate. Reaching levels really difficult to handle. The high inflation rates have become an element of complaint from the public. In Argentina, cacerolazos largely responded to this cause. In Venezuela, also feels the discomfort of the population by the relentless increase in prices, but also as our colleague commented Venezuelan Germain Sanchez, in "The Venezuelan Oil Via Crucis" http://moneyweekes.com/el- Way of the Cross-of-oil-Venezuelan / even greater this is the problem that are facing shortages of staple foods: "Despite attempts to supply the country with basic consumer food still faces these problems and for the first time in the national history of Venezuela, people run from one market to another before the wave of rumors of the presence of a staple in any establishment to acquire and within hours disappearing from the shelves?.

According to JPMorgan Chase (JPM: NYSE) inflation in Venezuela can reach the end of this year to 30%. But do not believe that the inflation rate in Argentina will be very different from this value.

What is the likelihood that these economies into crisis? For now, income from exports of its commodities, these countries are protecting the event of a crisis. Rather, I encourage you to think that the international boom being experienced, is giving them time to turn the functioning of their economies into calmer waters. But you must hurry to make the decision for the time they were narrowing.

For now, the attitude of the Venezuelan and Argentine governments, suggests that they are determined to deepen the policies are being implemented since the beginning of their governments (in the case of Cristina, from the beginning of the government of her husband) .

Chavez last thing in this regard was the decision last Thursday, the nationalization of the cement industry in Venezuela. In addition, Chavez announced that restrict entrepreneurs to export raw materials necessary to address housing shortages in the country. In the Venezuelan cement market, Mexico's Cemex controls nearly half of it, while the rest is held by France's Lafarge and Switzerland's Holcim Ltd. Previously it had nationalized oil projects, utilities and the largest telephone company in the country , CANTV.

But Chavez estatizadota policy has an additional problem for the Venezuelan economy and shows what can happen when you break the mechanisms of market economy (which is still run on Venezuela). What happens to the oil sector is just one example that Germanus plotted in this way: "blocks have been allocated to a group of mostly state enterprises, which have neither the know-how or expertise in the production, handling , improvement and marketing of extra heavy crude?.

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The need to increase the collection is another of the pressures that are facing both governments. Many believe that what happened to the issue of retention in Argentina, is explained by the tax collection side. If so, then one can also find another similarity between the two governments in this regard.

In the case of Venezuela, the National Assembly adopted at first debate, a new tax on oil profits to apply a special tax of 50% and 60% on extraordinary income (50% each time windfall that the price exceeds $ 70 a barrel and the rate will rise to 60% when the price of oil exceeds U.S. $ 100).

Thus the picture presented, there is little doubt that the cracks start to appear in these economies. I would not bring pessimism, but I wonder what can happen if for example the oil price collapse and if it continues the downward trend in the price of soybeans. Will Cristina and Hugo prepared for a situation like this?

We will meet again tomorrow,

Horacio Pozzo

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