President Kirchner of Argentina acknowledges economic slowdown (Blames external factors instead of own policies)

Well, this isn’t really news. After a decade of the so called wondrous economic miracle that is Argentina, a slowdown is imminent. The GDP growth projections are lowered to 2-3% after a constant 7% growth level in the preceding decade. The President called it that their luck has run out and she blames the global slowdown for it. She should get a mirror and start yelling at it.

Even though the President is to blame, the text on business.hr completely missed the point. Google translation goes as:

“The government has poured money into subsidies for industry, public works projects, generous welfare payments and other popular programs, incentives, known as the "Kirchner model."

Argentina possesses large reserves of oil and natural gas, but the production fails to keep pace with economic growth.”

The last statement is utter nonsense. Production can’t keep up with growth, eh? If you ask me this is a classic sign that the economy is heating up and that the miracle growth was nothing but a credit induced bubble that spilled over to the housing sector:

“Building sector is usually the main driver of the economy, and Argentina is turning to real estate as a hedge against of  inflation. However, new projects have slowed significantly this year due to falling sales of 15 percent, mainly due to currency controls introduced by the government to prevent the outflow of capital”,

and into the energy sector. This what happens when the government wants quarter over quarter real GDP growth but without any fall in consumption to accompany savings generated growth.

Also:

“The government has only recently started to remove some of the price controls, which was introduced nearly ten years ago.”

So, the government capped prices from rising when inflation was forced up into input prices? Smart move El Presidente. You not only get higher prices, but shortages. This charade played over the past decade lasted as long as it did because the government was able to subsidize the losing companies and had enough resources to squander. But when the credit crunch came, I am sure that the government wasn’t able to force feed the oil industry anymore. As consumers are demanding more energy, and the funds to replace worn out equipment in the higher end of the capital structure aren’t there, the consumers are going to get the double whammy – higher prices and shortages followed by rationing and ever greater doses of inflation.

And last but not least:

“Cheap energy has enabled the Argentine companies a huge advantage”.

Yeah, cheap energy, subsidized by the government, and capital mixed with inflation went into certain sectors of the economy creating an overproduction in some areas (an artificial boom) which will be accompanied by a bust and a huge glut in whichever sector the money flowed to.