ARGENTINA AND URUGUAY: A TALE OF TWO COUNTRIES

I’m currently traveling through Uruguay and Argentina.

There exists a sharp contrast between the two countries in terms of government policies. Interestingly, however, both countries are run by leftists who at one time were associated with the terrorist-left guerilla movements of the 60s and 70s, the Tupamaros and Montoneros, respectively. Uruguay’s current president, Jose “Pepe” Mujica spent almost 15 years in jail for his active  participation in the Tupamaros. Argentina’s current president, Cristina Fernandez de Kirchner’s, and her husband and predecessor, Nestor Kirchner’s association with the Montoneros is hazy and debatable, but their sympathies and political philosophies were clearly aligned with them.  Interestingly once in power, Mujica (whose activities in the 1970s were more radical) has taken a generally capitalist-friendly path, whereas Cristina, as she is generally referred to, has implemented radical state-interventionism, overriding free-market mechanisms, including nationalization of YPF and private pension funds.

Uruguay prospers because it welcomes foreign capital and investment in residential real estate and farmland, principally, whereas Cristina’s government, in a misguided attempt to stanch the outflow of capital from a capitalist-unfriendly economy , has discouraged foreign investment by instituting a “dollar clamp.” Unlike Uruguayans, who can freely exchange their pesos for dollars at market rates and spend them abroad, Argentines are forbidden to take dollars out of the country, except by permission of the Argentine equivalent of the IRS at the official rate of about 4.77 pesos to the dollar — a rate at which the peso is seriously overvalued and therefore, advantageous to Argentines lucky enough to get permission to buy dollars. Those wanting to circumvent this restriction must pay the “parallel” rate around 6.30 pesos to the dollar, a penalty of around 33%. The government has dogs at the airports and boat terminals trained to sniff out dollars in peoples’ luggage, if you can believe it. For a while the Argentines got around this impediment temporarily by switching to euros, but I understand the dogs have been retrained to sniff them out too. The dollar clamp has greatly inhibited imports into Argentina, in many cases requiring importers to demonstrate an equivalent amount of exports — consequently offers are appearing in newspapers offering payment for local goods in exportable soy. The clamp has basically killed tourism for Argentines wanting to travel abroad, who lacked the foresight to stash their dollars abroad before the clamp was imposed. The authorities will permit only ridiculously small amounts of dollars to be carried abroad by sanctioned travelers. Many Argentines studying in the U.S. Have found themselves stranded without parental support, due to the parents’ inability to send them dollars.

What strikes me about Argentina is that under Cristina and Nestor, it has become the very model of the kind of state Romney railed against in his now-infamous “47 Percent” comment:

"There are 47 percent of the people who will vote for the president no matter what. All right, there are 47 percent who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it -- that that's an entitlement. And the government should give it to them. And they will vote for this president no matter what. ... These are people who pay no income tax. ... [M]y job is not to worry about those people. I'll never convince them they should take personal responsibility and care for their lives."

The populist Kirchners, leftist ideological descendants of Juan Peron, have instituted just such a state. The taxi driver who drove me to the airport yesterday volunteered a very eloquent speech on the subject that could have been uttered by Romney himself, railing against the multitudes of social subsidies and entitlements to the disadvantaged and unemployed which guarantee Cristina some 5 million votes (in a country with 40 million inhabitants). He also had much to say about the Buenos Aires police, who will randomly stop cars for “safety inspections,” which invariably turn up some discrepancy in paperwork, seatbelts, or even the depth of tire tread, as a means of extractive a small bribe (a “coima,” starting at around $10 US, so they could “eat sirloin steak and wash it down Dom Perignon” according to this voluble curbside philosopher (who also confided to me that Kennedy had been killed because he was the first American Catholic president.) Spotting a police cruiser stopped a block ahead with lights flashing, the driver prudently detoured around it.

Americans who fancy themselves put-upon by government with excessive taxes and regulations and a culture of dependency should travel to Argentina to see how its done. Those who want to see how to protest government corruption, cronyism, economic mismanagement, inflation, “insecurity (violent petty crime) should also come to Argentina where hundreds of thousands of angry middle class citizens took to the streets banging pots and pans on November 8 in what became a worldwide “cacerolazo” (cacerola is a pot, “azo” is a suffix indicating “big”). Cristina seems un-chastened by it, deploying spin patrols to discredit the protesters as tools of the oligarchy — despite their numbers. Her main defense has been that no coherent alternative to her government exists, inasmuch as the seriously divided opposition seems incapable of coalescing to offer such an alternative. Very true.

In my book, “The Predicament,” (www.the-predicament.com) I began by observing that as a young high-school graduate I came from Peron’s Argentina to college in the U.S. as a staunch Bill Buckley conservative, largely as a reaction to the leftists excesses of Juan Peron, later shifting to the liberal side of the political spectrum as a counterweight to the right-wing excesses of Ronald Reagan and his supply-side crew. This latest trip to Argentina reminded me that my political leanings are those of a centrist inclined to pull against the prevailing excesses from whichever side they originate.

Driving some 500 kilometers deep into the Uruguayan latifundio with a landowning cousin gave me some insight into the agricultural heart of the Uruguayan economy. The lush green countryside takes your breath away with its gently rolling hills and exquisitely tended fields where soy, grain and hay are grown, milk and cheese is produced, and fat cattle and sheep graze contentedly. (Uruguay, with a population of 3 million, exports more beef than the legendary Argentina with 13 times the population. Argentina has converted so much land to the production of very profitable soy for export to Asia, crowding out beef production to the point where beef exports have been curtailed so as to satisfy the prodigious Argentine appetite for inexpensive beef.) Throughout Uruguay one sees many stands of eucalyptus neatly arrayed about the countryside to provide pulp for the paper factories along the banks of the Uruguay river.  There are also frequent stands of pine intended for carpentry. Roads are serviceable, although some are badly potholed by trucks and trailers transporting lumber to the mills and market. The land is divided into huge parcels owned by both Uruguayan “terratenientes” and, mainly, foreign landowners, many of whom lease their property (for a return of around 3%) to large corporations -- “arrendatarios” -- who actively manage the properties using the latest “no-till” techniques and machinery. Most farms are family managed, but, given soaring farmland prices, reportedly many families are selling their lands to large foreign investors who consolidate the property into large corporate-managed holdings. The work is done by peons and their foremen (“capataces”) earning between U$S 300-400 a month and living in squalid conditions when on the farm. Farmhands show great deference to the landowners, politely doffing their caps when greeting with a handshake. Low wages are a critical component of the profitability of Uruguayan agriculture, which has prospered mightily in recent years as a result of foreign investment in farmland. The farm population density is very low, thanks to industrialization of agriculture, meaning there is unlikely to be any effective demands for land reforms.

As in Argentina, the Uruguayan labor unions are very strong, with full support from leftist governments. Therefore, it is nearly impossible to fire union workers, except for egregious misconduct. Strict work rules hamper employer flexibility optimizing labor force productivity or adjusting the level of employees to that of sales. Understandably, Uruguayan entrepreneurs show considerable reluctance to add new workers. Consequently, industry is a relatively small component of the Uruguayan economy and seems to operate on a small scale with relatively old equipment and methods. Services comprise about 75% of employment, and many of the employed perform non-essential work, such as watching over cars parked on public streets. A typical gas station deploys about 5 attendants diligently filling up your car with gasoline, washing your windows, taking payments, etc. -- a throwback to the U.S. In the 50s before self-serve. There is a sprinkling of beggars on the street, though fewer, for example, than can be seen on the streets of San Francisco. Enterprising indigents will perform feats of juggling or flag drills on the streets while traffic stops for a red light, timing their acts so as to provide time to pass the hat before the light turns green.

Montevideo displays a rather worn European charm through its architecture — a reflection of better times early in the 20th Century, when, like Argentina, Uruguayan beef provided them with a very high standard of living. Sidewalks typically show a lack of maintenance, with missing tiles and wavy surfaces giving the impression of run-down neighborhoods in many parts of the city. No house lacks a tall security fence and iron bars or sturdy blinds on windows — sometimes both, due to concerns about security. However, along the beaches on the banks of the River Plate new, tall, very modern apartment buildings under construction can frequently be seen, particularly along the tony beaches of Carrasco. Price per sq. ft. for apartments in Montevideo runs around U$S 200 a sq. ft. while in the tony beachfront community of Punta del Este, about 1 1/2 hours to the east, the cost rises to a hefty U$S 400 or thereabouts. No surprise, apartments tend to be very small — 1 BR around 500-600 sq. ft., 2 BR 700-1000 sq. ft. and 1,500 sq. ft. is regarded as uncommonly spacious. I didn’t see any 4 BR apartments for rent. Houses tend to be larger, but often without ocean views.

Punta del Este comes alive for only 3 months in the summer and dies for the rest of the year, so rents in January (mainly), February and, to a much lesser extent, March will typically carry the full years’ costs of an un-mortgaged house or apartment, about 90% of which remain vacant for the rest of the year. It’s not uncommon for large families to lay out U$S 20,000 for a house during the high season in January. A 2-3 BR apartment with amenities (pool, gym, sauna, club-house, full-time security/concierge) rents from about U$S 8,000 – 12,000/ month depending on location. If you want a bargain rental in very pleasant weather, you will find them in the shoulder seasons in Nov./Dec. and April/May when owners practically give away short-term rentals. It remains to be seen how Punta del Este will weather the Argentine dollar clamp this season, inasmuch as the vast majority of renters are Argentine, with a smattering from Brazil, Europe and the U.S.. Pepe Mujica says he’s not worried because Argentines display a legendary talent for circumventing currency restrictions.

For those Americans contemplating the life of an expatriate, Uruguay offers the better opportunity with user-friendly immigration laws, including duty-free importation of household goods, instant residency permits and the opportunity for citizenship and a Uruguayan passport after 3 years for married couples, 5 for singles; world-class shopping; decent and affordable medical care; friendly people, mild climate; a broad variety of housing options; an active cultural life in Montevideo; reasonable taxation for expatriates with foreign income (although there is a 22% VAT).  While violent crime is virtually non-existent in Punta del Este, it is something of a problem in certain parts of Montevideo — avoidable if you live in a high-rent district, particularly if you live in an apartment with round-the-clock security.

Sadly, therefore, I must confess a certain not-altogether-unexpected disenchantment with my native Argentina, and newfound pleasure in the amenities offered by neighboring Uruguay.