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Looters everywhere

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Ayn Rand would not have liked this.

Under the disguise of a noble cause, the municipality of Bariloche (Rio Negro) will issue a special tax to corporations who do business within the limits of the city but have their headquarters out of the city limits. The sum levied on these corporations will range from a minimum of $5,000 pesos per month up to $15,000/month depending on annual sales volume.

In another example of how peronists push for income redistribution without any logical planning or with no consideration for future consequences, the money raised will be destined to promote social and educational activities to the lower end of the population -who, in their view, has been so far “excluded”- by means of maintaining or developing the appropriate infraestructure for cultural, recreational and sport endeavors. These activities will mostly cater to the very young or very old.

In reality, “ediles and concejales” are sending out the message that they are unable to cut expenses and make the administration of the city more efficient, where it has been said up to 80% of the budget goes to pay fat salaries. The unintended consequences may be that some or many of the targeted firms who have been doing business in the region may just opt to settle in nearby towns of San Martin de Los Andes, Villa La Angostura or even Junin de Los Andes.

This measure would affect foreign businesses of any kind, as long as their annual gross sales are over 8 million pesos. The cuttoff line seems to be 30 million in annual sales, above which firms would contribute the maximum of $15,000 pesos per month. In an ironic twist, these levy has been described as both “solidary and mandatory”.

It was two years when this tax was sponsored by Daniel Pardo, a “concejal” from Rio Negro, who based on a research conducted by the “Centro de Estudios Regionales” learned that Bariloche’s GDP was one of the highest in the nation while porverty levels were above 30%. His view was that corporations making money would not reinvest it locally but move funds away from Bariloche. “Corporations making money” being the bad word. Or offensive phrase.

It is apparent that businesses that help drive tourism to the area and are in part responsible for having these crowds spend their monies on local goods and services, patronizing a vast and diverse array of mom-and-pop shops during their stay, means little. While reaching for the populace vote through enchanted “income redistribution” songs, means much. Even though in the long run those for whom this measure has been enacted may see a smaller economy, less oportunities and even higher personal taxes.

Brilliant.

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Distances of argentine provinces

Below, please find the distances in KM from the most important landmarks to the City of Buenos Aires. One km is equivalent to 0.62 miles. For more unit conversions, use this metric conversion tool.

Grains: getting closer to opening markets

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Ever since 2006, markets for wheat and corn in Argentina fell under the control of the government just like many other areas where the administration sought to expand power and control. This time, it was Guillermo Moreno -the “Secretario de Comercio Interior”- who devised the strategy to restrict exports so as to keep a lid on domestic food prices. Intervention is always bad, but for Argentina it is even worse when it comes to agricultural commodities given the weight they carry in relation to GDP figures.

As such, Argentina has been missing the train of international skyrocketing prices that would have greatly benefitted the sector. More recently, however, there has been talk of a partial opening of exports via the establishment of quotas. In a maneuver that can be seen as Julián Domínguez – the Minister of agriculture- gaining more influence within the administration while Moreno loses ground, Domínguez announced the possible establishment of export quotas in the amount of  18,5 million tons for wheat and 5,5  million tons for corn.

The news though, wasn’t received warmly. Some insiders to the farm industry instead of acknowledging this as progress have expressed their distrust to government measures that might keep affecting prices paid negatively as quotas would not nurture the needed competition that free markets offer and farmers can take advantage of. Still, there is a sense that with Domínguez there could be more dialogue than there ever was with Moreno.

And that can only be a good thing!

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Icy news

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Like a bucket of cold water, news of ice cream parlors increasing their prices 15% for the summer season was received with equally cold feelings. Just as it is happening with other foods, ice cream cannot escape the inflationary wrath. Bigger chains stated that prices won’t change till the season is over so ice cream lovers are looking for roughly the same prices for their favorite flavors up until March of next year. Just to put things into perspective the price for a 2 pounder (1 kilogram) may range from 23 pesos/kg (u$d 6) to 70 pesos/kg (u$d 17-18) in the case of premiums.

Manufacturers think they can get away with the increases given that they are well below official inflation figures of about 25%/year. As it usually happens, they blame their own cost chain to have pushed prices up (raw materials, etc.) and thus, increases are only being transfered to the final consumer.

With this latest increase, prices have gotten to where they were before the collapse of the currency in 2002. At the time, 1 kg of ice cream was approximately u$d 16/kg.- Just like with many other items, prices have reached the same comparative value they had with the old parity of  $ 1 – u$d 1 pre-collapse. Still, inflation has not been an obstacle for some of the national chains to keep their expansions current. One of the cheapest products in the market belongs to the Grido chain, with 850 branches and headquarters in Cordoba. They are pricing their products at around $23/25 pesos /kg. Grido will be opening another 40 ice cream shops in the city of Buenos Aires and the outskirts during 2011.

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Auto industry outlook

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Production of biodiesel and alternative energy is not the only pocket of strength in the argentine economy. More recently, we have learned that the outlook for the local auto industry is also bright. This year, production looks to reach the 700,000 units mark and those in charge already have plans to increase capacity given the strong demand that comes from Brazil. More efficiency, more productivity and factories expansion programs are all part of the picture and are all being discussed by the leaders of the auto industry.

The benefits are enormous. Increased capacity means better and more thorough training of workers, expansion of distributorship as well as the opening of new chanels of distribution and the need to solve some logistic problems which will require continuous investments. The Ministry of Industry estimates that in the near future, about usd 1 billion will be required to modernize and expand plants and that this funding is almost guaranteed to be used in the period right ahead, 2010-2012. Fiat, Ford and Peugeot Citroën will all participate in this “upgrade”.

According to some industry insiders, Brazil demands close to 3,4 million units per year. A figure that is expected to increase over time as the ratio of units owned per capita is actually lower than in countries such as Argentina. The same insiders opined that if Argentina is able to produce the expected quality, then the demand will be there. This, is already being seen in some manufacturers who have increased shifts and extended working hours. The more serious stats point to a 10% increase in production for 2011, at least. Almost all auto industry executives believe that the demand coming from Brazil is “sustainable, strong and would continue for at least another 3 years”.

However, not everything may fall into place. Some of the decision-makers are afraid that the autoparts agents they rely on for capacity expansion may not be there when they are needed the most. Same fears apply to training both new and old workers. Executives are accutely aware that any of the above can become major roadblocks so they are only “cautiously” optimistic. In addition, many count on the federal government to come forth to create additional infraestructure in the form of power generation and the like. Something that they have learned not to count on. But in spite of these potential problems and that the whole industry is not and cannot be completely and vertically integrated, there is a general sense that finally the auto industry has reached maturity.

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