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Argentina's Subsidy Policy Raises the Specter of Nationalization

Beyond the political uproar caused by the loss of control of the Argentinean parliament by the Kirchners in the legislative elections held last Sunday, some economic indicators are beginning to worry experts — increasing informal employment, declining demand for labor, increased state subsidies and a growing number of companies that are in crisis and risk being privatized.

More than 77,000 workers in various industries receive a monthly salary of US$160 through Argentine government subsidies. The goal is to prevent those people from losing their jobs. The more than 53,000 companies affected by this program are bankrupt. So far this year, the government of Cristina Fernández de Kirchner has spent some US$48 million on the program, known as REPRO (the Federal Productive Reconversion Program) and created in 2002 by then-president Eduardo Duhalde amid the deepest social and economic crisis in the history of Argentina. At the time, the government of Fernando de la Rua had fallen, bank deposits had been confiscated and the Argentine currency had been devalued.

Although the current crisis is not as serious as that one, employment is one of the indicators beginning to suffer the consequences of the deterioration in the local and global economy. Through the subsidies authorized by REPRO, the administration of Fernández de Kirchner avoided a half-point rise in unemployment, now at 8.4%, according to INDEC, the National Institute of Statistics and Census. The official figures don't include any social spending plans. According to critics of INDEC, the government has intervened under the supervision of Commerce Secretary Guillermo Moreno and changed the methodology for measuring unemployment. INDEC's credibility has been further challenged by private reports that predict unemployment of about 10% by the end of the year. >>> Go to Full Story >>>

 

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Auto Manufacturers Race for Bolivia’s Lithium Reserves

From Universia Knowledge@ Wharton

Recently, Bolivia has become the nerve center of Latin America, attracting the interest of several multinational companies. The reason: The world's largest reserves of lithium are in this country, in the Salar (Salt Flats) de Uyuni.

Located in the Potosi region in the southeast of the country, 3,500 meters above sea level, the Salar de Uyuni holds five million tons of lithium, a mineral that is required for manufacturing batteries for hybrid and electric cars. The region represents an attractive investment option for global automotive manufacturers who are trying to break their dependence on petroleum and produce more fuel-efficient products.

Aware of the positive effects that the industrialization of lithium would have on the automotive sector and the local economy, Morales has declared his intention to engage in a partnership with some multinational firm. However, given the unusual amount of interest awakened by the mineral at Uyuni, Morales – who has already nationalized the local petroleum and natural gas industries — declared that "the goal of the Bolivian government is to exploit lithium on a grand scale" and that the government "will never lose ownership of its natural resources," according to the daily newspaper El Diario de Bolivia.

Given that fact, John Tilton, a professor in the Catholic University of Chile's mining division, warns that "the actions of the government and its policy for foreign investments in Bolivia will be the determining factors, and they could drive multinationals to invest in Chile or in other countries in Latin America if Bolivia does not offer the appropriate climate for investment."

"There are deposits of lithium in Chile and Argentina, and a promising deposit in Tibet," notes Oji Baba, an executive in Mitsubishi's Base Metals Unit. "But it is clear that the biggest prize is in Bolivia. If we want to lead the next wave of lithium-based automobiles, we have to be in the Salar de Uyuni." >>>>Go to Full Story >>>

 

Mexico's city of the technical stoppage

By Adam Thomson in Mexico City / Financial Times

Ms Horst is one of the swelling ranks of unemployed in Mexico as the country faces potentially the worst economic contraction since the 1995 Tequila crisis, and possibly even worse than that. The economy shrank 8.2 per cent during the first quarter, and many private sector analysts believe the contraction in the second quarter could be in double figures. Last week Goldman Sachs estimated that Mexico's economy would shrink 8 per cent this year.

"The economy is currently facing the worst recession in its modern history,& wrote Luis Carlos Niño, Latin American economist at Capital Economics, a UK-based consultancy, recently. His research note was entitled: "Mexico's GDP: awful, just awful". Predictably enough, the country's woes are almost entirely the result of troubles in the US — though the effects of the recent A/H1N1 virus and measures to contain it are widely expected to contribute about 0.5 percentage points towards the overall contraction.

In spite of efforts to diversify trade, Mexico sells 80 per cent of its exports to the US, and these account for about a quarter of the total annual production of goods and services. In April the value of Mexico's exports fell 35.6 per cent from the figure in the same month last year. >>> Go to Full Story >>>