A chronic lack of confidence in the government stops investment

Argentina has been suffering from electrical distribution problems, leaving some poor souls without electricity for over a week, when it hit the high nineties and low one-hundreds every day. The government blames the power companies for not investing in infrastructure, and the power companies blame the government for setting rates too low. The government buys votes by keeping utility rates artificially low and then says something to the effect of, “We love the poor like a mother loves her children! Is that so wrong?”


The problem remains that without foreign investment and confidence in the government, no one will lend Argentina money. Eventually the value of their currency will continue to fall, and their reserves of dollars will shrink to almost nothing. Then the moment of crisis will occur. Without the ability to import raw materials, factories will close. The poor will become even poorer. The rich will actually do quite well and benefit from the crisis, because no matter what happens they will find access to dollars. 


Just as you can’t spend your way out of debt, you can’t blame your way out of taking responsibility for the mess the Argentine government made of the nation’s economy. Since the blaming and wishful thinking has been going on for decades, the current administration is justifiably loathe to take full blame for the situation, but I suppose saying “the buck stops here” is one of the requisites of good leadership.


Anyway, whining about vulture funds and passing legislation to limit the flight of dollars from the country only serves to confirm everyone’s worst fears, including those of potential investors. 





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