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1,100 | <s>[INST] Argentina's 1991 stock market boom (which led to a four-fold dollar increase in [/INST] the index) was based primarily on hopes that the substantive economic reforms initiated by Economy Minister Domingo Cavallo would lead to strong economic growth. </s> |
1,101 | <s>[INST] Curiously, however, the reform didn't result in [/INST] decent reported profits for the companies listed on the stock exchange. </s> |
1,102 | <s>[INST] Reported profits fell in the second quarter of 1992 to just 1.2% [/INST] of book value a year, after a previous bounce to a still-pitiful 2% (excluding from the analysis a few newly privatized utilities). </s> |
1,103 | <s>[INST] Even after the 1992 market collapse, stock [/INST] market capitalization is hovering at a stratospheric 80 times the yearly profits. </s> |
1,104 | <s>[INST] The stock market shortcomings are the [/INST] result of a generalized cheating of the minority shareholders. </s> |
1,105 | <s>[INST] Companies hide their profits both from [/INST] the local internal revenue service and from the minority shareholders. </s> |
1,106 | <s>[INST] Companies listed on the stock exchange have [/INST] reported very low profits for decades, under the most diverse economic policies. </s> |
1,107 | <s>[INST] Most did not pay out [/INST] cash dividends during the entire decade of the 1980s. </s> |
1,108 | <s>[INST] Cash dividends are such a rarity that the stock market's [/INST] Weekly Bulletin magazine reports them in footnotes, and last year they amounted to just 0.6% of book value. </s> |
1,109 | <s>[INST] For example, Marcelo Otermin, a Buenos Aires-based [/INST] investment consultant, says that "distributing cash would reduce the companies' capital. </s> |
1,110 | <s>[INST] There is nothing wrong about not [/INST] paying out profits, unless the controlling stockholders cheat the minorities". </s> |
1,111 | <s>[INST] That Argentine companies have much larger profits than [/INST] they report, with the difference going into the pockets of the controlling shareholders, is clear. </s> |
1,112 | <s>[INST] Each company has about four major [/INST] stockholders, and only a handful of companies have outstanding shares. </s> |
1,113 | <s>[INST] The aggregated cash profits for the controlling group of [/INST] stockholders of companies listed on the stock exchange was about $1,000 a month from 1969 to 1985. </s> |
1,114 | <s>[INST] These cash dividends cannot remotely explain [/INST] the controlling shareholders lifestyles let alone their investments abroad. </s> |
1,115 | <s>[INST] Some have paintings in their living rooms worth [/INST] more than a decade's worth of the cash they officially got from their companies. </s> |
1,116 | <s>[INST] While few complaints make it into the [/INST] press, most small investors know about this and shun the market. </s> |
1,117 | <s>[INST] Since cash dividends are so low, the main reason [/INST] why small stockholders own stock at all is because of their expectations about how prices will change. </s> |
1,118 | <s>[INST] Most other potential capital-market investors send their money [/INST] abroad, invest it in a small company of their own or lend out money informally. </s> |
1,119 | <s>[INST] This has led to a significant decline in the [/INST] number of companies listed in the market -- from 669 in 1965 to about 170 today. </s> |
1,120 | <s>[INST] Subscriptions have typically accounted [/INST] for less than 0.5% of yearly investment. </s> |
1,121 | <s>[INST] Most companies are at least [/INST] 70% owned by a few controlling stockholders. </s> |
1,122 | <s>[INST] Only two, Celulosa, SA and Alpargatas, SA, [/INST] have a capital structure open enough to find battles for control of stock. </s> |
1,123 | <s>[INST] Little has been done until [/INST] now about the poor performance of Argentina's capital markets. </s> |
1,124 | <s>[INST] Investment opportunities are usually limited to [/INST] those that can be financed entirely by just one company. </s> |
1,125 | <s>[INST] Without joint ventures and without a healthy [/INST] stock market the middle class is excluded from participation in corporate property. </s> |
1,126 | <s>[INST] Investment is still possible, but it requires [/INST] a concentration of ownership that may prove politically inviable and socially regressive. </s> |
1,127 | <s>[INST] The Argentine tax structure discriminates heavily against the mostly small [/INST] investors in the financial markets and in favor of owners of farms, real estate or controlling interest in corporations. </s> |
1,128 | <s>[INST] Not many more than 300 individuals -- including the owners [/INST] of most of Argentina's leading corporations -- pay more than $10,000 a year in taxes on personal property. </s> |
1,129 | <s>[INST] But any small saver with, say, $50,000 [/INST] in the bank is being charged disguised taxes of about $3,500. </s> |
1,130 | <s>[INST] The president of the Argentine Securities and Exchange Commission, Martin [/INST] Redrado, has done little to overhaul the regulatory structure of the capital markets to make them more transparent. </s> |
1,131 | <s>[INST] He has chosen, instead, to propose a mechanism guaranteed simply to encourage a seemingly endless [/INST] cycle of rallies and crashes: a government stock price support fund, in which swiftly sinking stocks would be bought up by the government to keep them afloat. </s> |
1,132 | <s>[INST] Fortunately, this potential fiscal black [/INST] hole was overruled by Economy Minister Cavallo. </s> |
1,133 | <s>[INST] If the Argentine market revolution is going to be successful, the capital [/INST] and financial markets will have to be reformed by cutting cheating to a minimum and removing discrimination against middleclass savers and investors. </s> |
1,134 | <s>[INST] Corporate law will have to be [/INST] overhauled to protect minority shareholders from book tampering by the management. </s> |
1,135 | <s>[INST] Clear rules for corporate transparency in Argentina should include the following: Inspection rights for minority stockholders (and also for large creditors) of audited books and [/INST] company warehouses; rules that would prevent the "pyramidation" of control; rules demanding that profits be entirely paid out as cash dividends unless they exceed some minimum; and a right for minority stockholders to have their stocks repurchased by the company at some fraction of their book value. </s> |
1,136 | <s>[INST] In addition, the government must stop its abusive -- and [/INST] often disguised -- taxation of small savers' bank deposits while it barely touches the assets of corporate owners. </s> |
1,137 | <s>[INST] Much of this may seem interventionist, but [/INST] it's interventionism in order to secure the property rights of investors. </s> |
1,138 | <s>[INST] --- Mr. Williams is an Argentinian [/INST] who works as a commodity trader in New York. </s> |
1,139 | <s>[INST] (See related letter: "Letters to the Editor: [/INST] Argentina Upholds Free Market Philosophy" WSJ -- March 5, 1993) 930219-0151 </s> |
1,140 | <s>[INST] ___ Document 169 of 400 Latin America: Yes, we [/INST] have no mananas Author: Grimond, John Publication info: The Economist 329.7837 (Nov 13, 1993): SS5. </s> |
1,141 | <s>[INST] accountid=28034 Abstract: At the beginning of the 1980s, it was difficult [/INST] to find a country in Latin America that was not ruled by an authoritarian government, often a military one. </s> |
1,142 | <s>[INST] And populism is out [/INST] of vogue, at least for the moment. </s> |
1,143 | <s>[INST] Accompanying these political changes [/INST] is the transformation of the economic landscape. </s> |
1,144 | <s>[INST] Dizzying figures for consumer-price rises were recorded all over the [/INST] region between 1980 and 1990; annual inflation in Brazil hit 2,750%, in Argentina 3,080%, and in Nicaragua 14,300%. </s> |
1,145 | <s>[INST] At the end of the 1980s, the region had [/INST] transferred more than $223 billion abroad in servicing debts and paying dividends to foreigners on their investments. </s> |
1,146 | <s>[INST] A realization was gained that [/INST] the old ways could not be continued. </s> |
1,147 | <s>[INST] Accordingly, from Argentina to Mexico, reformers started work, under the [/INST] watchful eyes of the International Monetary Fund, the World Bank, and other creditors, to put matters right. </s> |
1,148 | <s>[INST] In 1992, Chile grew by [/INST] 10.4%, Argentina by 9%, and Venezuela by 7%. </s> |
1,149 | <s>[INST] In short, Latin America seems destined at last to [/INST] become a serious place, where responsible politicians, not beribboned generals, run functioning democracies and prosperous economies. </s> |
1,150 | <s>[INST] Full text: Once in [/INST] a while, something big hits Latin America. </s> |
1,151 | <s>[INST] About 65m years ago it was an object from outer space [/INST] that released roughly as much energy as 2 billion atomic bombs the size of the one that blitzed Hiroshima. </s> |
1,152 | <s>[INST] The heat and dust generated [/INST] by that impact put paid to the world's dinosaurs. </s> |
1,153 | <s>[INST] In recent years Latin America has been struck by something similar: not so big, not [/INST] so destructive and not a meteorite from outer space, but something that has already released enormous quantities of energy and wiped out many of the region's latter-day dinosaurs. </s> |
1,154 | <s>[INST] It promises to have an effect [/INST] almost as dramatic as that gigantic boulder from the sky. </s> |
1,155 | <s>[INST] For decades, the most prominent political features of Latin America were [/INST] militarism, Marxism and populism, and the dominating economic one was the closed economy, whose engine of growth was import substitution. </s> |
1,156 | <s>[INST] Today reform is under way almost everywhere, even--hesitantly--in [/INST] Cuba, though Fidel Castro's joyless island still exemplifies the old more than the new. </s> |
1,157 | <s>[INST] At the beginning of the 1980s it was difficult to [/INST] find a country in Latin America that was not ruled by an authoritarian government, often a military one. </s> |
1,158 | <s>[INST] There were some democracies (Venezuela and Costa Rica, for example), but [/INST] several places that superficially looked democratic (such as Mexico) were in fact autocracies, and most countries' were straightforwardly under military rule. </s> |
1,159 | <s>[INST] Today, on the mainland at [/INST] least, the soldiers are back in their barracks. </s> |
1,160 | <s>[INST] From time to time General Augusto Pinochet, no longer Chile's head government [/INST] but still its commander-in-chief, dons his fatigues, clears his throat in stentorian fashion and makes Chile's civilian politicians jump nervously to attention. </s> |
1,161 | <s>[INST] Rumours of coups arise intermittently in countries such as Venezuela (despite its [/INST] democratic traditions) and even Bolivia (now stable, but not always so: it had 189 putsches in its first 168 years of independence). </s> |
1,162 | <s>[INST] Though already in power, President Alberto Fujimori even managed to carry [/INST] out a sort of coup in Peru last year, suspending both Congress and the constitution, with the army's backing. </s> |
1,163 | <s>[INST] But international opposition was such that Mr Fujimori [/INST] was obliged to let the people elect a new Congress seven months later. </s> |
1,164 | <s>[INST] And Guatemala's president, Jolge Serrano, who was tempted to emulate Mr Fujimori [/INST] in June this year, found that he could not muster the army's support; indeed, it played an influential part in his downfall. </s> |
1,165 | <s>[INST] Soldiers, it seems, have lost their taste for running [/INST] thins, maybe because they made such a hash of it when they had the chance. </s> |
1,166 | <s>[INST] Not all of them: General Alfredo Stroessner, who bossed Paraguay from 1945 to [/INST] 1989 as a caricature of a 19th century caudillo, briefly managed to give it one of the highest growth rates in the world in 1976-81. </s> |
1,167 | <s>[INST] But in most countries, the soldiers [/INST] found that they could not make a success of economics. </s> |
1,168 | <s>[INST] In Argentina they could [/INST] not even make a success of war. </s> |
1,169 | <s>[INST] Latin America, the stamping-ground of Fidel Castro and Che [/INST] Guevara, was where revolutionary communism, according to some, was going to take off in the 1960s. </s> |
1,170 | <s>[INST] Chile was the only country in the [/INST] world where a freely-elected Marxist government-under Salvador Allende, in 1970-came to power. </s> |
1,171 | <s>[INST] To this day Maoists can still be found among the peasants of Peru (as they [/INST] cannot be among the peasants of China) and Marxists lurk within the ranks of opposition parties (such as Mexico's PRD) and teach on many a Latin American campus. </s> |
1,172 | <s>[INST] But the puff has [/INST] one out of Latin America's left-wing revolutionaries. </s> |
1,173 | <s>[INST] Chile has turned its back on Marxism and militarism alike; the consensus [/INST] that is its strongest political characteristic is held in place by the general recognition that it would be folly to return to either. </s> |
1,174 | <s>[INST] Cuba's Mr Castro is cheered to the ideological echo when [/INST] he travels in South America, but for his pi-headed defiance of the United States, not for his impoverishing communism. </s> |
1,175 | <s>[INST] In Nicaragua, his sympathisers, the comandantes under [/INST] Daniel Ortega, were firmly rejected by the voters in February 1990. </s> |
1,176 | <s>[INST] The people of Colombia and El Salvador have [/INST] declined to rise up in support of the left-wing guerrillas who have urged them on. </s> |
1,177 | <s>[INST] Just as striking, populism is [/INST] also out of vogue, at least for the moment. </s> |
1,178 | <s>[INST] Carlos Andres Perez, who presented himself as the populist [/INST] darling of Venezuela in the 1970s, returned in 1989 as a purveyor of ultra-unpopular orthodoxy. </s> |
1,179 | <s>[INST] In Pen, Alan Garcia, who ran his country's economy into [/INST] the ground with his frenetic dynamism in the late 1980s, saw his party repudiated at the polls in 1990. </s> |
1,180 | <s>[INST] Carlos Menem, elected as a Peronist in Argentina in [/INST] 1989, spun round to market economics with all the abruptness and skill of a tango dancer. </s> |
1,181 | <s>[INST] He now presides over one of Latin America's [/INST] biggest privatisation programmes, and urges Argentines to abandon their dependence on the state. </s> |
1,182 | <s>[INST] In Mexico, where not so long ago presidents such as Luis Echeverria and Jose Lopez Porcillo splashed out on [/INST] patronage, prestige and political projects, President Carlos Salinas keeps a frugal house and hopes to end his term of office with a free-trade agreement with the United States-the Latin American populist's traditional enemy number one. </s> |
1,183 | <s>[INST] Accompanying these three political changes [/INST] is the transformation of the economic landscape. </s> |
1,184 | <s>[INST] For the 40 years after the second world [/INST] war, most Latin American economies were kept as tightly sealed as biscuit boxes. </s> |
1,185 | <s>[INST] The prevailing economic theory was handed down from the United Nations [/INST] Economic Commission on Latin America and the Caribbean (as it is now called), ECLAC, founded by Raul Prebisch in 1947. </s> |
1,186 | <s>[INST] It is a little unfair to characterise the policies that this theory spawned as promoting import substitution rather [/INST] than export-led growth, the protection of domestic industry, artificially high exchange rates, help for the public sector at the expense of the private and a tendency to create huge budget deficits-but only a little. </s> |
1,187 | <s>[INST] It is also a little unfair to describe these policies as disastrous: between 1950 and 1980 the GDP of [/INST] the region as a whole grew at an average annual rate of 5.5% and in the 1970s Brazil, whose economy is easily the biggest in Latin America, had one of the world's highest growth rates. </s> |
1,188 | <s>[INST] The first signs of their inadequacy emerged in the 1970s, when countries [/INST] such as Brazil found themselves facing higher oil prices, lower savings rates, bigger budget deficits, growing national debts and rising inflation. </s> |
1,189 | <s>[INST] The collective response was to borrow and spend, a policy [/INST] in which lenders readily acquiesced until August 12th 1982, when Mexico announced it could no longer pay its debts. </s> |
1,190 | <s>[INST] So began the long Latin American debt saga, in which [/INST] almost every country in the region, with the notable exception of Colombia, had to reschedule its debts. </s> |
1,191 | <s>[INST] For many countries, the handmaiden of [/INST] uncontrolled debt was uncontrolled inflation (see charts 1 and 2). </s> |
1,192 | <s>[INST] Until the 1980s the world had known few hyperinflations and all [/INST] had been generated by either the first world war (Germany, Austria, Hungary, Russia) or the second (China, Greece, Hungary again). </s> |
1,193 | <s>[INST] Latin America's contribution to economic history--alas, since emulated [/INST] in Russia and Eastern Europe--has been to bring about hyperinflation by sheer mismanagement. </s> |
1,194 | <s>[INST] Dizzying figures for consumer-price rises were recorded all over the region between 1980 and [/INST] 1990; annual inflation in Brazil hit 2,750%, in Argentina 3,080%, in Peru 7,500%, in Bolivia 11,800% (some estimates even put the figure at 23,000%), in Nicaragua 14,300%. </s> |
1,195 | <s>[INST] Debt and inflation brought [/INST] other woes: recession, unemployment, falling real wages. </s> |
1,196 | <s>[INST] At the end of the 1980s, the region had transferred more than $223 billion abroad [/INST] in servicing its debts and paying dividends to foreigners on their investments, and Latin Americans' income per head was lower than it had been ten years earlier. </s> |
1,197 | <s>[INST] The 1980s became known as the lost decade, YOUNG [/INST] LIBERALS Yet something was also gained: a realisation that the old ways could not be continued. </s> |
1,198 | <s>[INST] Accordingly, from Argentina to Mexico, reformers started work, under the [/INST] watchful eyes of the International Monetary Fund, the World Bank and other creditors, to put matters right. </s> |
1,199 | <s>[INST] For several years many Latin American countries have been going through [/INST] the equivalent of a wrenching health cure, complete with purgatives, exercise and the economic equivalent of a grapefruit diet. </s> |
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