Saturday, September 27, 2008

Argentineans Face the "Jazz Effect"

President Fernandez Speech to U.N.
"Los nervios de argentinos con depositos en EEUU" Grupo de diarios de America
"El terremoto financiero" El Universal

The ongoing financial earthquake that has shaken the wealth in the U.S. directly impacts investors throughout the world. Among those affected are citizens of other countries who hold accounts in U.S. banks and investment companies. Many Argentineans fall within this affected group.

It is common practice for Argentinean investors and savers both large and small to keep their funds in the U.S., away from the historically turbulent Argentinean economy. During the last week, the credit crisis in the U.S. translated into a temporary decrease of capital outflow from Argentina to the U.S. Many Argentineans are now facing the realization that their investments in the U.S. are not as secure as they believed.

Some Argentinean investors and savers did not fully appreciate the risk they were taking on with certain U.S. investments, for example they assumed most investment accounts in the U.S. carried equally low risk, simply given the fact that both accounts were in the U.S. and in U.S. dollars as compared to Argentina, where the peso has a history of violent turbulence. They did not account for the risk inherent in certain investments, such as money market accounts, where the funds are invested in short-term securities. As one Argentinean explained, people place money in a U.S. account to forget about the Argentinean risk, but do not take the time to look where their funds end up.”

Now Argentineans who are concerned about their U.S. investments face certain barriers to bringing their money back into Argentina. Besides the uncertainty of where better to place their hard-earned funds, moving their money between countries entails bank and/or governmental administrative fees of between 0.5 and 3.0 percent. This is only one way that the U.S. credit crisis is effecting countries around the world, in a phenomenon that Argentinean President Cristina Fernandez has dubbed the “jazz effect” after the “tequila effect” that stemmed from the Mexican peso crisis in 1994.President Fernandez, in comments to the United Nations earlier this week, criticized the U.S. for what she called its runaway capitalism and for the global effects of the deregulation and lack of economic intervention that has traditionally been championed by the U.S. She pointed out the irony of the U.S. bailout efforts, stating that the “the most formidable state intervention [in the economy] is now produced by the country that said the state could not intervene in the economy.” President Fernandez has pointed to this fact while pushing for her economic interventionist policies for the Argentinean financial system.

1) How can Argentina support its citizens looking for safe investments?
2) How analogous is the "tequila effect" stemming from the Mexican peso crisis of 1994 to what President Fernandez has dubbed the "jazz effect" stemming from the current credit crisis in the U.S.?
3) Is it time, as President Fernandez suggests, to pursue a more interventionist policy in the financial system and the wider economy?

No comments: