Country Article / Postcards

Don't Laugh at Me Argentina

Date: 11/15/2005

Dear International Living Reader,

We mentioned our new ranch to an Argentine friend in London. The man promptly fell to the ground, rolling around clutching his sides...practically rupturing internal organs.

What provoked this dangerous attack of mirth was our own humble innocence. Out in the wilds of Argentina, in Salta Province, the anglo-saxon is out of his element, out of his league...and probably out of his mind, said our Argentine friend. When we explained that we had good legal advice...and that we trusted our property agent, the resultant outburst of laughter made us think we'd have to call an ambulance.

"I’ve got news for you," volunteered our friend when he was finally able to speak. "It doesn’t work that way in Argentina. It’s a system based on trust. You can always trust that the seller is lying to you. And if you go to court, they’ll laugh at you even more than I am...

"Down there, it will be as if you were born yesterday...no, as if you hadn’t even been born yet... ha...ha...ha..."

Investing money south of the Rio Grande is an adventure. A financial adventure, of course...but the real risk is to the investor’s amour propre. Man is a social animal. He feels most comfortable when he is surrounded by other men just like himself--that is, men who are equally timid and lazy-minded. He says he always tries to get value-for-money, and he’ll readily cross the road to get a better deal on toilet paper or TV sets. But when he makes his important buys--property or shares, for example--he stays put.

The Bank of England will sell him a note on which he will earn 4.4% yield over the next 10 years. He gets the same deal from the U.S. Treasury. But in Brazil, he can get nearly three times as much--12.75%. Brazil’s government has a surplus; its trade balance is positive; and its inflation figure is only 4.4%. In Britain and America, the financial authorities do all they can to stimulate credit; in Brazil they practically stifle it, with a central bank lending rate recently cut to 19.5%. Yes, buying Brazil’s bonds is an adventure...but buying bonds from the central banks of England or America could prove even more exciting.

Price and risk tend to be harnessed together, like two dumb animals. When one goes forward, so does the other. Bonds, stocks and property are cheap in Latin America; are they low risk too? Maybe. On the other hand, bonds, stocks and property are expensive in North America and Europe. Is that not where the greater risk lies?

A pound is a dollar is a peso. No matter what currency you spend, in nominal terms, the price is about the same. We have no explanation for this; perhaps it is merely a coincidence. But when you buy a cup of coffee in London, you pay about £3. The same cup of coffee in New York costs $3. And in Buenos Aires, you pay three pesos. But the dollar is worth barely half of a pound and an Argentine peso is worth only a third of a dollar. So, the real cost of the cup of coffee in Buenos Aires is only 1/6th as much as London.

This is more or less true in property prices too, only amplified. For the price of a single London townhouse, for example, you could buy an entire apartment building in almost any city in Latin America. Out in the country, you get even more. On a recent trip to Argentina, we looked at an amazing place. It might have been Arizona or New Mexico--with clear snowmelt coming down from the Andes cutting through warm, barren hills. On the flat-land by the river were 1,000 acres of grapevines...several rustic houses built of adobe, and a marvelous old winery that had been built in 1870, with a capacity of 500,000 liters of wine per year.

There were rows of Lombardy poplars lining the vineyard, which was irrigated from the river. The weather down there is nearly perfect, with sunshine almost every day. Rarely does it get very cold--even in winter. And surrounding the vineyard are 50,000 acres of wilderness. It was a delightful scene. Had it been in California, with less land, it might be priced at $20 million or more. In France or Italy...it would be impossible to find such a place at any price. But in Argentina, the asking price is less than $2 million.

Another wine area, near the charming little town of San Rafael, offers buyers building lots in the middle of a vineyard for just $21,000. The property is about five minutes from the airport and 10 minutes from town...and the weather is better than Arizona. What’s more you can get a cook, a gardener or a chauffeur for only about $10 per day. (If you’re interested in any of these properties, contact Paul Reynolds in Buenos Aires, at argentina@internationalliving.com).

Why so cheap? Because it wasn’t long ago that Argentina’s export industry, and its middle class, were practically wiped out. Inflation ran over 1,000% per year. The whole country went broke. Unemployment hit 25%--just as in the U.S. during the Great Depression. Earnings fell by 30%. So recently burned, the locals are still shy. Foreigners have their doubts too. They’ve heard that the Latin American currencies are slippery and their courts are unreliable. The anglo-saxon worries about getting cheated, getting sick, or worst of all, of getting laughed at.

In Nicaragua, we discovered that a "good" title is not always as good as we thought it was. Yes, you can take the matter to the courts, but the judges were almost all appointed by the communist Sandinistas. If you knew what was good for you, you settled the matter without ever appearing in court. Or, if you were unlucky enough to go to court, you’d better know whom to bribe and how much.

We are open minded, here at International Living. Bribery seems often as good a way to settle a legal issue as any other. Compared to U.S. court cases, bribery is often cheaper and more efficient, and even more reliable. A good judge is merely one who stays bought. But down in the diarrhea countries, the norte-americano or European is at a disadvantage. He never knows quite how many bills to stuff into the envelope. He is clumsy. He is awkward. He is frustrated. He knows he wants to do something to someone, but he doesn’t know what to do or whom to do it to.

We gringos pride ourselves on being from a sophisticated, developed nation. But we are rubes and rustics when we go South of the Border. We don’t understand the measures--square meters, menzanas, hectares. We don’t understand the lingo. And we can’t even dance.

Once we attended a party in Nicaragua. After a few drinks and a few chords...everybody was on the dance floor... Every derriere shook, swayed, bobbed and swiveled in time with the music--except for one! Young, old, infirm, delusional...all seemed to be able to samba, rumba, calypso, tango, cha cha cha...without practice or persuasion.

"I don’t know if you northern Europeans are built for this kind of thing," said a friend. It was as if we didn’t have the ball bearings in the right place. We could swing our hips, but not fast enough to keep up with the music.

Nor could we keep up with the pace of life in the Latin countries. Things never seem to happen when you expect; generally they happen so much later that you have forgotten about them. We built a house on the coast--again, in Nicaragua. It was supposed to be ready for a once-a-year family visit about nine months after it was begun. But when we arrived, the house still lacked a roof. This sort of thing is alarming to the man who wears two watches. But to the Latin American it seems perfectly routine and not worth mentioning. What’s the hurry, anyway? Eventually, the house was completed--two years later. By that time, we’d forgotten why we had it built.

But in the intervening time, something remarkable had happened. The country had been discovered by thousands of American retirees, speculators and developers. The house we built for peanuts was now worth walnuts or cashews. And the lot for which we paid $120,000...had gone up. A similar lot was sold for $350,000, believed to be the highest price ever paid for a building lot in the country.

Nations...regions...peoples...empires--all go through cycles. Sometimes they are ascendant. Sometimes they go down. The cycles are short...or long, clear or confused. But nothing ever stays in the same place for very long. Latin America is still cheap--following a long period of revolutions, bad government, inflation, bankruptcy and cucaracha. It looks like an opportunity--for anyone who doesn’t mind being laughed at.

Bill Bonner
Founding publisher, International Living