Argentina on the verge of bankruptcy once again

The economy in Argentina has been unstable for years. After a verdict from the American High Court the country is once again balancing on the edge of bankruptcy. Especially lemons are important for the fruit and vegetable trade. If Argentina were to drop out as an exporting country this would result in rises in price as the other citrus countries can't make up these volumes. Radical measures are needed to climb back.

Last week the American Court sentenced the South American country to pay back a number of debt collectors with securities from before the crisis at the beginning of 2000 in full. For most of the state debt from those years a repayment agreement was made which meant that a large part of the debt was remitted. A number of American hedge funds bought the debts right after the crisis and did not stick to the repayment agreement. They demanded the full 100% of the debt. The Court favoured the debt collectors. Argentina has to pay 1.3 billion dollars worth of overdue payments before the end of the month. A sum that the country does not have. Bankruptcy looms.

Important lemon country
The consequences for the fruit and vegetable sector after bankruptcy are limited. Marcel van Rooijen of Verdi Import says that Argentina lost the important position it held in top fruit around 15 years ago a long time ago. "We have seen the export volumes dropping for years."

Argentina has also lost its position in the meat export. Only soy is still an important export product. "This is because the international demand still exceeds,"says Eddy Jager of Jaguar.

Argentina is an important player in the citrus market as far as lemons are concerned. "Argentina's competition position is dramatic," continues Eddy. "They still have a reasonable position on the lemon market as Argentina supplies large volumes of them. The power of large numbers plays a role in this. The competition position in oranges and mandarins isn't as good."

Deeper economic causes
Both traders can see that the country has been in trouble for a while and that only drastic measures could turn the tide. Marcel says that the country makes export more difficult with all kinds of export taxes. "The situation is very fragile and worsens every year. The government finances the spending with export taxes. This makes export more expensive, which causes the volume to decrease and then higher taxes are needed to make the same turnover." This traps Argentina in a vicious circle.

Eddy Jager can see that the country has been dealing with hyperinflation for years. "Officially, the inflation is at 8-9% but in reality it has been 25-26% for years. Increases in loans with the same percentage have become normal, which has lowered the competition position." He also sees that the country has a shortage of dollar reserves. "The government controls the currency. You can only buy dollars if you receive permission. Due to the shortage of currency the export is near enough stagnant."

Argentinian exports use all kinds of tricks to survive. A shadow market has sprung up, the so-called Dollar Blue on which the locals trade. The official exchange rate between the Argentinian peso and the American dollar is around 8 to 1. On the Dollar Blue a dollar is worth 11 to 12 pesos. "Exporters are trying to survive like this," explains Marcel. "If they stick to the laws they have no chance of survival." But only Argentinians can access the shadow market, Dutch traders have to operate through official channels.

Solutions
To break this vicious circle, the entire system has to change, believes Marcel. "The only way out is if the course is changed and the government stimulates the export. By exporting as much as possible you obtain foreign currency. This is being fought against at the moment and it doesn't look like this will change any time soon."

Devaluation of the Argentinian peso and giving up the set exchange rate with the dollar is the only solution, according to Eddy. He expects a devaluation of 30-35% needed to repair the economy again. "The population will suffer, but there are elections in November, so unpopular decisions are being postponed. It doesn't look good."

Contact:
Verdi Import
Marcel van Rooijen
Koopliedenweg 38
2991 LN Barendrecht
T: 0031 180 61 88 11
E: marcel@verdiimport.nl
W: www.verdiimport.nl

Jaguar
Eddy Jager
Postbus 4146
2980 GC Ridderkerk
T: 0031 180 75 05 00
E: eddy.jager@jaguartfc.nl
W: www.jaguarfreshcompany.com