Financial Advisor, Political Analyst and Jolly Globetrotter Alex Rosen on recent rail nationalizations in Argentina
A couple years ago, I had the pleasure of taking one of Argentina’s luxurious Cama Coches from Buenos Aires to Mendoza. This wasn’t a planned vacation, but rather an audible at the line of scrimmage due to a failure of the domestic airlines (I guess Carlos Menem’s neoliberalism didn’t fix everything). Along the way, I noticed the remnants of what was once a beautiful rail system. Today it is a symbol of how a once great nation has fallen into disrepair.
In 1854, the British built a train line between Buenos Aires and Valparaiso, Chile in an effort to link the Pacific to the Atlantic (an apparently insatiable quest for world powers). They called it the Transandine railway.
This magnificent railway crossed the Andes through a series of bridges and a tunnel to create an overland canal. Initially the idea was for it to be a passenger train, reducing the transit time from 11 days to 36 hours. However as commerce increased, it became a freight rail system as well despite the fact that it had never been designed for such heavy lifting. Run by a private British company until 1948, fabled Argentine leader Juan Perón nationalized the entire railway system as his wife Evita crisscrossed the country, enchanting her people at each train station.
Let the Good Times Roll
These glory days of the Argentine rail would be short lived. By 1980s both Peróns were dead, and the military junta had jammed the break on trains, in part due to mounting tensions with neighboring Chile. Argentina’s effort to increase the more lucrative use of trucks and the structural neglect of the railway did not help matters, either. But then again, Argentina has never hesitated to intervene with heavy hands in local markets.
Finally in the 1990s, in an effort to raise capital to support the peso, La Casa Rosada sought to divest the rail system. Many lines were sold off as part of an orgy of privatization. But one held fast within government coffers. Apparently no one was foolish enough to purchase a defunct line in a state of decay, and the Transandine railway was left under the ‘control’ of the government.
Now the old rail may have new brothers. Last week, in its endlessly quixotic meddling, the Argentine government announced the nationalization of several additional rail systems within the country. One, La Tren de la Costa is a lovely antiquated rail system connecting Buenos Aires and the waterside suburb of Tigre. Originally designed as a commuter train, it has become little more than a tourist line, chugging people out of the city for a day.
The other nationalized rail system was owned by America Latina Logistica (ALL) a Brazilian conglomerate which had used the system to transport cargo across the nation. After Carlos Menem privatized the rails and sold the system to ALL, it proceeded to expand the use of trucks as a means of transport. The Argentina government built major highways to facilitate the transition, effectively destroying the value of the line. Since then ALL has consistently lost money and been incapable of maintaining its fleet. The Argentine government cited this failure as a justification for the renationalizing.
Just as Buenos Aires was announcing the nationalization, it also unveiled a new US$10 billion loan by the Chinese government to be used for upgrading the Argentine railways. Argentina’s minister of agriculture Norberto Yauhar declared “China is Argentina’s new political partner.”
The trains run on time—Kirchner time, that it
Last week the Argentine farm association went on strike to oppose high taxes and poor infrastructure along the cargo rail system. As a result, exports of grain and oilseeds tumbled 90 percent. As soon as the expropriation and investment in infrastructure were announced, the strikes ended. Two decades after touting the value of trucks over trains, the government had now shifted it’s thinking back to railways (be wary of Argentines selling trucking routes, I guess the moral might be).
However this story goes beyond just cargo trains and shipping. As a result of the government’s ever crippling economic policies, the Argentine Peso has weakened to the point where Buenos Aires is the hottest destination in all of South America for shoppers. Fictitious currency conversion rates have prevented the government from taking advantage of this tourist boon and as a result black market moneychangers are making a killing exchanging pesos for dollars.
Perhaps the government hopes to capitalize on this flood of tourists through the train system. The reality is no one has any idea of Cristina Kirchner’s thought process any more and most people have given up trying. The lone country that seems to have any interest in working with Argentina is China, and that’s a scary proposition. The only certainty is that the government is desperately reaching out to anyone who will offer it a short-term lifeline, regardless of the long-term consequences.
Perhaps China should ask the IMF how that worked out. Next stop: Defaultsville.
Alex Rosen has acted as Wealth Advisor with Veritas Wealth Advisors, LLC and as a Political Analyst with Fundación Pensar in Argentina.