summarize the article.
Give your thoughts on the article; and,
Draw a graph, label the axes and identify the market that the graph is depicting and explain in words how either the demand or supply curve moves given the discussion in the article.
Inflation Fuels Crises in Two Latin Nations
Feb 2014, WSJ
By
Taos Turner, Juan Forero and John Lyons
Argentina and Venezuela face soaring prices and possible
recessions after a decade of unorthodox polices, amid
regional headwinds
The funeral home where Fabian Claudio Guasti works is having trouble setting coffin prices amid soaring inflation. Alejandro Kirchuk for The
Wall Street Journal
BUENOS AIRES—Funeral home director Carlos Bianchi’s dilemma over how much to
charge for his coffins goes a long way in illustrating the economic woes plaguing both
Argentina and Venezuela.
The Argentine government’s currency devaluation last month, which helped spur a global
selloff in emerging-market currencies, also sent prices soaring here. What confounds Mr.
Bianchi’s calculation is that he must use an unsteady and weakening currency, the peso, to
buy imported parts for his wares.
“I have to tell customers that I can give you a coffin today, but you’ll have to pay for it later,
at who-knows-what-price,” said Mr. Bianchi, with a cigarette in hand. “Nobody wants to do
that.”
Both Argentina and Venezuela face soaring inflation and possible recessions that create
new headwinds for a region already reeling from China’s slowdown and investor pessimism
about emerging markets.
Inflation Fuels Crises in Two Latin Nations
Feb 2014, WSJ
By
Taos Turner, Juan Forero and John Lyons
Venezuela notched a 56.2% rate in 2013, one of the world’s highest rates. Argentina,
independent economists say, clocked an approximate 28% rate last year. They expect it to
be higher this year following a devaluation.
Meanwhile, Venezuela looks set to fall into recession as stringent price controls and
shortages of imports due to scarcities of hard currency bring economic activity to a
standstill. The country’s central bank on Wednesday canceled its weekly dollar auction,
citing unexplained “anomalies,” further constricting imports.
For Argentina, Bank of America Merrill Lynch forecasts a 3% contraction, as investment
dries up and people spend less because of higher interest rates and decreasing purchasing
power.
Alberto Principe, 71 years old, who owns a Hyundai dealership in a tony district near
Argentina’s championship polo field, lamented that he has seen it before, the boom-bust
cycle. “Our cycles are almost biblical,” he said. “But just because you’re used to inflation
doesn’t mean it’s easier to deal with.”
Car sales had been good in recent years, Mr. Principe said, but new taxes and the
devaluation are “lethal,” he added, explaining how a Santa Fe Premium SUV, which sold for
$63,000 a few months ago, now goes for more than $100,000. “The market has totally shut
down,” he said.
Many economists say the countries’ fading fortunes are a rebuke of the heavy state
intervention, price controls and corporate nationalization that have underpinned their policy
making for more than a decade.
The nations now risk reviving the kind of out-of-control inflation that characterized Latin
America in the “lost decade” of the 1980s but which most experts believed had been tamed
for good.
Inflation Fuels Crises in Two Latin Nations
Feb 2014, WSJ
By
Taos Turner, Juan Forero and John Lyons
“There is a risk of hyperinflation, of prices really starting to accelerate enormously,” said
Claudio Loser, an Argentine and former International Monetary Fund economist. “I’m not
saying that you’ll have hyperinflation, but it’s a very plausible scenario. In Venezuela, it’s
already happening.”
When inflation surged in Latin America in past decades—it reached 5,000% in Argentina in
1989—many of the region’s trading partners also had fast-rising prices. But that isn’t the
case today, making Argentina’s and Venezuela’s outliers in a region likely to feel their pain.
For Brazil, fewer exports of its cars, auto parts, food and manufactured goods to one of its
major trading partners, Argentina, stands to further hold back its already slowing economy.
Uruguay, whose economy is more dependent on Argentina’s, is concerned about a run on
Argentine banks and a drop in tourism from its neighbor.
Venezuela, economists say, has started to selectively default—failing to pay European
airlines, American oil service companies and Colombian food exporters, among others, as it
struggles with fast-depleting reserves.
In Argentina already, many people believe a wave of fast-rising inflation is coming, as stores
jack up prices to stay ahead of the falling peso value. “We raised prices by 15% across the
board after the devaluation,” said a home appliance salesman in a Buenos Aires suburb,
Rene Poirier, surrounded by washing machines and refrigerators. “If you don’t raise prices,
you can get caught and lose money.”
Economists say inflation in Argentina and Venezuela can be curtailed by ditching subsidies,
price caps and currency controls. But observers of both Argentine President Cristina
Kirchner and Venezuela’s Nicolás Maduro say they have a political stake in acting contrary
to the more orthodox economic policies supported by their U.S. nemesis such as free trade.
Indeed, Mrs. Kirchner’s cabinet chief, Jorge Capitanich, this week reiterated threats to fine
or shut down businesses that raise prices, telling reporters “unscrupulous store owners and
businessmen want to affect the purchasing power of families.”
In Venezuela, where the government also vilifies certain businesses, soldiers forced
retailers to sell electronics goods at bargain-basement prices; one general guaranteed
plasma televisions to all Venezuelans on national TV.
A new agency Mr. Maduro created, the National Superintendence for the Defense of Socioeconomic
Rights, began deploying 480 inspectors this week to check prices and level
sanctions against those who set them too high.
The agency aims to enforce a new law that can lead to a 14-year prison term for those
convicted of hoarding products or waging “economic warfare” against the government. “If
Inflation Fuels Crises in Two Latin Nations
Feb 2014, WSJ
By
Taos Turner, Juan Forero and John Lyons
we have to expropriate, we will expropriate what we have to in order to defend the
economy,” Mr. Maduro warned businessmen in a rally on Tuesday.
Economists say such measures have backfired. Venezuela could see inflation reach 300%
later this year, according to Manuel Suarez-Mier, an economist and former official in
Mexico’s Central Bank. Though rich in oil, the central government’s debt has quadrupled in
the 15 years since Mr. Maduro’s predecessor, Hugo Chávez, won power, while spending
and the printing of money to finance it swelled.
“When inflation reaches a chronic level, say around 50%, it becomes unstable and could
follow an explosive path,” said Augusto de la Torre, chief economist for Latin America at the
World Bank.
Venezuela’s inflation woes are in plain sight in Caracas, where high prices and scarcity on
store shelves is the norm. “I can’t buy because of the price rise,” said Jorge Marquez, 25,
who was shopping for a tablet on a recent day. “There is a lot of scarcity, and in addition to
that, when you find something it’s expensive.”
Why Spain and Other Eurozone Countries Aren’t Feeling the Recovery
Economic growth comes with lower incomes, making it difficult to escape heavy debt loads
By Christopher Bjork
The Wall Street Journal
Updated June 3, 2015 4:18 p.m. ET
Cesar Mahiques landed a job managing a ceramic-tile factory in Alcora, Spain, after a long period of
unemployment, at half the pay of his old job. Photo: ANTONIO HEREDIA FOR THE WALL STREET
JOURNAL
ALCORA, Spain—After nearly a year of unemployment, Cesar Mahiques was lucky
enough to land a job managing a factory in this ceramic-tile manufacturing town.
The catch was 50% lower pay than in his last job.
Half his income now goes to repaying debts, ending his middle-class lifestyle. He
had to cancel last year’s family vacation to afford a car repair.
The factory’s exports of tiles are burgeoning, he says. But “at the end of each
month, I’m still left with only pennies.”
Mr. Mahiques’s mixed feelings can stand for Spain’s, as the country grinds its way
out of Europe’s longest postwar slump. Spanish exporters are gaining market
share within Europe and beyond. But the way they are doing so is by reducing
Why Spain and Other Eurozone Countries Aren’t Feeling the Recovery
Economic growth comes with lower incomes, making it difficult to escape heavy debt loads
By Christopher Bjork
The Wall Street Journal
Updated June 3, 2015 4:18 p.m. ET
their costs and selling for less. And the flip side of that is sagging incomes for
Spanish workers, making it harder for them to escape the heavy debts that were
at the root of the crisis.
European authorities like to claim Spain’s return to growth as a success story, but
many Spaniards say they aren’t feeling the recovery. The economy has been
growing for seven consecutive quarters, up 2.7% in the year through March. Yet
the unemployment rate is almost 24%, and a recent European Union survey found
97% of Spaniards still view the economic situation as “bad.” More than 40% of
Spaniards surveyed by the state last year said they had no cash buffer for
unexpected expenses and couldn’t afford a weeklong holiday.
Other countries on the eurozone periphery are also struggling to sustain
recoveries and overcome one of their biggest weaknesses—a competitive
disadvantage against leaner economies.
Portugal and Ireland, like Spain, have undergone years of painful belt tightening
that has helped turn gaping current-account deficits into modest surpluses. But as
all three economies rebound, their growing consumption of imported goods risks
tipping their accounts back into the red and adding to piles of foreign debt, said
Zsolt Darvas, a senior fellow at Bruegel, an independent Brussels-based think
tank.
Portugal has cut public-employee salaries and made it easier for private
companies to do so. But a slide in consumer spending has put a drag on Portugal’s
recovery, and labor costs haven’t fallen far enough to spur strong export-led
growth.
Labor costs also weigh on businesses in France and Italy. Cuts in social-security
taxes over the past year brought relief to employers in both countries, only to be
offset by ongoing wage growth in France. In Italy, a host of problems—an
inefficient bureaucracy, underperforming schools and a scarcity of innovation—
Why Spain and Other Eurozone Countries Aren’t Feeling the Recovery
Economic growth comes with lower incomes, making it difficult to escape heavy debt loads
By Christopher Bjork
The Wall Street Journal
Updated June 3, 2015 4:18 p.m. ET
means the economy, just emerging from its slump, is unlikely to grow more than
1% annually in the years ahead, economists say.
Burdensome debts
Even in European economies that are growing, millions of families are stuck with
shrunken incomes and still-towering debts. In Spain, average household income
dropped 13% between 2008 and the start of last year, according to the National
Statistics Institute.
When incomes decline, households and businesses must devote a larger share of
their incomes to servicing their loans, which don’t fall. Between 2012 and last
year, the Bank of Spain reported, those debt payments left net household savings
hovering around zero.
“It’s like you’re carrying a really heavy backpack, and as the years pass you
become skinnier and skinnier, and the backpack feels heavier and heavier,” said
Juan Carlos Ureta, chairman of Renta 4 Banco SA, RSVXY 0.00 % a Spanish bank
and brokerage firm.
Spain’s economy, combining private and public sectors, has one of the highest
debt levels in the world, at nearly three times the country’s annual economic
output. More than half of the debt is owed to foreign creditors, leaving the
country vulnerable when international financial markets become volatile.
Without a more robust recovery, “there is a very real risk that Spain will remain in
a debt trap,” said Simon Tilford, deputy director of the Center for European
Reform, a nonpartisan London think tank.
Worries that recovery across the eurozone could be stalled by a sustained period
of falling prices led the European Central Bank to intervene in March, printing
money to buy assets such as government bonds. Consumer prices in the 19-
Why Spain and Other Eurozone Countries Aren’t Feeling the Recovery
Economic growth comes with lower incomes, making it difficult to escape heavy debt loads
By Christopher Bjork
The Wall Street Journal
Updated June 3, 2015 4:18 p.m. ET
country bloc had declined 0.1% over the previous year, including a 0.7% drop in
Spain.
The policy has driven down the euro’s exchange rate, giving hope to European
exporters and lifting business sentiment. In May, ECB President Mario Draghi said
the bloc’s economy had turned a corner, with growth picking up and inflation
expectations recovering from their trough. Prices across the eurozone grew in
May at a 0.3% annual rate.
Still, most economists doubt the measures can raise inflation to anywhere near
the central bank’s target of nearly 2% a year. Prices in Spanish shops, in decline
Why Spain and Other Eurozone Countries Aren’t Feeling the Recovery
Economic growth comes with lower incomes, making it difficult to escape heavy debt loads
By Christopher Bjork
The Wall Street Journal
Updated June 3, 2015 4:18 p.m. ET
since July, are likely to stay under pressure from high unemployment, weak
investment and low wages, said Edward Hugh, a Barcelona-based economist.
Boosting exports
A major part of Spain’s recovery strategy has been to spur exports. New labor
contracts that cut wages helped persuade car makers to shift some production to
Spain from elsewhere in Europe. Smaller companies managed to boost sales
abroad of products ranging from olive oil and citrus fruits to wind turbines and
tires. And for selling beyond the eurozone, a now-cheaper euro provides help.
Spanish exports equaled nearly 33% of gross domestic product at the end of last
year, up from 26% of GDP before the crisis, though GDP was bigger then. Tiles,
such as for bathrooms and kitchen floors, are among the star performers. Tile
exports rose at an annual clip of around 10% from 2011 through 2013, before
slowing to 3% growth last year.
The tile industry, centered near the Mediterranean coast in the province of
Castellón and the town of Alcora, is a microcosm of the country’s boom, bust and
mixed-blessing recovery. The region had a particularly intense housing frenzy,
fueling rapid growth in construction-related industries. The bubble years sucked
in workers and pumped up wages. Factory workers drove BMWs, bought on
credit.
The crash after 2008 hit the region hard. Fifty-six out of 207 tile makers closed,
according to a trade group known as ASCER. More than 12,000 jobs were lost—
47% of the total—as even firms that survived shed workers. Unemployment in
Castellón, which had been a little over 6% before the crisis, reached around 31%
two years ago. It is 26% now.
Mr. Mahiques, an industrial engineer by training, went to work in the tile business
in the 1990s, a few years before Spain adopted the euro and began a creditfueled
building boom. His employer took on debt to expand.
Why Spain and Other Eurozone Countries Aren’t Feeling the Recovery
Economic growth comes with lower incomes, making it difficult to escape heavy debt loads
By Christopher Bjork
The Wall Street Journal
Updated June 3, 2015 4:18 p.m. ET
Over 16 years, he saw his pay more than quintuple. He bought a better car and
traveled farther on vacations. In 2007 he and his then-wife took out a second
mortgage to buy a bigger house, with plans to sell their old house after the move.
“We were all sucked into the maelstrom,” said Mr. Mahiques, 46 years old. When
the housing market crashed, selling the house became impossible. Then, in 2012,
he lost his job.
A tile maker called Halcón Cerámicas SA weathered the downturn by closing two
of its three plants and laying off more than half its workers.
It also cut the price of its tiles, redirecting sales efforts toward large homeimprovement
retailers abroad.
Why Spain and Other Eurozone Countries Aren’t Feeling the Recovery
Economic growth comes with lower incomes, making it difficult to escape heavy debt loads
By Christopher Bjork
The Wall Street Journal
Updated June 3, 2015 4:18 p.m. ET
Markdowns of 20% by Halcón and other survivors lured customers such as Dave
Campbell of Ireland, whose family runs House of Tiles, a small chain of stores
around Dublin. “Spanish producers were desperate for business,” the Irishman
said as he browsed at Halcón’s stand during a tile fair held annually in Valencia,
Spain. The lower prices led him to source more tiles in Spain.
As Halcón’s order backlog grew, the company rented a long-idle factory and set
about restarting its production line. To manage it, the company last year hired the
laid-off Mr. Mahiques. He now supervises 63 workers and three production lines.
There is one big difference. His monthly pay at the job he lost in 2012 had
reached €4,000. This one pays €2,000.
Restaurant meals are now a rarity. Last summer, his 13-year-old Volkswagen Polo
hatchback broke down. Mr. Mahiques had to shell out €1,050 to change the
gearbox and clutch. He canceled the family’s plans to vacation at a Mediterranean
beach town.
“You go from a stable, comfortable situation to one where your income barely
covers costs,” he said.
Overall pay at the rented factory he runs is about 20% lower than at Halcón’s
older factory, said Vicente Gascó, the company’s head of human resources. At the
older one, unions resisted pay cuts, but workers accepted a freeze.
Lean staffing
The workforce of the reopened factory is much leaner than the one Mr. Mahiques
ran for his past employer. Twelve workers staff each shift, 60% fewer than at his
last factory. Halcón has installed digital printers that decorate and glaze tiles
quickly and accurately. Another machine handles quality checks previously done
manually.
Why Spain and Other Eurozone Countries Aren’t Feeling the Recovery
Economic growth comes with lower incomes, making it difficult to escape heavy debt loads
By Christopher Bjork
The Wall Street Journal
Updated June 3, 2015 4:18 p.m. ET
Although Mr. Mahiques earns less than workers who rank below him at Halcón’s
older factory, he isn’t complaining. “The lower the costs, the more likely it is that
the company makes profits in the long run, and that’s what will keep our jobs
safe,” he said.
Years of dwindling household incomes have fostered deflation in Castellón
province. Consumer prices fell 1% in the 12 months through April.
Around Alcora, a hill town with a Moorish-era castle, it isn’t only prices that are
shrinking. At the Panorama restaurant, situated in a dusty roundabout next to
several tile factories, business is down by more than half since the economic crisis
struck. Owner Manuel Muñoz cut employees’ workday in half and now fills
sandwiches with less ham than before.
Working days of up to 16 hours himself, he survives, but feels trapped. “If I sold
the restaurant, I wouldn’t get enough to start something else, and there are too
few jobs out there,” he said. “It looks like this is the way I’m going to live.”
At the Vora Fira Hotel in nearby Valencia, owner Juan Puchades once charged tile
companies as much as €225 a night for rooms during weeklong trade fairs. He has
cut that to as low as €60 and, to accommodate tourist families with children, has
added a sofa bed to each room.
Mr. Puchades has scoured the breakfast buffet for efficiencies. The buns are
smaller now. “We’ve reached a level of ‘optimization’ where there isn’t anywhere
else to cut,” he said.
Tile makers’ strategy of lowering prices may also be approaching a limit.
In one attempt to gain an edge, they have ramped up production of red-clay tiles,
which are cheaper to make than the porcelain ones many customers in Northern
Europe prefer, said Isidoro Zarzoso, head of the ASCER trade association.
Why Spain and Other Eurozone Countries Aren’t Feeling the Recovery
Economic growth comes with lower incomes, making it difficult to escape heavy debt loads
By Christopher Bjork
The Wall Street Journal
Updated June 3, 2015 4:18 p.m. ET
Red-clay tiles have found a growing market in North Africa, but these sales can’t
compensate for the slump at home, where tile sales in 2014 remained at a third
of what they were in 2007.
“We’re already present in 185 countries. It gets harder and harder to grow
exports at this point,” Mr. Zarzoso said.
