[A-List] An open letter to Mr. Thomson

["Gorojovsky" <Gorojovsky@xxxxxxxxxxxx>]

Dear Mr. Thomson:

I hope the following comments [enclosed into square brackets] may help you to
do your advisory work with better knowledge of things involved.

The Argentinean collapse - another IMF triumph

As predicted here, the Argentinean economic policy collapsed last week
in an orgy of anger in the streets where almost 20 percent of the
population is unemployed and the rest are threatened by financial
ruin. They took their anger out on the Finance Ministry, the erstwhile
home of Domingo Cavallo, the architect of the policy of pegging the
currency to the US dollar on a one-to-one ratio under what is known as
a currency board. In delicious, if futile, revenge they torched the
dreaded ministry.

[An exaggeration, there was a small fire but it made little harm if any]

The elected President resigned to be replaced by a temporary fill-in
of a provincial governor whilst new elections are planned in the next
60 days. In the meantime, there is no effective economic policy but
the local currency, the peso, is trading at about 1.5 to the USD on
the streets and the futures market expects it to be a two to one
within a year.

Argentina's USD 150 billion of foreign debt is trading at between 25
and 30 cents on the dollar reflecting the reality that it is will
inevitably go into formal default within days.

Such a tragedy, so long in the making, has several fathers, although
like any illegitimate child they have all rushed for cover. The DNA
tests will however identify the IMF's as a prime suspect. With the
enthusiastic support of the US Treasury, they were the proponents of
the concept of a currency board to cure Argentina's endemic
hyperinflation - which in the 1980s and early 1990s paralleled that of
the 1930s Weimar Republic. It was supposed to cure hyperinflation,
eliminate all chance of devaluation by maintaining at all times enough
dollars in the central bank to cover the Argentine pesos in
circulation and, thereby, encourage investment in the country and keep
Argentine money in Argentine banks, rather than those of Miami, Madrid
and Milan.

Coupled with a policy of privatisation that brought in much needed
foreign investment from the US and Spain, the Argentineans engaged in
an orgy of borrowing, most of it denominated in US dollars. The
problem was that the country saved only 17 percent of GDP but invested
(or consumed) 23-25 percent. This compared with most Asian countries
that save between 30 and 40 percent of GDP. But the geniuses who run large
international banks and international organisations did not seriously try and
address the imbalances for many years. They were delighted with the fees that
accrued from lending more and more.
In this respect, we recall a conversation with the President of one of
the largest US banks in 1995, claiming that Argentina would wipe the floor with
Asia (including China) in the long run.

[In fact, the currency board scheme was in itself the generator of increased
thirst for fresh money. With the peso pegged to a 1=1 relation with the dollar,
imports were subsidized and exports taxed. Thus, in order to earn money to
cover up for the general functioning of the economy (not only the State),
Argentina was forced to borrow for at least the difference in the trade
deficit. To this, we must add the immense burden of the also foreign-imposed
foreign debt contracted since 1976. And this burden, which was imposed on us by
many of your likes, is the origin of all our later tragedies]

He was oblivious to arguments about savings rates, education levels or
work ethic. We heartily disagreed and concluded that he was either
completely incompetent, had been seduced by a Latin lovely or had
spent too long at too high an altitude in his executive jet with the
controlled substances of the Pampas.  (It was probably a combination
of all three.) He has long gone, taken his multi-million dollar
package at the shareholders expense, and left his bank in a very
exposed position. Good corporate governance where art thou? That is
for the other guy!

[Work ethics? Argentinean workers labour for more and harder hours than their
British counterparts. Latin lovelies? Like Lord Profumo, I presume. Controlled
substances of the Pampas? Maté, I guess. A good cup of peperina would do
marvels on you, Mr. Thomson. You don't have an idea of what you are writing
about]

Now we face the nightmare that most middle class Argentines have their
home mortgages in dollars so if the peso is devalued they will be
unable to service their mortgages and lose their homes. This is a
recipe for further social unrest.

[Unless the mortgages are forced into pesos and it is the good friends of the
journalist who foot the bill. In that case, we may see some social unrest in
London and some joy in Argentina. Events which may take place sooner than you
guess, Mr. Thomson]

Given the severity of the situation, it is quite likely that a multiple policy
will eventually be introduced. This would include allowing the peso to float
(downwards) to a new level; renegotiating the foreign debt after a period in
default with a portion wiped out; and existing dollar deposits and loans being
converted to peso obligations at a new lower exchange rate.

[Or, rather, the demonstration of the illegitimacy of the debt and the ensuing
legal actions against "lenders" who will be sued by Argentina, among others, by
charges of genocide: without the support they gave to the 1976 coup, this coup
wouldn't have existed, and Argentina wouldn't have got into this terrible debt.
FYI, the new President is already taking serious steps in this sense, and there
is an unimpeachable ruling by Judge Ballesteros which demonstrates that almost
all of the Argentinean foreign debt is, simply, a swindle.]

Savers will have had some of their savings confiscated but there will
eventually be a chance of economic recovery after another generation
has needlessly suffered but at least the pain will have spread around.

Investment implications

Who will gain? Politicians and others who held their funds abroad in non-
Argentine banks and the vulture investors whether in defaulted bonds or
repossessed real properties. Indeed, opportunity is the flip-side of risk. In
this respect, we are attracted to the Telefonica de Argentina Yankee bonds
trading in New York, maturing in 2004, yielding 20 percent to maturity and
ultimately guaranteed by the Spanish phone company. The risk/reward seems
favourable. For other vultures, it could be a great time in the next couple of
years to buy an apartment or villa in Buenos Aires.  The cost of living in
dollar terms should plummet.

[Second advice sounds reasonable. First one is crazy. We shall nationalize
Telefónica sooner than you guess, dear journalist and adviser]

Contagion elsewhere

What should be watch out for? One is contagion to Brazil and other emerging
market economies. So far the omens are favourable but the situation bears close
watching. South Africa is suffering right now although we believe the situation
is different: at least, South Africa has gold and other metals that people want
to buy.
Argentina only has beef.

[You ignorant. Argentina has almost zero beef, at least for foreign trade.
Argentina has, unfortunately, become a large soja exporter (but this will be
changed in short time, that is for sure). And Argentina can also have gold by
simply nationalizing the foreign owned mining companies which are robbing us of
our gold, which will also be likely to happen very soon. But this gold will not
go to your pockets, nor to those of the bastards you give advice to.]

Asia, in general, is in relatively good shape to avoid fall-out from
Argentina. The concern for Asia will be the US economic recovery and
continued deterioration in Japan's economy that could affect their
currencies in the coming months.

The one remaining important currency board arrangement in the world is
Hong Kong. That arrangement is still as sound as a dollar - for the
time being. Hong Kong has massive currency reserves and no government debt.
Prices and wages have tended to be more flexible in a downward direction than
elsewhere. But the economy is sluggish and the important property industry
would like to see increasing property
prices and an end to negative equity in middle class properties. There
are therefore increasing sotto voce voices there for a more flexible
exchange rate policy. Eventually, the Hong Kong peg will likely
undergo change but not in the immediate future.

IMF policy

With the exit of Stanley Fischer from the IMF look for
dropping of the 'two corner solution' to exchange rate policy of
either pure floating - as for the Euro, the Canadian dollar etc. - or
a currency board as in Argentina. The currency board arrangement is
likely to be kept to the refined form of 'dollarisation' and
restricted to small economies such as those in the Pacific Islands
that cannot justify the expense of having their own currency and
therefore adopt another's currency. Micronesia and the Marshall
Islands use the US dollar and many other islands use the Australian
dollar.

It seems that the IMF and the US Treasury have decided to allow
Argentina to be the first major country to go broke rather than be
bailed out with more tax payer funds. Withdrawal of automatic future
bailouts for the profligate may, in fact, introduce greater caution
into future lending to emerging markets. Greater responsibility on the
part of both investors and borrowers is clearly to be welcomed, if
scenes such as those in Buenos Aires are to become less frequent in
future.

[Who is the "profligate" here, Argentina or the roguish hedge funds such as the
one you chair, Mr. Thomson? We don't forget that it is people of your dirty ilk
who, among others, managed to impose opium on all of the Far East for the
benefit of the investors. And we don't forget that this brought China to revolt
until they became independent --which means, to be clear, "independent from
your greed and perverted impulses". We shall put all those memories into
practice very very soon: for the first time in decades, you don't have any
Armed Forces to resort to here. If you want really GOOD advice, tell your
bloodsucking partners to flee from Argentina as soon as they can, Mr. Thomson.
We are vindictive from  time to time. And, you know, we have a particular
delight in pounding Briton scum]

William R. Thomson Wt@xxxxxxxxxxxxxxxxxxxx
25 December 2001 Bill Thomson is Chairman of Momentum Asia, the Asian
distributor of Momentum (UK) fund of hedge funds. He is also Chairman of the
Siam Recovery Fund, a fund investing in Thailand and PEDCA inc a consulting
company. He is an expert on Asian economic and political affairs and is a
consultant to central banks and governments in the region on financial sector
reform.


Néstor Miguel Gorojovsky
gorojovsky@xxxxxxxxxxxx

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Compañeros del exercito de los Andes.

...La guerra se la tenemos de hacer del modo que podamos:
sino tenemos dinero, carne y un pedazo de tabaco no nos
tiene de faltar: cuando se acaben los vestuarios, nos
vestiremos con la bayetilla que nos trabajen nuestras mugeres,
y sino andaremos en pelota como nuestros paisanos los indios:
seamos libres, y lo demás no importa nada...

Jose de San Martín, 27 de julio de 1819.

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