GE Capital Analysis

GE Capital Analysis

Recommendation on Argentina’s future outlook

Abstract This dissertation will determine Argentina’s current political, economical, social, and legal macro environments in order to make a consensus on a recommendation for the next step in GE Capital’s involvement within the country. Recommendation will be based on analysis on previous economic, political, legal and social environments of Venezuela and Argentina in order to better understand Argentina’s current situation.
It is important to first focus on Venezuela’s macro environment in the 1990’s and President Hugo Chavez’s regime and lay out reasons to why GE Capital has decided not to continue investing in Venezuela. Following Venezuela’s examination, Argentina’s macro environment history, starting from the 2001 financial crisis, will be evaluated. In doing so, there will be a comparison between these two countries. Key components of each countries’ assessment are the importance of oil in both Venezuela and Argentina; the extent of Argentina’s dependency on agriculture trade; political probe of Chavez’s Venezuela and of Argentina during former president Nestor Kirchner as well as current president Cristina Fernandez de Kirchner. It will also be determined key detrimental components of the 2001 Argentine crisis in order to forecast how current political and economical events will affect Argentina’s future.
The conclusive recommendations will be made in GE Capital’s best interest, understanding the importance of safe investing due to its major global presence and reputation. It will also show how Argentina and Venezuela’s macro environment study can allow a better anticipation of Argentina’s future.
I. Introduction

Following financial fallouts in Venezuela and Argentina in 2001, GE Capital has come to a crossroad in whether to continue or halt financial services in Argentina. In attempt to create a recommendation of GE Capital’s future in Argentina, it is important to analyze Venezuela and Argentina’s current economic and political state. Being that GE Capital has decided to withdraw from Venezuela and from Argentina in 2001, finding and analyzing factors that support their action will create an outline to forecast Argentina’s future and therefore generate an appropriate recommendation for GE Capital. Venezuela’s macro environment revolves entirely on their most prevailing asset, oil. Being the lead producer of oil and hydrocarbons in the western hemisphere and having arguably the largest oil reserve in the world, Venezuela’s political, social, and economic conditions revolve around its oil. With a hard-line socialist government lead by President Hugo Chavez since 1999, Venezuela has used its nationalized oil industry as a cash cow to become independent of rival countries such as the United States as well as a source to improve domestic conditions. However, this position has made outside investors wary of any involvement with Venezuela. Also fear that a market bubble in the oil industry with an increasing inflation rate leads many to back away from Venezuela. In contrast, Argentina has been going through a moderate improvement since their financial crisis in 2001. Having recovered, and for the moment being financially stable, recent signs such nationalization of oil have made foreign investors susceptible to continue. However, unlike Venezuela, Argentina’s economy has no true backbone on one specific industry. Although soybean and grain contribute to most of its exports, this industry cannot hold their economy as oil does for Venezuela.
II. Venezuela Macro Environment
With oil contributing for roughly 95% of export earnings, about 40% of federal budget revenues, and around 12% of GDP it is of no surprise the immense impact of the oil industry on Venezuela’s political, economic, social, and legal environments, as well as international relations (cia.gov). After the nationalization of the oil industry in January 1, 1976 and the birth of Petróleos de Venezuela S.A. (PDVSA), Venezuela has tied its future to the success of its oil industry. Even more so with President Hugo Chavez’s administrative direction focusing on oil, Venezuela’s economic status can be determined by the success or hardships of this sector. Consequently, the governmental management of the oil industry has become a vital sign to other countries and international companies involvement and investment within Venezuela. Through the early 1990’s PDSVA faced symptoms of Dutch Disease (where a country exploits a natural resource, in this case oil and decline in manufacturing) and a mismanagement of the company’s revenue in regards of the country. From 1976 to 1992, the amount of PDVSA’s income that went towards the company’s costs was on average 29 percent leaving a remainder of 71 percent for the government; where as from 1993 to 2000, however, that distribution almost completely reversed to where 64 percent of PDVSA 's income were kept by PDVSA leaving a remainder of only 36 percent for the government (Mommer). Between 1990 and 1999, Venezuela 's industrial production declined from 50 percent to 24 percent of the country 's gross domestic product compared to a decrease of 36 percent to 29 percent for the rest of Latin America (World Development Report, 2001). In 1996 Venezuela was one of the very few countries in the world where per capita income was lower than it was in 1960 (Karl). Social dysfunction reached its height with the failed 1992 Venezuelan coup d 'état attempts lead by then lieutenant colonel, Hugo Chavez. A combination of failed unpopular IMF economic reforms, increase of price and production of oil in the Middle East along with a decrease in price and production of fuel in Venezuela, lead to the election of Hugo Chavez in the 1998 elections. Understanding the importance of oil and the PDSVA to Venezuela, Hugo Chavez’s campaign centered on political and economic reforms towards the management of the oil industry. Establishing a strong economic foundation based on oil, would allow the country to uses a majority of its revenue to improve socially and economically. Keeping his promises, Venezuela’s oil industry reform encompasses four main areas: solidification of state ownership of the oil industry, tax reform, subordination of the oil industry to national interests, and the strengthening of OPEC (Rodriguez). Venezuelan government saw initial opposition with a failed coup d 'état on 11 April 2002, in where PDSVA officials denounced Chavez new government structures. 2002 concluded with an oil strike that lasted till the beginning of 2003, which left a significant negative aftermath to Venezuela’s economy. The country 's GDP fell 27% during the first four months of 2003, and it cost the oil industry $13.3bn (Jones). Open unemployment, which was running about 15% before and after the shutdown, reached 20.3% in March 2003; the volume of crude oil produced was 5% less in 2003 than the previous year; and the volume of refined oil products was 17% less (Maya). However, the following years saw a vast improvement under the new structure. This hike of revenue can be accredited to Chavez’s influence on OPEC’s cut back on oil production which lead to an increase in prices. As seen in Figure 1, after the dramatic downfall of real GDP in 2002, there has been a constant growth up to 2007, going from 7 trillion of Bolivares to over 14 trillion.
Figure 1

With a remerging economy, Venezuela dramatically improved socially. The Chávez government has greatly increased social spending, including spending on health care, subsidized food, and education. The state oil company alone was responsible for $13.3 billion (7.3 percent of GDP) of social spending in 2006 (PDVSA 's 2006). As seen in Figure 2, improvements in health care, helping citizens in poverty, and an increase in education availability were seen as a result of Chavez redistribution of the PDVSA’s revenue. However, a combination of increasing oil prices, inflation, foreign policy, and the 2009 global crisis has lead to many financial experts to be wary of Venezuela’s economic direction. However, these figures may be arbitrated due to the subjective nature of actually how “good” were these improvements. Many argue that the initial growth has not be maintained and that more importantly rather than it to benefit the country it has been done so to gain future support in the lower economic classes.
Figure 2

III. Venezuela Private Sector With President Chavez’s government came a hard line position on dependency with other countries. Chavez has made his opposition towards the United States a political statement of his government. Results of Venezuela’s position can be seen today through how foreign investments perceive a lack of opportunity growth. The Heritage Foundation states Venezuela’s economic freedom score to be 38.1, making its economy the 174th freest in the 2012 Index. Its score increased by 0.5 point since last year, with a modest gain in labor freedom partly offset by a drop in trade freedom. Venezuela is ranked 28th out of 29 countries in the South and Central America/Caribbean region, and its overall score is much lower than the world average. Chavez anti-free market stance has made the market stagnant and to have an informal economic activity. Its lack of multiple economically sound industries besides oil and extensive price controls on almost every good discourages foreign investors to take a part of the Venezuelan economy. Recent unstable government views have created contracts and property rights are not well respected, and the threat of government expropriation to remain high.
IV. Argentina macro environment:

Argentina has made vast improvements within its economic sector during

the years between 2002 and 2007. Growth rates for national income, trade, and

gross national product all increased during that period of time, but in recent years

(between 2009-2011), Argentina’s economy has begun to fall into a decline. Initial

concern arises, because Argentina had previously suffered through an economic

crisis from 1999 until mid-2002. Argentina has an upper-middle income economy

with approximately 1/3 of its GDP affected by trade. Policies that affect foreign

trade can and will affect the growth and sustainability of Argentina, especially in

terms of both local and multinational industries and businesses. Led by Cristina

Fernandez de Kirschner, the current presidential administration must assess the

economic situation and make economic stability a priority in order to achieve future

successful survivability. Otherwise local businesses will slowly lose market value,

and international businesses with current investments in Argentina, such as GE

Capital, will have to retract their efforts in order to save themselves from potentially

large losses.

In 1991, Argentina adopted a currency board system in order to curb its

traditional hyperinflation. It was also adopted to foster economic stability as well.

Under a currency board, the central bank can only increase money supply when its

hard currency reserves increase. In Argentina, the peso was backed by the US dollar

on a one-to-one peg. The goal was to have a conservative monetary policy free from

the manipulation by politicians. To demonstrate this commitment, banks allowed

depositors to hold their money in peso- or dollar-denominated accounts. The

currency board successfully stemmed inflation over the next 10 years, taking

inflation down dramatically from 172% to -.9%. There was a trade-off though, as the

unemployment rate more than doubled in that same time frame from 6.3% to a

large 15% with austerity coming into play, which is a policy of deficit-cutting by

lowering spending via a reduction in the amount of benefits and public services

provided. Argentina’s largest trading partner at the time, Brazil, suffered a crisis in

January of 1999. The continuous devaluation of the Brazilian real meant that

Brazilians could no longer afford Argentine exports. Argentina traded mainly with

European countries and Brazil, whom do not use the US dollar as their currency. The

result, the peso was fluctuating according to the US dollar’s performance and not

according to Argentina’s actual economic position. This made it apparent that the

decision to peg the peso to the US dollar should’ve instead been to peg the peso with

a basket of currencies that were better aligned with its main international trade at

the time.

In result, the dollar peg overvalued the Argentine peso in the rest of the

world, especially in 2001 when it was compared against the weaker euro and real.

The effect was a reduction in Argentina’s competitiveness, a weakened demand for

its products in both Europe and Brazil, and an increase in its current account deficit.

The economy soon stalled and then quickly contracted. As unemployment

dramatically increase, government spending skyrocketed on stop-gap measures in

order to close up social problems. Lower tax revenues during a recession mixed

with the rising government spending caused the doubling of Argentina’s national

debt and continued to increase through international borrowing. Many international

investors began to doubt Argentina’s ability to repay owed debt, and depositors

feared that devaluation of the peso was inevitable. Depositors withdrew both their

dollar and peso balances, and then they quickly converted any leftover pesos into US

dollars.

The government closed the banks on December 1, 2001 in order to stop the

movement of capital outside of the country, thus preventing the total collapse of the

banking system. The pressure was built up on the currency board, and a decision

had to be made. Since most of the country’s debt was in US dollars, there would be a

huge cost in breaking the peg. Another negative effect would be the long-term

damage to Argentina’s credibility in world financial markets. On the other hand,

having the currency float freely would radically improve competitiveness, while also

eliminating the current account deficit along with the need to borrow money in

order to finance it. On January 6, 2002, Argentina adopted a new, provisional

exchange rate of 1.4 pesos to the US dollar, resulting in 29% devaluation. The peso

was then able to float freely in the marketplace, but within two months the peso

decreased in value from 1.4 pesos to 3.4 pesos to the US dollar. Demand for

Argentine exports greatly increased in the years that followed, but Argentina had to

steadily regain its footing when it came to importation financing. (Currency Crises &

Contagion)

Key to the recovery of Argentina’s economy was the intervention of Hugo Chavez and his regime in Venezuela during the presidential term of Nestor Kirschner, who served office from 2003 until 2007. Argentina defaulted on part of its external debt at the beginning of 2002. Foreign investment fled the country, and capital flow towards Argentina ceased almost completely. The state had no spare money at the time, and the Central Bank 's foreign currency reserves were almost depleted. In August 2007, the President of Venezuela Hugo Chávez bought $500 million Argentine bonds (Boden 2015), which were due to the IMF. Chavez decided this two years earlier during Tabaré Vázquez 's inauguration as President of Uruguay. This trade of bonds would be the Argentine addition to the third emission of Bono del Sur by the Chávez administration. From 2005 to 2006, Venezuela had already bought more than $3 billion bonds from Argentina, issued by the Argentine government following the debt restructuring. In total, Venezuela bought more than $5 billion bonds from Argentina since 2005. In doing so, Chavez began gaining the trust and fellowship of Argentina and the Kirschner family, thus building ties that could later have repercussions in future events.

Argentina has its main foreign ties between China, the United States, and the

countries of Latin America. Bilateral relationship with the U.S. based on several

shared interests: non-proliferation, cooperation on transnational issues, issues of

regional peace and stability (including shared support for multilateral peacekeeping

operations), and commercial ties between them. Cooperation of Argentina also

includes significant science and technology initiatives in the fields of space, peaceful

uses of nuclear energy, agricultural research and biotechnology, medicine, and the

environment. Argentina’s foreign policy priorities are focused on increasing regional

partnerships, including consolidating and expanding the MERCOSUR regional trade

block and more deeply institutionalizing the Union of South American Nations, thus

creating a more nationalized state.

The economy of Argentina is growing, but it is still far from becoming a

worldwide superpower. The current GDP of Argentina rests at $446 billion. The

growth rate of Argentina’s GDP fell steeply between 2007 and 2009, dropping from

a comfortable 8.65% to .85%. This major spike in the growth rate was a result of the

global economic recession. Since then, Argentina has been able to recover from the

fall, with a current growth rate of 8.87%. The exchange rate in early March 2012

was 4.38 pesos / 1$ USD. Argentina has abundant natural resources and an

agriculture dependent economy with a well-educated population. The Argentinian

Peso has significant potential to increase in value due to the country’s especially

high interest rates and investment flow potential. The economic environment is

moderately favorable for long-term economic growth.

Trade is a very important factor in the economy of Argentina. 42.4% of

Argentina’s entire GDP is generated from international trade (35.5% merchandise

and 6.9% services). The total amount of money made in Argentina from trade in

2011 was a total of $81.06 billion. 84% of this number was made off of merchandise

trading, while the other 16% was gained through trading of various services. In

figures 1A through 1D, the percentages of various products and services within the

exporting and importing of merchandise and services can be seen.

Figure 3A.

Figure 3B.

Figure 3C.

Figure 3D. Agricultural trade accounts for 14.4% of Argentina’s trade regime, while the

remaining 28% accounts for both industry and services. Agriculture is at the heart

of Argentina’s exporting. In Figure 1D, the total exportation of agricultural raw

materials and food generate a total share of 54% of merchandise exports. 36.8% of

that share comes from soybeans and its related products alone as of 2011. Argentina

is the 3rd largest exporter of soybeans worldwide, providing approximately 22% of

the world’s soybeans and related soybean products. This soybean market rules the

top of food exports by creating a total of 5.3% of Argentina’s total GDP, with grains

following 2nd. Only 3% of the GDP is made from the oil industry as opposed to

Venezuela’s 12%. Although agriculture and the food industry are major factors in

worldwide trade, they are not prominent enough to guarantee survivability of

Argentina’s own economy from economic downturns with such a small GDP margin

of around 9%. Biodiesel, however, has become one of the fastest growing agro-

industrial activities, with over US$2 billion in exports in 2011. Government policy

towards the lucrative agrarian sector is a subject of contentious debate in

Argentina. A grain embargo by farmers protesting an increase in export taxes for

their products began in March 2008, following a series of failed negotiations, strikes

and lockouts largely subsided only with the 16 July defeat of the export tax-hike in

the Senate. The most important factor about Argentina’s agricultural sector is that

the soybean/grain trade is heavily reliant on exporting. Argentina’s top three trade

routes are Brazil, China, and the United States, respectively. A large part of this

success is due to the rapid recovery of these world economies from the world

recession of 2009. Also, these countries have regained a highly positive growth rate.

If one of these countries’ economies would take a heavy downturn, and given how

agricultural exports from Argentina are priced higher, especially with the addition

of trade tariffs on food products, Argentina would lose a huge portion of its food

trading market. If Argentina were to lose a major portion of its trading survivability,

then the Argentine economy will greatly suffer because there is not much else the

country excels within the exportation department.

Manufacturing is the largest single sector in the nation 's economy (19% of

GDP), and is well-integrated into Argentine agriculture, with half the nation 's

industrial exports being agricultural in nature. Argentina enjoys a diversified service

sector, which includes well-developed social, corporate, financial, insurance, real

estate, transport, communication services, and tourism. Argentina’s service sector

generates 58.2% of its GDP as of 2011. Due to the fact that both of these sectors,

especially services, are so huge, Argentina will need to pay attention to changes in

these industries when making decisions on social, economical, political, and foreign

policies in the current administration. Foreign trade is a major part of Argentina’s

economy. Argentine imports have historically been dominated by the need for

industrial and technological supplies, machinery, and parts, which totaled

US$50 billion in 2011 (two-thirds of total imports). Consumer goods including

motor vehicles make up most of the rest. Due to the fact that both of these sectors,

especially services, are so huge, Argentina will need to pay attention to changes in

these industries when making decisions on social, economical, political, and foreign

policies in the current administration.

Trade with China was negligible until 1992; it later grew rapidly and by

2009, China became Argentina 's second largest trading partner. Argentine exports

to the Asian giant are mainly soy and petroleum products, while imports are mainly

industrial and consumer goods. Modest Argentine surpluses with China turned into

deficits in 2008, however, and anti-dumping measures enacted subsequently

triggered a Chinese boycott of its top Argentine import, soy oil, in 2010. Following

trade negotiations, soy oil purchases from China resumed in 2011. Petrochemicals

are the leading Argentine export to the U.S., and wine the leading Argentine

consumer good in the U.S. market. Imports are mainly industrial.

Foreign investment is the next top priority of the Argentine economy.

Argentina does not possess the necessary funds in order to build its economy to a

large extent. Foreign direct investment in Argentina is divided nearly evenly

between manufacturing (36%), natural resources (34%), and services (30%). The

chemical and plastics sector (10%) and the automotive sector (6%) lead foreign

investment in local manufacturing; oil and gas (22%) and mining (5%), in natural

resources; telecommunications (6%), finance (5%), and retail trade (4%), in

services. In all, foreign nationals hold around US$86 billion in direct investment.

Argentina attracted $3.4 billion in foreign direct investment (FDI) in 2006; as a

percent of GDP, this FDI volume was below the Latin American average. Current

Kirchner Administration policies and difficulty in enforcing contractual obligations

had been blamed for this modest performance. FDI then accelerated, reaching

US$8 billion in 2008, while slowing to US$4 billion in 2009 and recovering to

US$6.2 billion in 2010. Below in Figure 4A and 4B, Argentina currently does not

have a GDP that consists of a great deal of foreign investment in either cash outflows

or inflows. With 1.7% of the GDP coming from inflows, and .35% from outflows,

Argentina is seamlessly closing out potential funds that could ultimately help build

the country’s economy.

Figure 4A.

Cristina Fernandez de Kirschner is the current president of Argentina. She

was elected and assumed office on December 10, 2007. Her primary focuses have

been on social issues within Argentina. She has also turned her attention recently to

bringing a nationalized state of mind to Argentina, a mindset that addresses how the

country should try to start building itself from the inside. Policies and reformation

pertaining to economic improvement have been lacking greatly over the past couple

years.

There are crucial facts that pertain to Cristina’s election as President. One is

that she is the wife of Nestor. During Nestor’s term, a president could not be

appointed for two terms in succession. This was not redrafted until after his term

was up. The people considered Nestor a savior for the economic recovery. When

word of Fernandez’s running for presidency got out, the people knew he’d be behind

her, running decisions from behind the scenes. Another major fact remains that this

family has created ties with the Chavez regime, and his influence has already

created some foundation from the crisis. Chavez has slowly begun persuading

President Fernandez that a unified South America away from the rest of the

capitalist powers will bring out the best for their people. The most obvious evidence

of this would be the nationalization of Repsol Oil. This company, originally owned by

a Spanish company, had a major foothold in Argentine business. President

Fernandez believed that this company was being unfair to the Argentine people by

taking profits back to Spain instead of reinvesting within the borders locally. She

made the decision to nationalize the company in order to create infrastructure with

which to build off of inside the country, and having the 2nd largest reserves of oil in

the world, next to Venezuela, this could possibly be abused the same way Chavez

has done during his time in presidency. This is quite alarming for other

multinational businesses within Argentina, mainly because if a company begins

making large returns, there is the fear that in an instant, the President will decree

the takeover of that company’s foreign assets in Argentina.

President Fernandez has made large efforts to create policies based on social

programs and nationalistic unification. The government has portrayed these

movements as successful efforts, especially with the administration’s attack on

Grupo Clarin, the largest independent media company in Argentina (and her largest

opposition). In reality, the nationalistic drive has caused a schism within the

objective beliefs of its citizens creating outward conflict towards viewpoints on

populations abroad, much like the effect of the Chavez-controlled media within

Venezuelan borders. Also, in regards to social programs, it is quantity over quality.

Many educational outlets have been created, but it is only enough so that the

children are merely in school. The quality of education for Argentina’s youth has

decreased at a rapid rate. The administration says that it strives for future

innovation and technology, but in reality Argentina does not have the well-endowed

next generation to carry out such claims in the long-run. An in regards to the poor

sector, Fernandez’s administration, a socialist directed cabinet, will give to the

needy, but it does not do much in terms of preventing the increase in the poverty

growth rate. The administration can be giving this sector just enough short-term

incentive in order to guarantee another vote for another possible term. Current bank loaning reforms have given banks the leeway to give out more

loans. Bank loans in Argentina currently have a low interest rate, but the percent

that it’s set at is increasing. The Banco Central de la Républica Argentina (BCRA, the

Central Bank) has announced changes to risk-weighted capital requirements in an

attempt to stimulate credit to fuel economic growth and adapt local regulations to

international standards. The reform, which will be implemented in January 2013,

aims to reduce the risk weights allocated to different loan categories. Growth in

personal and credit-card loans has fallen from 49% and 51% year on year

respectively in September 2011 to 32% and 44% respectively a year later. The

government will also be concerned with the deceleration in the past year of

consumer credit growth, A major driver of GDP growth in recent years. However,

the risk weighting on dollar-denominated loans was kept at 100% and total limits

on bank exposure to the public sector were kept unchanged at 35% of bank assets.

The total minimum capital adequacy ratio was also kept at 16%. In this context, the

reform can be viewed as an attempt to reduce bank credit costs in an effort to

increase loan supply.

The widening deficit is causing heads to turn about the economy’s future. Primary spending growth decelerated sharply in September, to 20% year on year, from 31% in the first nine months of 2012, according to latest data from the economy and finance ministry. Revenue growth also weakened, to 18% year on year, resulting in a continued widening of the fiscal deficit. A marked slowdown was registered in a range of important expenditure items. Wages and transfers to the private sector (including energy and transport subsidies), which jointly account for almost one-third of primary expenditure, rose by just 13% and 9% respectively, less than half their growth rates for January-September. Capital spending fell by 2% year on year, driven by lower capital transfers to the provinces, in a further indication that the central government is trying to push fiscal adjustment costs on to local governments. The adjustment in spending growth was driven by a weakening of tax revenue, which expanded by just 17% in September, after growing by 24% year on year in the first three quarters. Some taxes that are good indicators of economic activity, such as value-added tax and the financial transactions tax, grew by less than the average rate. Revenue from export taxes fell, reflecting the continued contraction in foreign trade caused by the imposition of import controls. Weak revenue has led to an overall growth of the national deficit by more than 35%. Also, in the first nine months of the year, the primary fiscal surplus fell by 45%, while the overall fiscal deficit grew by three times. Given continued weak activity and foreign trade data, the economy will be reluctant to undertake major fiscal tightening.
Progress has been slow as many Latin Americans have come to expect pseudo-authoritarian governance from national leadership, which has limited alterations to national policies and slowed economic progress. (This leads many countries to be remained isolated from potential international partners because inept national policies failed to promote a more collaborative trade environment. Corruption and the government’s disinclination to cede power to the people was not the only reason for Latin America’s lack of progress. The private sector lashed out as a result of tight credit controls that were implemented to counteract inflation; a policy dictated by the international community. For the long-term, these policies diminished Latin America’s international competitiveness and undermined the ability of domestic industries to compete globally.
The IMF World Economic Outlook from the fall of 2011: “Policies need to be designed to address two offsetting forces: containing domestic overheating pressure and the buildup of financial vulnerabilities, while responding appropriately to the souring external environment and a temporary pause in monetary tightening could be considered until uncertainty abates.” Argentina’s government has acknowledged the IMF Outlook, but, as expected from a country that entered into default as a result of international interference, the Argentine government and the Central Bank have stated that they will continue to implement the policies that best represent the interests of the Argentine people. It is expected that economic policy will be central to the national agenda in the President’s new term, but analysts believe that the only way the President will be able to move the nation onto a truly stable path is to take the reins and direct economic policy, rather than be led by it.
V. Comparison: Although recent nationalization of oil as well as a feel for national pride has rose assumptions of socialist fear in Argentina, comparing it to Venezuela many factors differ. The main factor in where Venezuela was able to a certain extent be successful with anti-free market mentality, was the importance oil plays in its economy. When President Hugo Chavez campaigned, his platform was based on the PDVSA management and how his policies would better them in regards of the nation. After election he forced taxes and land reforms so that PDVSA had to pay a fair share of its revenue towards the nation’s social efforts. Argentina in this case, has no central industry in where the country can rely on. This will cause Argentina to be careful in delegating policies that may affect foreign direct investments. Recent nationalize of the oil industry in Argentina, should not alarm investors, because the amount they are able to export from it is very minimal therefore reducing the impact of doing so. This could at the end be beneficial, because analysts such as Fadel Gheit, a senior oil analyst at Oppenheimer & Company in New York, says that this could be an early failure, therefore creating a demand for foreign investors to buy in cheap with a high return on investment.
Argentina also has a divided opinion on its future. For example Weisbrot, the co-director of the Center for Economic and Policy Research in Washington, points to International Monetary Fund projections that show the Argentine economy has grown by more than 90 percent in the decade since the country 's economy collapsed and it defaulted on its debt in 2001. The IMF is projecting that Argentina 's gross domestic product will gallop like a gaucho this year, growing by nearly 5 percent. That 's more than twice as fast as the United States.
Other negative factors such as the deceleration of salary growth, has allowed government to step in and recognize the need to control salaries and face the problem of wild inflation in attempts to benefit the private sector. As for the nationalization of oil, it is our opinion that is was done in attempt to raise morale within the country rather than scare investors by taking an anti-free market approach as Venezuela.
VI. Conclusion After analyzing of both Venezuela’s economic and political status dating back to the early 1990’s as well as Argentina’s financial crisis in 2001, there is a negative perspective overall on the country. The takeover of Repsol is an immediate warning to large multinational businesses with assets and investments currently in Argentina. Individuals who invest in Argentine business from outside of the country may benefit hugely depending on which market they aim for. The growth and continuation of food exports create only a positive outlook for mainly investors of agricultural products and capital, which would only be small in volume anyway. People in Argentina are willing to take in help, but the government has strictly made it apparent that most of their business will be solely done within the state and its immediate neighboring countries. With the Argentine government’s views on increasing revolutionary visions and independent policies, concerns are beginning to arise about the long-term future and success of the country. The most recent concern that could happen is the president’s approval to be re-elected for a third term following a possible editing of the Argentine Constitution. The following of ill advice from supporters such as Venezuela, may lead to a dependency on them; a drastic increase in value on their currency that cannot be backed up by the country’s current economic status. Also, it is important to be conscious of the biggest players in their market being USA, Brazil, and China. If any of these countries were to fall behind or fall into a semi-crisis, the effect on Argentina will be greater than anticipated.
In conclusion we advise GE Capital to begin pulling out resources and capital out of Argentina. We also advise that GE Capital begin to mandate immediate collections of accounts receivables as soon as possible. The demand for immediate response is recommended in order to prevent the major losses financially that GE had previously taken during their unexpected fallout with their business in Venezuela.

Works Cited

http://www.heritage.org/index/country/venezuela http://venezuelanalysis.com/analysis/74#_ftn23 Mark Weisbrot and Simone Baribeau (2003), “What happened to Profits?: The Record of Venezuela’s Oil Industry,” Center for Economic Policy Research paper: www.cepr.net/what_happened_to_profits.htm (their figures are based on SEC filings)
Jones, Bart (2008), Hugo! The Hugo Chavez Story From Mud Hut to Perpetual Revolution, London: The Bodley Head, p374
Margarita López Maya, "Venezuela 2002–2003: Polarization, Confrontation, and Violence," in Olivia Burlingame Goumbri, The Venezuela Reader, Washington D.C., U.S.A., 2005.
Mark Weisbrot and Luis Sandoval. “Update: The Venezuelan Economy in the Chávez Years” www.internationalpolicydigest.org www.nytimes.com/business/global/argentina www.google.com/publicdata/explorer “World Development Indicators and Global Development Finance” www.cia.gov http://www.eurasiareview.com/24032011-has-argentina-joined-the-chavez-bloc-analysis/ http://www.npr.org/2012/04/19/150959215/ignoring-critics-argentina-to-nationalize-oil-firm http://www.miamiherald.com/2012/10/01/3029444/media-under-fire-in-argentina.html

Cited: Margarita López Maya, "Venezuela 2002–2003: Polarization, Confrontation, and Violence," in Olivia Burlingame Goumbri, The Venezuela Reader, Washington D.C., U.S.A., 2005.