FINANCE AND COMMERCE
Owing to their dependence on the Northern Hemisphere for the Capital
necessary for the continuance of their development, the River Plate
countries, and South American countries generally, are as a barometer,
and an extremely sensitive one, in regard to the conditions of the Money
markets of the Older World.
Thus already in 1913, the fear of Balkan complications in both Argentina
and Uruguay was represented by a general fall in what previously may have
been somewhat inflated, or at least too anticipatory, land values.
This fall, coupled with and increased by relatively bad harvests, marked
the commencement of rather bad times in both Republics. In this regard
it may be well to say that comparatively bad times come easily and
swiftly on a country like Argentina, the prosperity of which depends
very largely indeed on its cereal production and in which landowners and
agriculturists from the largest _Estanciero_ to the smallest _Chacrero_
have long been encouraged by Nature to regard each coming year as
inevitably more prosperous than its predecessor. The result of this
optimism, usually justified by the event, is that when any set-back,
caused, say, by late frosts or early rains, such as farmers in less
favoured lands would take as an ordinary risk of their occupation,
does occur, the streets of Buenos Aires are immediately filled with
men with long faces running to the Banks and anxiously discussing the
ruin which, apparently, seems to them to be staring them in the face,
notwithstanding that most of them must often have been through similar
“crises” before.
One need only go “on ’Change” to be almost convinced that the whole
vaunted prosperity of the Republic is tumbling about its ears. Even
newspapers, which, by this time at least, ought to know better, join in
the panic cry.
At such times people possessed of Capital and common sense make good
investments; the Banks tide everyone else over quite comfortably enough
not to interfere with the socially obligatory summer gathering at
Mar-del-Plata; the following harvest is a bumper; and all is well again
in the best and sunniest of all possible Republics.
That is the usual course of happenings after inferior harvests but, as
is easy to imagine, the present situation is as unique in South America
as it is in all other parts of the world. On the River Plate, indeed, it
was, if one may be permitted the expression, aggravated by anticipation
consequent on the (almost miraculous for these countries) following of
yet another rainy harvest-time.
On the top of all came August with its declarations of European War,
the first result of which in the River Plate Republics was intimate
realization of the extent to which they had been dependent on Europe
since the commencement of their real commercial development.
They were thrown entirely on their own resources and ability with no
chance of any immediate help from outside.
It is to the credit of both Republics that they rose to the situation.
Seven days of Bank Holiday were at once proclaimed in Argentina; during
which time the Ministry of Finance and other Government departments were
loyally assisted by both native and foreign bankers and financiers to
devise necessary measures.
In the result Laws were summarily passed by Congress to prevent all
exportation of gold; outgoing ships might only take with them sufficient
coal to last them till they reached _the next port in South America_
(Argentina and Uruguay as yet produce no practically valuable coal, so
that they are dependent on import for their stocks of this fuel), and
provision was made that cereal exports should be limited to the surplus
of such produce after the retention of a liberal allowance for home
consumption until the next harvests.
Uruguay adopted similar protective measures.
So far so good, but the Argentine Banks, generally, were faced with the
necessity for immediate decision under conditions which, unfortunately,
are all too frequently recurrent in rapidly progressing countries. Many
of the securities held by them were obviously not worth the value that
they had been taken for, in consequence of the previous shrinkage of
values above alluded to.
This was a momentous matter for consideration during the seven days’ Bank
holiday.
In the result, all Banks adopted the policy of cutting losses even at the
risk, amounting to extreme likelihood, of letting their weaker customers
drown,[17] while mercy was only extended to those evidently strong enough
to keep afloat throughout the crisis and its after effects.
This decision taken, and enforced on the reopening of the Banks, scarcely
any credit establishment took any advantage of the Moratorium declared by
the Government.
In Uruguay the situation proved easier on account of a comparative
absence of the complication of securities based on inflated values. Here
again the Uruguayan showed his superiority in the matter of cautiously
prudent finance over his more enthusiastically volatile over-river cousin.
This observation notwithstanding, it is now clear that although a
severe financial pinch is still felt in both countries, the Argentine
and Uruguayan ships of State are both fully trimmed to enable them to
ride over bad financial weather, the first shock of which was the most
perilous to meet and needed the most prompt and intelligent handling.
In the result neither country will eventually be any worse for the moral
effects of having suddenly been left to its own resources.
Meanwhile land, especially, perhaps, in Argentina, offers an opportunity
to Capital such as, as has been said elsewhere in these pages, everyone
for humanitarian reasons must hope will never occur again.
Given knowledge of just where and what to buy, large fortunes await those
with courage and capital to purchase either town lots or agricultural and
pastoral land in either Republic; in Argentina preferably for earlier
realization.
Once peace is declared, and even before, it needs little imagination to
perceive the wealth to be secured by the agricultural and live-stock
produce on markets suddenly deprived of much of the usual output of
sources of cereal supply as Russia and Canada, through withdrawal of
labour for military purposes, and faced with an enormously increased
demand for meat and grain caused by the necessary shortage of production
over all War-infected areas.
In fact Argentina and Uruguay are likely soon to experience the truth of
the proverb, “It’s an ill wind that blows nobody any good,” and they are
among the very few countries of the world about the commercial conditions
of which, after the war, it is pretty safe to prophesy in the direction
of a prompt return, in an enhanced degree, to their normal course of
ever-growing prosperity.
Always with the factor of population and consequent sufficiency of
agricultural labour being reserved for consideration after the event. A
large and very serious reservation which cannot safely be lost sight of
by anyone desirous of land speculation in either of the two countries
under discussion.
Let the reader pardon this recurrent insistence on this question of
population, made in the hope that it may help to open the eyes of the
Authorities concerned, especially Argentine, to the crying necessity
in their country’s interests for practically workable inducements to
true colonization, as distinguished from mere partial exploitation of
necessitous wage-earners. And the eyes not only of the Authorities, but
of everyone having a pecuniary interest of any sort in either Republic,
so that their Congresses and landowners may be forced to consider the
question in the liberal and enlightened spirit which alone can remove the
greatest menace to their country’s economic progress.
If the two Governments and great landowners would only devote one-tenth
part of the admirable ingenuity and energy with which they, and the
Argentine especially, have very successfully combated locust invasions
to the attraction of small-holding proprietary agriculturalists, the
River Plate Territories would soon break into an irruption of statues of
the originators of such measures which would outrival the vast quantity
of those erected to the memories of Generals San Martin, Artígas and
Urquíza. (One could travel far in Argentina without discovering a town
which does not possess a statue of the first-named deliverer of his
country. Uruguay has also many San Martin statues, but runs preferably,
as is natural, to Urquíza and, lately, in consequence of the whitewashing
efforts of modern historians, Artígas.)
In view of the actual situation, financial and commercial statistics
relating to the ante-war era necessarily seem to savour mustily of the
back-number. This savour is, however, more due to imagination than to
actual fact, since such statistics are just as interesting as ever they
were and really show the normal trend of things economic to be resumed
and likely to be followed in even a more favourable course, as far at
least as Export is concerned. As for the Import of manufactured goods an
attempt to deal with some of the probabilities or possibilities of this
question in its future aspects is made later in this chapter.
CURRENCY
The “Caja de Conversión” (A term for which “Conversion Chest” is the
usual clumsy translation, though “Conversion Box” stands as a triumph of
the translator’s art. Perhaps “Conversion Office” sounds best, though
it does not convey a true idea of vaults filled with sacks of golden
coin and therefore “Conversion Bank” is here preferred) is an Argentine
Government Institution under the control of the National Ministry of
Finance created for the purpose of dealing with the issue, exchange, and
conversion of the currency of the country. It issues the paper currency
and must hold in reserve sufficient gold to meet the circulating paper
money; it also mints the nickel and copper coinage of the country.
Under the Conversion Law a fixed ratio was assigned as between gold and
paper. A paper dollar, instead of being theoretically equivalent in
value to a gold dollar, was declared to be worth only 44 cents gold;
thus with 44 cents gold as the fixed equivalent of one dollar paper
and, conversely, 2·27 paper dollars that of one dollar gold, and the
smallest gold coin minted the equivalent of 2½ dollars gold, the use of
paper in all the odd amounts of everyday transactions is inevitable and
consequently the major portion of the gold which reaches the country is
forced by the public need of the more convenient currency into the “Caja
de Conversión.”
The accumulation of gold in the “Caja” on December 31st, 1915, was well
over 61 millions sterling, and it must be noted that these accumulations
cannot leave the “Caja” under any consideration (unless by special
sanction of Congress), except in exchange for paper currency, until
the time when the currency shall be placed on a logically complete
metallic basis. The provisions of the Conversion Law in this regard
are exceptionally stringent; under them every official of the “Caja,”
from the highest to the lowest, is personally responsible for their
observance, and they cannot be overruled by any power in the land. So,
until Congress approves what is commonly referred to as the conversion,
the store of gold in the “Caja” will continue practically intact and will
increase.
The misuse of this term “Conversion” has given rise to much confusion
of ideas, even in Argentina. The actual conversion took place with the
above-mentioned assignment of the fixed ratio of value between gold and
paper.
It is obvious that the present is not the moment for the change in
the form of the currency, but it should be added that apart from the
immediate effects of the war the time for that change has not yet
arrived. Irresponsible projects for the change have been put forward
from time to time during recent years, but official declarations in
that regard have never yet gone further than complacent platitudes to
the effect that the time for it was fast approaching; without, however,
the faintest indications of any schemes for carrying the change out
in practice. Besides, under the Law it cannot be accomplished until a
fund or deposit in the Bank of the Nation, and to which the National
Government makes contributions out of revenue, has reached the amount
necessary to form a reserve against the paper currency in circulation
prior to the passing of the Conversion Law. For a long while past, the
amount of that fund stood at six millions sterling, but this amount (then
still insufficient for such reserve) became reduced in August last to two
millions sterling in consequence of special financial measures adopted by
the Argentine Government at the outbreak of the war and referred to more
fully in the chapter on “The War.”
On the 31st of December, 1914, the Argentine Government held gold
accumulations to the value in round figures of 63 millions sterling, of
which, as has been seen, 2 millions pertain to the Conversion Fund at the
Bank of the Nation. This fund must not be confused with the amounts in
the “Caja,” the uses of the former (apart from its constituting, as has
been said, a reserve against the paper currency in circulation previously
to the passing of the Conversion Law) being limited to the purposes of
foreign exchange, the benefit of the Fund itself and to aid the control
of the market; while the accumulations in the “Caja” can only, in normal
circumstances, leave it in exchange for paper currency.
Besides the actual gold in the “Caja” this Institution held at the end
of 1915 gold and bonds to the value of over 14 millions sterling which
had been deposited at the various Argentine Legations. These deposits
have naturally increased largely since. Besides all this the Bank of the
Nation, the Bank of the Province of Buenos Aires and the private banks
held large amounts of gold.
Uruguay has not introduced, and has always resisted the temptation to
introduce, any such complications of her currency; which is on a thorough
gold basis.
The Argentine Conversion Law was passed in 1899 and abrogated in
1901-2 by Congress (in consequence of the anticipation of possible
war with Chile, over the frontier question, the payment by the Nation
of Provincial debts and the closing of Argentine ports because of an
outbreak of bubonic plague).
Therefore the present solid financial status of the Argentine Republic
dates from only twelve, or, on the most liberal reckoning, fifteen years
ago.
Uruguay’s first surplus (of $453,110) accrued in 1905-6; though an
increased surplus has figured in each Uruguayan National Budget since
that date.
Equivalent Values.
Argentine $1, gold = 3s. 11½d.
” $1, paper = 1s. 8¾d.
Uruguayan $1 = 4s. 3⅟₁₆d. ($1·3½ _cents_ U.S.A.).
£1 = $5·05 gold, Argentine.
£1 = $11·45 paper, Argentine.
£1 = $4·70, Uruguayan.
THE ARGENTINE MONETARY SYSTEM
Is controlled by the Conversion law, above referred to, which fixed a
ratio between the value of the paper and gold currencies and made these
interchangeable at that ratio until the time should be judged to have
arrived for the substitution of metallic coinage for paper.
The law was passed as the only available though drastic remedy for the
state of financial chaos, nothing less, in which Argentina found herself
for some years after the crisis of 1891. For the coming of this chaos
Argentines blame the European Bankers who, at least, looked on whilst
the country floundered into it. For this view they have considerable
reason. The Bankers were men of great experience in Finance; of which
the Argentines of that day had little or none. Argentina relied on
the men who had taken her Finances in hand for the development of
her vast natural resources. She awoke to find herself in a financial
condition which would have spelt a century of ruin to any less
nature-favoured land. And it was an Argentine, Señor Ricardo Pillado, now
Director-General of the Division of Commerce and Industry in the Ministry
of Agriculture, who devised the Law which, though it in effect involved
a partial repudiation of the country’s liabilities, at any rate made
possible the financial renaissance on which her present great prosperity
was founded.
As has been seen, the Conversion Law said that a paper dollar should be
equivalent to 44 cents gold and that conversely a gold dollar should be
worth 2·27 paper dollars. This ratio was supposed to have been fixed by
taking the average ratio of value between paper and gold over a certain
period immediately prior to the passing of the Law.
This basis is now believed to have been fictitious, it being found that,
had such an average of values been struck, a paper dollar would have
become the equivalent to something much more like 60 cents gold. So that
in fact a repudiation of 40 cents liability on every paper dollar in
circulation was made to become one of 56 cents.
That, however, is past history; and the existing Law appears likely to
remain in operation for an indefinite time to come.
It has its inconveniences. Institutions and traders are obliged by Law to
keep their books in both currencies. There is no gold coin available as
an equivalent to 1 paper dollar. One needs to have a clear 50 dollars’
worth of notes before one can get gold out of the Conversion Bank; so
that all transactions involving odd amounts must be carried through with
the aid of paper. In point of fact gold is only seen in the course of
important transactions. Still, the gold is there, in the country, in
the Conversion Bank; and cannot be withdrawn from the coffers of that
Institution except as against paper dollars, nor can paper dollars be
issued except as against gold actually in the Conversion Bank. For the
absolutely strict observance of these rules everyone concerned, from the
President of the Republic down to the humblest employee of the Caja is
personally responsible under the law. By the operation of the law the
Republic holds a usually ever-increasing stock of gold; the accumulation
of which is aided by the inconvenience for practical exchange of the
figures ·44 and 2·27.
There is no doubt but that the object which the framers of the Conversion
Law originally had in view, the rehabilitation of the country’s Finance
and credit, has been fulfilled long ago; and it is for other reasons
that Foreign Capitalists and Banks, to whom Argentina must still look
for the means of her fuller development, prefer to let the dual monetary
system, with its several practical inconveniences, continue instead of
encouraging Congress to declare the purpose of the Law fulfilled, by
which declaration it would, by its terms, lapse _ipso facto_. On that
happening there would be a period, momentary only, in all probability,
but still a period, during which the coffers of the Conversion Bank would
be open through the automatic lapse of the Law of its creation. And
Capitalists and Bankers, grown very prudent indeed in their generation,
prefer that those coffers should remain closed and safeguarded as they
are; even at the cost of some few extra clerks to cope with a system
which otherwise works very satisfactorily.
Shin-plasters, as the paper dollars are called by Anglo-Argentines,
fulfil all the purposes of daily life as well as would silver or other
metallic tokens. Paper dollars, guaranteed by gold, have also other
advantages over a metal coinage which might not be so fully guaranteed.
Therefore the Conversion Law remains a live letter on the Argentine
Statute Book.
It is, however, a vulgar error to refer to the time when other tokens
might be substituted for paper as the time for “Conversion.” Conversion
really took place with the coming into operation of the law which
converted a fluctuating ratio into a fixed one.
The speculation in gold, referred to elsewhere, which had attained
disastrous dimensions just prior to the passing of the Law, was another
evil to which that Law put an end. Then as now all everyday transactions
were carried out in paper; but, then, no man could tell from hour to hour
what the paper he held was worth. Everyone was by force of circumstances
practically a gambler whether he wished to be one or not. The paper
tokens for which he had sold his wares one day might be worth much more
or less the next. Everyone had to make his own forecast of probabilities
before he could make or give a price for anything; and therefore became
a constant speculator, a gambler in futures, in fact. The bad moral
effects of such a state of things is obvious. Many other financial evils
were rife at this time, which now have only historic interest, among
them may be mentioned the Banks of Issue for which authority appears
practically to have been given by the State to anyone able to procure
and furnish offices. Stacks of the notes of these precious Institutions
still occupy space as curious lumber somewhere in the cellars and garrets
of Government House. Valueless and best forgotten by a prosperous and
enlightened nation which no longer needs any such awful examples to deter
it from lapse into irregular finance.
Uruguay has a gold, silver and nickel coinage, but, as in Argentina,
notes are the most common tokens, especially for amounts of $1 and
upwards. As will have been understood, Uruguay has no Caja de Conversión,
her currency being and always having been on a direct gold basis.
COMMERCIAL CONDITIONS
One of the immediately world-wide effects of the great War has been the
practically total elimination of German trade competition, an elimination
which may not unreasonably be calculated to last for some time to come.
This therefore is the golden opportunity for other competitors to capture
the large bulk of export trade which had gradually been absorbed and was
in course of constantly increasing absorption in the countries under
discussion by German firms.
Many Consular Reports and publications of the “Bureau of American
Republics” have respectively dealt with the consequent loss of trade to
Great Britain and the comparatively slow advance in that respect made by
the United States and these documents have insistently pointed out the
whys and wherefores of German commercial success over their chief rivals.
The writer cannot therefore lay claim to originality in the present
observations, but does claim that his persistence in the reiteration
of what he, and many greater than he, have continually urged on every
possible occasion during the past decade has been and is in what appears
to him to be the best interests of those most concerned.
Of the two nations the British still has the better opportunity to extend
its commerce in both Argentina and Uruguay. The reasons (apart from
the actual kaleidoscopic financial and industrial situation) for this
opinion are that the English (as all people hailing from the British
Isles are commonly called in South America) have already acquired in both
countries a firm reputation for straightforward dealing, founded on many
years’ experience and untainted by any suspicion of underlying political
motives, whereas the South American Republics generally harbour a latent
but constant resentment of what they rightly or wrongly consider to be
the tendency of the United States to assume a dominating influence over
both Americas. In fact to construe the Monroe doctrine as meaning, to
cite the catch-phrase which to the innermost South American mind embodies
something very closely resembling an unpleasant truth, “America for the
_North_ Americans.”
Therefore, pushing United States’ commerce is immediately met by a
seemingly dull indifference to the merits of the wares it offers, praise
it those wares never so loudly. And this observation suggests another
of almost equal truth and importance, viz. that the loud and strenuous
vaunting of an article and the _hustling_ methods so much admired in
the great Republic of the North are worse than useless in Spanish South
America. “Why so much talk and so much hurry to strike a bargain if the
thing is really good?” is the mental attitude of the average Spanish
American towards the vociferous North American traveller who usually
makes the further mistake of appearing to wish to teach his listener the
latter’s own business. This, as has been said elsewhere in these pages,
is a thing no Argentine or Uruguayan will stand. No one is a more severe
critic of himself, his methods and Institutions, no one is most enamoured
of progress and improvement than he. But _he_ must be the discoverer and
chooser of the remedies for his own defects, _he_ and he alone must be
the arbiter of his own destinies and set his own house in order. In such
matters he will brook no interference. And least of all from the United
States.
It is surprising that the commercial ability of the latter country
should not long ago have discovered and acted in harmony with this
feature of South American psychology. It seems, however, to have escaped
appreciation by “Yankee” cuteness.
Accordingly, we find, in the present writer’s opinion, two existing
obstacles (apart, as has been indicated above, from the present
financial situation) to the extension of the trade of the United States
in Argentina and Uruguay. One of these, the inappropriate method of
approach usually pursued by travellers and the other a strong and jealous
suspicion of the ulterior motives of the United States in endeavouring to
strengthen her commercial foothold in the Southern Hemisphere. The first
of these obstacles should be easily removable, unless, indeed, it be too
firmly rooted in the North American mentality. The second is a matter for
extremely delicate state diplomacy, and equally delicate behaviour of the
United States’ delegates at each future “Congress of American Republics.”
Having thus glanced at seemingly obvious defects in United States methods
we may turn to those of British manufacturers.
In their regard one can scarcely restrain the question, “Do they really
want the South American trade at all?” Because, if they do, they set
about getting it in the strangest possible ways. Their apparent attitude
can be summed up by saying that they point-blank refuse to give a
customer what he thinks he wants unless his ideas on that subject
entirely coincide with what they think is best for themselves and,
incidentally, it would seem, for him.
South American governments insist on the metrical system of weights and
measures for Customs purposes: the British manufacturer persists in a
firm refusal to contemplate anything but British Tons and Feet. This
may seem a trifling matter to anyone not engaged in the Import trade of
a metrical-system country, but in practice the rendering of British
weights and measures into their metrical equivalents involves not only a
large amount of clerical labour, but is also a frequent source of error
in the results.
A most actively patriotic Briton who is the head of a large Importing
firm in Montevideo told the present writer not long ago that in spite
of his patriotism he had been driven to deal with German firms because,
for one reason, of the constant inflictions on him of $80 fines by the
Customs Authorities, that sum being the statutory fine in Uruguay for any
misstatement of weight or bulk on a declaration.
He, in common with the generality of Importers in Argentina or Uruguay,
had found himself confronted by several very weighty reasons for
necessarily transferring the bulk of his orders from British to German
firms, the chief of which was that above summed up; namely, that British
manufacturers would not adapt themselves to his customers’ requirements.
“We are making this, that, or the other pattern” of whatever the article
in question may be, and “if you don’t like that you must go elsewhere”
is the gist of the average British manufacturer’s last word in the
discussion. And, as the Importer is not running a Commercial Museum
of articles of the highest quality or best British taste, but has to
sell what he imports to customers who have lamentably independent
ideas of what they want, he does go elsewhere, that is to say he did,
and, most frequently, to Germany. To Germany, where most things were
at all events cheaper, and where, if qualities were not so good as in
the United Kingdom, manufacturers were adaptable, and their travelling
representatives spoke Spanish and understood the ways and wishes and even
the foibles of South American customers.
As a rule, commercial travellers from either Great Britain or the United
States do not speak anything like fluent Spanish. Therefore, they are
obliged to engage interpreters to accompany them on their business calls,
while they were quite unable to take advantage of the opportunities
sought for by their Spanish-speaking German competitors of mingling in
the semi-social life of their customers. In the bar or restaurant the
German traveller was a jolly good fellow always ready to pay his share of
the wine bill and with his pockets filled with more than passable cigars
and he could enjoy and respond to the local humour and generally take
part in all the fun of a jovial evening-out; for which the Argentine,
especially, is always ready and willing to find an excuse.
Now, doing persuasive business through an interpreter is by no means
an invariably satisfactory proceeding, because the interpreter’s own
mentality inevitably intervenes and unconsciously colours both sides
of the argument with tinges of his own individuality. He says what
_he_ thinks you wish to say, and often enough replies with the best
rendering he can make, not always an entirely accurate one, of what he
conceives to be the meaning of the other party to the discussion. As
for the evening-out! One has only to imagine the effects of a laborious
translation of always very allusive wit; the point of which in Argentina
most frequently hinges on double-meaning.
The German studied the language, and, as far as he could, the tastes and
ways of the people of the country he intended visiting before he set out
on his commercial travels.
Travellers of other nationalities should do likewise if they wish
to secure a substantial share of the trade now left open to their
bidding.[18]
And British manufacturers, if so be that (I repeat the question) they
do want the South American markets for their goods, must make up their
minds to suit the requirements of those markets whatever may be their
own private opinion of South American tastes and ways. They must still
remember that although German competition has ceased and may continue
non-existent for even a very long time to come, and while Belgium is, for
the time being, hopelessly crippled, there _are_ other nations who desire
to rise, and may succeed in rising, to an occasion which, for the awful
cause of it, one can only hope will never occur again.
It is a truly great opportunity for both British and United States
Commerce, in which, as has been pointed out, the former has a very
considerable start in the political and commercial sympathies and
prejudices of South Americans. Nothing which British manufacturers cannot
remedy appears to exist to prevent them from taking extremely profitable
advantage of that start, not only for the recovery of lost ground, but
for grasping a very large share of new openings. Will they? Do they
really care enough about extending their businesses to do so?
That is the only question, and it is one which they alone can, and soon,
we hope, must answer; one way or the other. If they do not want new
business or wish that old business should come back to them, there is
no more to be said. And no more grumbling to be indulged in about the
proportionate falling back of British trade in South America.
It may be objected that the United States, the full manufacturing
activities of which remain unimpaired by the withdrawal of labour for
military purposes and the output of which is not absorbed to so great an
extent as it is with us for war material, have for that reason already a
great start of Great Britain in all foreign markets. To this objection
I would reply that the time for the struggle for the Argentine and
Uruguayan markets is hardly yet; because climatic accident still recently
produced results which, coupled with the falling on them of the shadow of
the Great Terror, suspended their purchasing power. Two very lean years
of cereal production due to weather, the occurrence of two consecutive
seasons of which is without parallel in these countries’ history,
were followed by another perilously rainy harvest time complicated by
shortage of harvest labour due to war risks, and imagined risks, of
the transport of the usual army of Italian harvesters who (like the
_Golondrinas_—swallows—after which they are nicknamed in South America)
annually go to Argentina and Uruguay[19] and return to Italy after the
harvest has been got in. These causes temporarily paralysed Argentine
and Uruguayan commercial activity by, as has been said, suspending the
purchasing powers of both.
But with the productive recovery[20] of these countries with their
enormous natural endowments and producing as they do all the foodstuffs
that the populations of poor war-trampled Europe need most, what a call
for all kinds of agricultural machinery will come from them in return
for their meat and cereals and in order that more and more land may be
laid under contribution for the production of these primarily necessary
supplies! Failing other labour sources, an augmented stream of Italian
“swallow” and permanent emigration will set out for the River Plate,
wealth will develop on both shores of that river, and with wealth the
demand for all the manufactured things to the desire for which wealth
gives rise. Hardware, cutlery, cotton and woollen cloths, electrical
appliances and material; the host of things which Britain makes and
Germany once sold will come into increasing demand in South America with
the spring of the new era on which the whole civilized world will enter
when the blackness of devastation shall have passed and the evil which
created it be rendered powerless for further ruinous crime.
Would that the millions of able-bodied men murdered by this war could
have been utilized instead as an agricultural expeditionary force on the
shores of the River Plate! They and their children and the world would
have been the richer for their labour carried out under conditions as
happy as their present, and for many (alas!) past, task is terrible. They
would have supplied that in which Argentina and Uruguay are lacking,
namely, the human element, for the development of their natural
resources. Countries in which vast areas of land yet await the plough for
cereal cultivation and the improvement of their natural rough pasturage
and other vast areas of rich alluvial soil need only irrigation to turn
them into a terrestrial paradise.
Capital never is and never will be wanting for good investment, but the
fund of human labour cannot be drawn upon by a mere signature. And the
daily waste of thousands of lives for the full activity of which there
is ample room and urgent need on behalf of the millions remaining is,
sentiment apart and from a commercial point of view alone, the saddest
thing in War.
Europe needs bread and meat not only to fulfil her normal needs but also
to replace her own interrupted production of these prime necessities of
life. The River Plate countries can produce both in practically unlimited
quantities; provided only that they can obtain the necessary labour a
ghastly wastage of which is going on daily in Europe, some parts of which
are consequently threatened with famine.
Surely if civilization be anything but a mere theoretic expression there
will never be another great war!
With this pious hope we may pass to a more concrete subject, namely,
commercial credit on both sides of the River Plate.
As has been indicated in another chapter, Uruguay enjoys a more literally
creditable reputation than her bigger sister. The causes of this have
also been already dealt with.
In practice one can but advise anyone approached by firms in either
country to do what it may be taken that any ordinarily prudent man of
business would do, viz. to make due enquiry as to his proposed new
customer. His means of doing this are really even better than if the
latter were established in London or New York, since the commercial
community in either Argentina or Uruguay is comparatively small and
consequently, to use a current phrase, almost everyone there knows
everyone else and a good deal about him and his business.
Several of the chief banks in Buenos Aires and Montevideo have their head
offices in London and all have branches or accredited correspondents
in the principal European and North American capitals and commercial
centres.[21]
The wholesale importing houses in Argentina and Uruguay usually give
ninety days’ acceptances for imported goods and in their turn give six
months’ credit to their retail customers. This arrangement has now the
sanction of long usage based on its practically being a division of the
burden of credit given to the storekeeper by the Importer between the
latter and the Exporter.
The system of banking in both Argentina and Uruguay differs little from
that obtaining in England except for a certain amount of good single-name
paper being taken on account of the usually intimate acquaintance
with the business and standing of all leading firms possessed by the
commercial community generally.
Rents and working expenses, including special traders’ taxes, in the
Capitals of both Republics are high, but the scale of profits when
calculated on anything like a reasonable turnover will in most cases be
found to leave a balance in favour of both wholesale and retail traders
which would be regarded as highly satisfactory by their European and
North American brethren. In fact, it may fairly be said that if a man in
either country does any appreciable bulk of business in any branch of
commerce or trade he is doing what elsewhere would be considered as very
good business indeed. When rumour assigns shakiness to any established
firm it may be taken as certain that such rumour is founded on tales of
speculation outside the lines on which that firm’s true business has been
built up. There seems a temptation inherent in new countries for men
who have earned money in businesses they understand to risk it in other
speculations of which they have next door to no experience. This is, of
course, a phase of the “get rich quick” fever which frequently attacks
the young inheritors of stable businesses which seem to them too slow and
sure to be interesting or indeed to require much looking after.
At one time the Buenos Aires Stock Exchange was responsible for a large
number of victims among all classes of the public, but of late years
the public has fought very shy of it indeed; so shy in fact as now to
be practically unrepresented in the share ring of that Institution.
As a consequence of this abstention the few brokers and professional
speculators who daily do what courtesy perhaps demands that one should
call business there suggests the tale of the island the inhabitants of
which lived simply by taking in each other’s washing.
Joking apart, however, the share ring in the Buenos Aires Temple of
Mammon were best avoided by the uninitiate. In this ring there is
always one, sometimes two (its strength does not run to more), media
of pure speculation in course of manipulation by one speculative group
or another. The names or nature of these media do not really seem to
matter. They vary. Sometimes they may be the shares of the Dock Company
of an inchoate Port, sometimes those of an Industrial Company with
vague expectations. Indeed, vagueness which may be tinged by rumour and
imagination with a hue dimly resembling that of impending rich surprise
is almost essential to the initiation of this kind of gamble.
The shares are bulled out of all proportion to their even possible
value for a little while and then no more is heard of them; and other
very similar ones reign in their stead in the sensational place on the
blackboard, on which all bargains during each day are chalked up as they
are called out by the parties making them.
The end of these really stillborn booms is mystery. Who are the
unfortunate last in? Strangers, doubtless, when there are any. But if
there be none, as is the case more frequently than not? One hears vague
talk of Paris and other European capitals and then silence for ever more.
Anyhow, the stranger, for whom this book is chiefly written, would, if
he took a hand in any one of these games, soon find out that though he
might see the price of the shares he had purchased mounting gaily up on
the blackboard like mercury in the tropics he could never realize to any
appreciable extent. Did he start to sell, then all the weak little bulls
of whom his co-speculators would be composed, people to whom ten dollars
a day one way or the other makes all the difference in their domestic
budget, would rush to sell also out of sheer fright, and down would go
the market on him like a guillotine. At the finish he would be left with
a very large proportion of his probably not over-valuable holding; of
which he would have little further news than notices regarding proposed
reconstruction schemes, etc.
It must not, however, be imagined that the Buenos Aires Stock Exchange
is by any means exclusively devoted to such work as that just indicated.
On the contrary, many Bank and Industrial shares are also quoted and the
other, the Securities, ring is just as genuinely serious as the gambling
part of the share ring is meretricious. The chief securities dealt in in
the former are the Bonds of the National _Cedulas_, as “gilt edged” a
security as could well be wished for.
These Cedulas are Bonds issued by the National Hypothecary Bank, an
Institution of the National Government, as against mortgages of freehold
property in the Republic; the method of their issue being, shortly, as
follows.
An intending Mortgagor lodges a proposal with the Bank; on which his
title is examined and the property offered valued by Government experts
appointed for each purpose.
The result of the examination of title being satisfactory, the Bank
states the amount for which on its valuation, fixed after leaving ample
margin for possible depreciation, it will accept the mortgage.
But the Bank has no cash funds, and therefore issues Bonds, carrying
interest at 6%, and subject to annual amortization, for the amount
agreed to be granted to the Mortgagor. The latter, if he require cash,
as is usually the case (most of such borrowings being actually effected
with the objects for which the Bank was founded, viz. improvements of
the property mortgaged, extension of holding, or purchase of stock and
implements), must take his bonds to the Stock Exchange for sale. For them
there is always a free and open market, the price obtainable usually
varying only according to ordinary accidents of supply and demand.
Many brokers hold standing orders for these Bonds, at a price, for
Europe (before the War Antwerp was always a buyer at a certain level).
The only really appreciable downward fluctuations of this security are
of very short duration, an hour or two at most, and are due to what can
only be condemned as the inconsiderate action of the Directors of the
Hypothecary Bank. That is to say, the Bank’s acceptances of Mortgages are
sometimes allowed to accumulate and then, all of a sudden, the Directors
seem to get to work and sign and issue huge batches of Bonds. Not only
do most of these find their way to the Stock Exchange, in consequence
of anticipatory orders lodged with brokers by absent or upcountry
mortgagors, but many such people leave selling orders with the Bank
itself.
The result of all this frequently is that one fine morning or afternoon
cartloads of these Bonds arrive on the Stock Exchange and flood the
market, in spite of all the market can do with the best intention of
sustaining prices.
Soon, however, the mass is absorbed by the home and foreign demand, and
the little crisis which could never have occurred except through the bad
management above described, is over and normal prices rule again.
All this relates to the current issues of these Bonds, the “Cedula
Argentina” as they are now called.
Formerly they were issued in series, each of which was distinguished by
an alphabetical letter. The last of these lettered series was “L.” This
system of series had inconveniences, inasmuch as the regulations under
which they were issued prescribed redemption in Bonds of the same series,
which interfered with entirely free dealing; some of the earlier series
being now only obtainable at a high premium on account of the buyer’s
need of them to make up a parcel.
The Securities ring also deals in debenture and other Bonds—National,
Provincial and Municipal. The only speculation in which it usually
indulges being of the very safest kind; in regard to which, indeed, the
term investment would better apply.
The side of the large Hall of the Exchange opposite to that occupied by
the Stock and Share rings is now tenanted by the “Bolsa de Cereales,”
an institution the recent creation of which was due to the necessity,
arising chiefly from the rapid developments of the milling industry, for
dealing in “futures” in cereal production.
On the old _Once_ Corn Exchange such dealings were and still are tabu, as
savouring dangerously of the Chicago “Pit,” and much heated discussion
took place before the new Exchange was at length authorized to register
transactions in futures. The discussion was useful inasmuch as it brought
about the framing of stringent regulations against the more ruinous forms
of gambling in grain. In the result, the new Institution works very
well and fulfils its ostensible purpose of assuring the miller against
produce being held against him at times when he is under obligation to
deliver flour. Thus, it has prevented instead of encouraging at least one
vicious class of operations. Formerly, when all dealing in grain futures
was illegal, the miller was continually at the mercy of operators in the
cereal markets.
The Institution of the new Market was imperatively needed on account of
the huge development and value of the milling industry.
For ordinary dealings the ONCE cereal market still holds its own.
THE BUENOS AIRES STOCK EXCHANGE
One needs some courage to write candidly about this institution, the more
especially if one hopes to enter it again.
The building itself is the property of a company from which the members
rent it. Part of it is now, as has been indicated, sublet to the members
of the new Cereal Exchange.
One side of the rotunda—the great inner Hall of the “Bolza”—is therefore
now tenanted by the dealers in stocks and shares, and the other, facing
it, by those occupied with grain. Each exchange has two large blackboards
on which prices are chalked up by attendants as deals are called by
the parties making them. These prices then become official; and their
genuineness is vouched by the fact of their having been called by members
of the Exchange, who are held responsible by the Committee for the _bona
fides_ of these announcements.
The rules are now very strict on the question of calling of _bona fide_
dealings only. At one time the announcement and consequent chalking up
of fictitious deals (called “gatos,” or, as we might say, “wild cats”)
became so scandalously frequent and unblushing that a stop had to be put
to a malpractice which deceived the public, since all prices chalked up
are published in the daily papers.
The first, usually, in regard to both the magnitude and importance of
the dealings recorded on it, of these blackboards or “slates,” as they
are called, is that reserved for transactions in Government and other
important stocks; the second being that devoted to shares.
Thus the first board is mostly filled with records of the numbers
and prices of National Cedulas dealt in, and the second with those
of whatever one or two kinds of shares may for the time being be in
fashion for what one may bluntly call gambling. For gambling, simply,
is the end of almost everything in the shape of speculation in the
ephemerally chosen media. It is in regard to this gambling that the
note of warning to the stranger already sounded may be repeated here.
The really Argentine public has long ago had its fingers sufficiently
often and severely burnt to have decided to give all Bolza speculation
a wide berth. And here one is brought face to face with a mystery which
the present writer has as yet been wholly unable to explain in any fully
satisfactory way.
This mystery is that, given the fact that the contributions of the public
to Bolza gambling have since long ago become a negligible quantity, it
seems clear that such speculation must be confined to a limited group of
Bolza operators.
How, therefore, is it worth the while of any of these operators to
survive for long as such? They are mostly, if not all, men of small
capital, very small in many cases, yet there they are, day after day,
busily occupied in attributing usually fictitious values to the shares
of one, or at most two (for the time being) companies. Up go the prices
of such shares, rising each day to giddier heights, till at last like
balloons they disappear from sight and another set of shares takes their
place as material for a boom. Who is the last man or men left with shares
at top price? And what on earth does he do with them? These be questions
the answers to which are hidden by a secrecy the completeness and
continuity of which do credit to the initiate few whose common interest
it is to maintain it.
The only protection of these people is a mutual defence against the
common enemy, similar to that adopted by professional buyers at an
ordinary auction against any innocent amateur who may stray into their
midst. On the other hand, the mere presence of a known “bear” among
these folk, completely paralyses all action on their part until his
back is turned again. The writer now has in his mind’s eye a well-known
figure, that of a powerful bear who was the terror of the speculative
markets in the golden days when the public still played the game and
all went merrily except for his malevolent influence. He alone could
frown all prices down; and he once held them down against the whole of
the furious remainder of the Exchange. It was a never-to-be-forgotten
conflict, from which he emerged victorious and with a name at which
even the puny bulls of to-day still tremble. Though be it said, he
now does little but lend money to those whom circumstances, or still,
occasionally, he himself, have forced to carry over. Few Bolza members
will fail to identify him from even this slight reference to his fame.
The heyday of the Buenos Stock Exchange was that immediately preceding
the passing of the “Conversion” law which fixed a ratio between gold and
paper and thus ended the speculation in gold which had grown all too
vigorous on wide fluctuations. After that, wild cats, resorted to as the
next best stimulant, quickly undermined the constitution of the Bolza
and frightened the public; permanently, it would still seem, from its
precincts as far as gambling speculation is concerned. Such speculation,
in any magnitude, has been dead since 1906; in consequence of the
collapse at that time of a gold fever boom of which a shoal of doomed
alluvial dredging Companies were part cause and part effect.
Nowadays, the real business, of which there is a large and constant
volume, done on the Buenos Aires Stock Exchange is in National
“Cedulas.” This business has gradually gravitated into the hands of
a few large brokers. The only drawback to these Bonds is their name,
which might lead the ignorant in matters South American to confuse them
with the _Provincial_ (Province of Buenos Aires) Cedulas, the corrupt
mismanagement of which caused a great scandal some years ago. Still
“Cedula” means a “Bond,” and it would, after all, be idle to wish to
abolish the latter word only because some English Bonds may have proved
unworthy of the prestige usually attaching to that designation.
The question has often been raised as to whether, on the wording of
the guarantee endorsed on National Cedulas, the National Government
is responsible for repayment of the principal as well as the interest
on them. This, however, amounts almost to a quibble; of little, if
any, more than abstract interest. The amortization of these Bonds is
certainly guaranteed in like manner as is the interest on them, and
only some tremendous crisis, now unimaginable, could so wreck the whole
territory of the Republic that land values throughout that territory
would simultaneously fall to an extent which could render impossible the
redemption of mortgages granted in the first place with a very liberal
margin between the actual market value of the land and the amounts of the
Bonds issued on its security. For, it should be noted in this connection,
a Cedula is not issued by the Bank on the Security of such or such
designated property, it is issued on the security, guaranteed by the Bank
after due investigation, of _all_ the mortgages held by it. So that,
in effect, even if the whole of a Province were to be engulfed by an
earthquake, the security of none of the Bank’s Cedulas would be affected
by the loss since, at the margin reserved by the Bank, all the remainder
of the lands on which it holds mortgages would still be ample security
for all its bonds.
The reader who is already well acquainted with these matters must
forgive me for thus setting them out in so obvious a way. I ask him to
believe that there are still very many holders of Argentine National
Cedulas possessed of only the vaguest ideas of how their Bonds came into
existence, and practically none as to the real nature of the security for
them, except a general sort of notion that they are Argentine Government
Bonds.
As will be seen, the facts justify my dictum of a few pages back that
these Bonds really offer as gilt-edged a security as anyone could wish
for.
Other securities most commonly dealt in in the Securities side of the
Market are “Credito Argentino,” National Internal debt, the “Premier
Security” of the Country, as it has been called; and some Provincial and
Municipal Bonds. On the share side, the shares of the various Banks are
usually the subject of the most really important quotations on the slate.
Many first-class Argentine securities and shares seldom come on the
market.