Just how do you make such a mess of a booming country’s  image? President Christina Fernández de Kirchner must be wondering what she has done wrong.

Of course, she could always ask her husband Néstor, who used to be president himself before she took over from him last October. Alternatively, she could ask the Supreme Court, most of whose judges were appointed by her husband while he was in office.

Argentina - A house divided

Truth to tell, the indomitable Ms Kirchner is in a bit of a fix. She’s just lost a major political battle with the country’s farmers over her plans to impose a new tax on soyabean exports, and somehow it has all escalated into a very humiliating public row with her own vice-president, Julio Cobos, who she thought was on her side but who has now exercised a crushing casting vote against her.

At the same time, the bottom fell out of the commodities markets that provide much of Argentina’s foreign earnings, while the dollar soared, and suddenly all bets were off. Sadly, the effects on the stock market since then have been more than predictable. Up until the start of July, the market had been holding up remarkably well, having lost only 5.5 per cent of its value, or a mere 1.4 per cent in dollar terms.

But by the time mid-August came around, the position had swung into sharp reverse, with the Merval index down by a crashing 15 per cent, or 12 per cent in dollar terms.

Partly, of course, this will have been due to the sudden withdrawal of ‘hot money’ from North America – a traditional bane for all the Latin American economies. While the US dollar has been weak, American investors have tended to send their spare cash down to Brazil or Argentina in search of much higher interest rates than they can normally get at home. The corollary being that, as soon as the rising dollar coincided with falling commodity prices in July and early August, a lot of the foreign money vanished straight back to Wall Street.

Argentinian Economy Still Growing

But surely those economic statistics aren’t that bad when you look at them closely? Argentina’s economy is growing by 8.5 per cent a year, judging by the first quarter’s results, and industrial production forged ahead by six per cent in the year to June. The unemployment figures aren’t especially pretty, at 8.4 per cent of the workforce, but surely they’re no worse than Brazil or Chile or Colombia?

And what about the trade surplus, which was running at US$10.8 billion in the year to June? (Although a big shift in foreign investment had reduced the capital account surplus to $7.9 billion in the first quarter of 2008.) Wasn’t that the second biggest surplus in Latin America, after Venezuela? Brazil, by comparison, runs an $18 billion deficit.

Well, maybe. But we do need to make some allowances for the steep fall in commodity prices during the late summer, which will certainly have set the country’s exporters back a fair bit. It is very doubtful whether the year-end picture will look as rosy as the mid-year one.

Inflationary pressures

What about the currency? Surely there aren’t any particularly big problems there? Well, apparently not. The peso strengthened by three per cent against the dollar in the year to early August, rising from 3.13 in August 2007 to 3.04 a year later.

But that, in itself, was a bit odd, because inflation is now nudging ten per cent, a level which would have most other governments panicking. Indeed, many economists insist that Argentina’s consumer inflation figures are rigged, and that the true rate is closer to 25 per cent.

Where’s all that inflation coming from, you ask? Well, you could try to argue that sharply rising prices are simply normal in a country that is growing as fast as Argentina.

But just look at those bank interest rates, which are far above 15 per cent for most borrowers, and you start to get a different picture. Argentineans have grown used to tough fiscal management from their governments over the last decade or so, but the current trend in lending rates is crippling all new investment.

Meanwhile, the saucepan-banging housewives who periodically throng the streets in protest are telling us a story that we rarely see reported in the newspapers. Something doesn’t add up, and it may be a while before we find out what it is.

Investment prospects in Argentina

So, back to our usual question. What is Argentina like as a place to invest? On the whole, it’s not bad at all. The markets are open and reasonably transparent. Price/earnings ratios on large companies are at the affordable level of 11, which effectively means that you’re paying the equivalent of 11 years’ profits at current rates whenever you buy a typical share.

And dividend yields are around the 5.7 per cent mark, which is really pretty good for a country with a stable currency. Although exactly how good those yields will look if the currency tumbles is another question entirely.

How do you invest in Argentina, should the mood still take you? You certainly won’t have much difficulty in getting exposure to Argentinian mining interests, although you’ll probably choose to go in through one of the many Canadian, South African or Australian companies that control most of the country’s mines. You can buy directly into big farming and forestry operations like the grain and soya exporter Cresud, which is listed in New York and which has established a big business with China. Or you can choose from a wide range of unit trusts, exchange traded funds and investment trusts (see table below), most of which bundle their Argentinian interests together with others from Brazil and Venezuela.

Would you want to do that? Probably not until the commodity markets revive; until the bad news about the economy is finally out there in public; and, most of all, until the political situation has got an awful lot calmer. Right now, the risks look unacceptable.