GE Capital Analysis

Topics: Economics, Macroeconomics, Argentina Pages: 26 (5785 words) Published: October 1, 2013


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...

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.
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