Will you pay 50% on a loan to watch Messi play?
madrid/buenos aires — Argentines are so crazy about soccer that a lender is betting they’ll pay 50 per cent interest to finance their trips to the World Cup in Russia this month.
BBVA Banco Frances, the local unit of the Spanish bank, has been airing TV commercials encouraging Argentines to rally behind Lionel Messi and his teammates by taking one of their seven-year loans. The lender is offering up to 1 million pesos ($40,000) payable in 84 installments, with the added incentive that if you make all payments, you won’t pay taxes and fees in the final year.
Now, paying effectively 50 per cent interest annually on a loan may look like insanity even for the most die-hard soccer fan, but with Argentina’s inflation running at more than 25 per cent and the central bank pushing its benchmark rate to 40 per cent last month, the BBVA offer looks less onerous. High inflation is an incentive to borrow and make payments later when money is cheaper. BBVA Frances’s personal loans portfolio grew by 80.5 per cent in the first quarter from a year earlier as Argentines flock to take out mortgages and consumer loans.
“These kinds of interest rates can seem crazy to anyone outside Argentina, but Argentines have become experts at playing the inflation game and kicking the can down the road,” said Juan Alonso, an analyst who covers BBVA for TPCG Valores in Buenos Aires. “An Argentine doesn’t look at interest rates, they just ask about the monthly installment they will have to pay. If they have the chance to pay off a trip to the World Cup over seven years, they will take it.”
BBVA Frances has made 8,500 of the loans, lending about 1.2 billion pesos in total, since introducing the product in August. The original terms of the loan offered a nominal annual interest rate of 32 per cent, which with taxes and fees implied a real interest rate of 46.38 per cent. — Bloomberg
moscow — Despite selling mugs and ornaments at Moscow’s top souvenir market, Alexander does not expect a huge boost when hordes of flush fans descend on Russia this summer for the World Cup.
“You would think that the World Cup would be great for selling souvenirs, but not for us,” said Alexander, a victim of pre-emptive anti-terror measures that will shut most of Izmailovsky and other outdoor markets.
His case begs the question what will be the economic impact of the World Cup really be for Russia?
An influx of hundreds of thousands of football fans will set cash registers ringing, but will it provide a lasting boost to Russia’s lacklustre economy?
A study conducted by the McKinsey consultancy for the local organising committee estimated “the combined impact of the 2018 World Cup on the GDP of Russia will be abound $15 billion, which exceeds the impact of similar championships in Brazil, South Africa, Germany and South Korea, and is second only to the result of Japan.”
While that sounds big, it is mostly investment in stadiums and transport infrastructure, and when broken down over the six years that preparations have been underway, the impact is less than 0.2 per cent of Russia’s annual output.
Those investments didn’t help Russia avoid a recession in 2015 and 2016 and overall growth is only expected to reach 1.5 to 2 per cent in the coming years.
“The games will last just one month and the associated economic stimulus will pale in comparison to the size of Russia’s $1.3 trillion economy,” said Kristin Lindow, a senior vice-president and analyst at Moody’s. “We do not
expect the World Cup to make a meaningful contribution to broader economic growth.”
However the McKinsey study forecasts the economic impact from the games to increase by up to a third over the next five years, primarily due to a boost in tourism.
“The World Cup will increase tourism to Moscow by 10 per cent,” Moscow Mayor Sergei Sobyanin said in a recent interview on RBK television. He estimated this lift would in turn boost the city’s annual tax revenue by nearly a quarter of a billion dollars.
But Igor Nikolayev, director at the FBK Strategic Analysis Institute in Moscow, said he was sceptical of such forecasts. “Holding the World Cup is no guarantee that a considerably larger number of tourists will come,” he told AFP.
He pointed to Russia’s experience with the Sochi 2014 Winter Olympics, when the number of foreign tourists rose by nearly 1.5 million the following year, a modest four per cent increase, only to tumble by over nine million in 2016, according to UN figures.
And the spike in international tensions — Western sanctions over Russia’s annexation of Crimea and a separatist conflict in eastern Ukraine — that damaged Russia’s pull as a tourist destination isn’t likely to go away anytime soon.
Nevertheless organisers recently said they expected at least 600,000 international visitors to the World Cup. — AFP