Argentina tries to export to get out of the economic crisis
Argentina’s government is sticking to its widely ridiculed claim that it can double its exports over the next five years, despite a struggling economy and the suspension last month of one of its main exports – beef.
Argentina is one of the countries most affected by the coronavirus, which has exacerbated an economic crisis that struck three years ago. Inflation is 49% and negotiations with the IMF to repay a $ 44 billion loan have stalled, baffling investors.
Despite this, Matias Kulfas, Minister of Production, insists that the economy is turning.
“This is a crucial time when many investments are maturing that will allow a significant jump in exports,” Kulfas told the Financial Times.
Kulfas argues that new projects in sectors such as mining, energy, manufacturing and the auto industry could lead to a doubling of exports of around $ 65 billion over the next five years.
Private economists and analysts dismiss this forecast as overly optimistic. While the IMF forecasts growth of 5.8% this year as the agricultural powerhouse benefits from soaring commodity prices, the economy contracted 10% last year – it is nowhere near returning to what it was before the pandemic.
Kulfas cited investment announcements worth around $ 20 billion since President Alberto Fernández took office in December 2019. He said new mining projects alone could add some $ 12 billion. dollars to exports, while Argentina’s booming knowledge-based economy is expected to bring in an additional $ 4 billion in the years to come. .
“The point is, the potential is there and so is international demand. It is reality. Then we will see how much success we have in [ensuring that all these projects] moving forward, ”Kulfas said, noting that a lot also depends on how quickly projects move forward.
Although many agree that boosting exports is the clearest route to ensuring sustained economic growth in a country suffering from an endemic foreign exchange shortage, Argentina has always struggled to do so. Since 1950, the economy has been hit by repeated crises, leaving the country in recession longer than any other country except the Democratic Republic of the Congo.
“At the rate they’re going, I can’t see Argentina up close [to doubling exports in the next five years]”said Martin Rapetti, a local economist.
Rapetti agrees, however, that the government is focusing on the right sectors. “What I don’t see are signs that they are going to implement the policies so that this can happen,” he added, fearing that other more radical leaders in the diverse ruling coalition do not undermine Kulfas’ efforts.
Beef exports were suspended for 30 days last month after local prices doubled over the past year, affecting domestic consumption of one of the country’s most iconic products. Many officials feared this could hurt the government’s popularity ahead of the main midterm elections in November.
A local producer scoffed at Kulfas’ hopes of doubling beef exports under the current circumstances: “That won’t happen with [export taxes] and a controlled exchange rate. . . We are losing customers every day, and some of them will be difficult to recover. “
The government’s penchant for intervening in all sectors of the economy – from price and currency controls and tariff freezes to threats of nationalization – has led many to fear that the private investments needed to boost exports may not be available. Added to these fears is the growing influence of the vice-president, former leader Cristina Fernández, known for her constant intervention in the economy.
Kulfas agreed that policy predictability is essential for investing. “It’s an important part of what keeps investments going over time. Unfortunately, our starting point was very negative, ”he said, stressing the need to restructure Argentina’s public debt“ which generates a lot of uncertainty ”, as well as an inflated budget deficit and depleted foreign exchange reserves.
As the government attempts to address these issues, Kulfas insists that investments have continued to come in and the economy is recovering. He points out that the industrial sector is already producing more than in 2019 before the coronavirus struck.
“We have an economy that is changing at different speeds today. There are sectors like industry, construction and agribusiness that are growing, and in some cases growing strongly, while other sectors [such as tourism] were hit very hard, ”Kulfas said.
He denied that there has been an exodus of foreign companies from Argentina since Fernández came to power. He said Walmart’s departure last year was due to an international restructuring plan and that the local company that bought the company had continued to invest.
“We see the opposite [of an exodus], many sectors are positioning themselves because they see that Argentina is at a turning point, ”he said.
Despite this, Emily Hersh, managing partner of DCDB Group, a financial consultancy firm with offices in Buenos Aires, is skeptical: “There aren’t many big pockets out there who want to seriously invest money in Argentina in this. moment.
Whether or not Argentina’s nascent and uneven economic recovery this year lasts depends largely on the country’s ability to modernize its economy, says Kulfas, who is focused on developing new sectors such as lithium, renewables. and medicinal cannabis.
“A lot of people ask me, do you really think this is the time for a digitization program. . .[or]talk about the green revolution? And I say yes. The snow. Because with each passing year, we will fall further behind the changes taking place in the world. . . and miss the train.