 INTRODUCTION
ARGENTINA - THE BEST IS YET TO COME |
With natural resources galore, Latin America’s highest wages, a stable currency, a dependable banking system, outstanding literacy rates, an open economy, a diversified industrial base and rock-solid democratic institutions, Argentina has everybody wondering how it managed to plunge into a deep recession.
Yet, for all those reasons, coupled with optimism over government plans to jump-start the economy, everyone concurs that the country will soon manage to get on its feet again and resume the path of dynamic growth that characterized the 1990’s.
This is a powerful, rich country, with high educational levels and immense possibilities to develop economic activities, says Eduardo Eurnekian, President of Aeropuertos Argentina 2000 and one of the country’s leading industrialists.
Influential businessman Eduardo Elsztain agrees. This is a very good time to invest in Argentina, he says. I am essentially optimistic.”
 Mature Hi-tech Sector |
One of Argentina’s exceptional traits, for example, is its rare rural-hi-tech blend - being a major supplier of grains, beef, dairy products and other commodities, it also has a highly sophisticated, fully deregulated telecommunications and Information Technology industry that could serve as a model for many an industrialized nation.
With all major international players investing billions of dollars, market experts estimate the hi-tech sector will become a $17 billion business by 2003.
The country has 2.5 million web surfers, a world-class telephone system and some of the best technological universities in the region.
It’s no wonder that more than half of all Latin American Websites were developed in Argentina; or that Motorola has picked Argentina to set up an international center to develop the latest communications technology in a plant that will employ 500 software engineers; or that Japan’s NEC is investing $100 million to produce wireless, WAP and other software applications.
A qualified labor force was a key element in choosing Argentina, NEC General Manager Carlos Martinangeli says. We felt without any doubt that the Argentine software engineers are very good.”
Argentina has got a resource base that is probably richer than most of the emerging market countries that I have seen, adds U.S. ambassador James Walsh. It has a literacy level that is well beyond what I have experienced. And the general qualification level of the human factor is probably greater here than it has been in many places that I have served outside of Europe.”
| Solid industrial base |
And although it has a global reputation as breadbasket -being a major exporter of wheat, maize, soybeans, oilseeds and beef--, it has a solid industrial base as well and last year exports of non-agricultural industrial products overcame agribusiness shipments for the first time in the country’s history -- $8.2 billion versus $7.2 billion.
Transportations equipment (including cars), steel and aluminum products, chemicals and machinery accounted for two thirds of the non-agricultural sales and nearly one quarter of the country’s $26 billion in total exports.
Other strong areas of the economy are oil, gas and electricity, metals and the petrochemical industry.
Fully 18 percent of export revenues last year derived from oil, natural gas and electricity sales, which more than doubled in the last two years. And the energy sector keeps attracting billions of dollars from major world players.
Steel, aluminum and gold sales are also on the rise. Argentina, which only a decade ago had virtually no bullion output, is now the world’s 14th largest gold producer and companies from the United States, Canada, South Africa and Australia are digging several new mines in southern Patagonia and the Andes slopes.
The petrochemical industry is a strong magnet for FDI funds too.
Three world giants -the U.S. Dow Chemical, Spain’s Repsol-YPF and Brazil’s Petrobras have joined forces to set up a world-class, $715 million petrochemical complex in Patagonia. The enterprise, called Project Mega, earlier this year started producing polyethylene and other plastic derivatives for sale at home and abroad.
Repsol has also partnered with Canada’s Agrium to set up Profertil, a $700 million fertilizer plant. Profertil, one of the largest of its kind in the world, is turning Argentina from fertilizer importer into net exporter.
| Reasons for optimism |
There are many other reasons to justify the widespread optimism about Argentina’s future: rich soils, breathtaking tourist sites, an aggressive, export-minded business community, a widespread free-market mentality, and the region’s highest per capital GDP, of $7,700.
By while some of those ingredients, such as the fertile soils, sophisticated population and plenty natural resources have long been an Argentine hallmark, other political and economic factors were harder to come by.
For starters, democracy - for half a century the country was time and again disrupted by a series of military coups that unleashed violence against citizens, suppressed their rights and wrecked economic disaster.
| Then in 1983 freedom was restored. And after nearly 20 years of institution consolidation, all the pillars of democracy are now as solid as solid can be.
The resignation last year of Vice President Carlos Alvarez in disagreement with some official policies and the more recent arrest of former President Carlos Menem, while shocking the whole population, put the system to the test, showing that the constitutional mechanisms were perfectly prepared to handle such crises.
However, freedom of the press, the rule of law and full respect for citizens rights, although necessary prerequisites for any modern economy to function, are not in themselves enough to make it prosper.
| Turning point in financial history |
The second turning point in the country’s recent history took place just a decade ago, when Argentina decided to defenestrate the time-honored import-substitution and central-planning principles, opening its floodgates to free flows of trade and investment.
At the same time, the country got rid of dozens of unproductive state-run companies and fully embraced free-market policies. The man in charge of carrying out the task was no other than Domingo Cavallo, in his first incarnation as Economy Minister.
Argentina must be one of the countries in Latin America that did the most in terms of structural reforms, boasts Cabinet Chief Chrystian Colombo.
Deputy Economy Minister Daniel Marx fully agrees. Today Argentina is a country whose economy is fully integrated to the global community. The opening of the economy creates new challenges and the need to keep moving in the transformations process we initiated in order to reach its full potential.”
Under the new creed, the country not only has joined forces with Brazil, Paraguay and Uruguay to form the Mercosur customs union, but has also become a driving force behind the Free Trade Area of the Americas (FTAA) - the White House plans to bring down commerce barriers across the Americas.
Thanks to Mercosur, Southern Cone countrieswere able to attract several billions of dollars a year in foreign direct investment flows allured by a 200 million people, $1 trillion combined GDP trading bloc - the fourth largest economy in the world after Nafta, the European Union and Japan.
But back to Cavallo -- now back at the helm of the nation’s finances, the minister was assigned by President Fernando de la Rua another tough mission - making the country more productive by trimming the government fat, boosting exports (which are a paltry 10 percent of GDP), and generating jobs to fight off the country’s 16 percent unemployment rate.
| Good Neighbor Policy |
Other dramatic changes in Argentina’s recent history were peacefully resolving all its territorial quarrels with Chile (with which it went to the brink of war in 1978 over a border dispute) and ditching its former non-aligned policies in favor of closer ties with Washington, which in 1998 declared it a major non-NATO ally.
On the financial side, the changes were equally impressive. At the same time that it embarked on a free market path, Argentina tied its peso at par with the dollar in 1991 under the so-called Convertibility Law”.
Aside from putting an abrupt end to decades of hyperinflation and routine devaluations, the move spurred dramatic GDP growth -of an average 6 percent between 1991-97—and siphoned in funds, creating a total novelty for Argentines: a solid banking system and renews access to credit.
Argentine foreign reserves shot up dramatically and proved crucial to cushion the impact of a series of global financial crises, the first of which was triggered by Mexico’s devaluation in December 1994. Buenos Aires has since clinched a deal with a series of international banks that set up a $6 billion contingency fund to act as a safety net in case of any eventual liquidity squeeze.
This marked a major departure from the past, when Argentine governments in general mistrusted foreign financial institutions. Today, foreign banks operate under equal conditions to those of national banks, says BankBoston Argentina President Manuel Sacerdote.
The social security and pension fund system has also been privatized. The results were better health services, billions of dollars in foreign inflows to the sector and the creation of new investment instruments for the public and institutions.
The system has been successful both in attracting new members and as far as earnings are concerned, says Consolidar pension fund Vice President Carlos Peguet. Since 1994 onwards it has withstood several crisis, starting with the ‘Tequila’ in 1994 and then the Asian, Russian and Brazilian crises, plus the current hardships we are facing. Despite all that, we managed to get 12 percent returns over these years.”
Grupo Fortabat president Amalia Lacroze de Fortabat summarized the overall feeling saying, When political stability sets in, investments from all over the world will flood into Argentina, because this is a peaceful country without cataclysms.” |
