Argentina economy Archives

Earlier this month, we talked about Uruguay’s trade dealings with China. Today, we’ll look at how Uruguay and Argentina have come to a consensus on how to approach future trade deals with China. My emphasis is in bold with my comments in italics

Macri and Vazquez agree that the trade approach to China should be done from Mercosur

Tuesday, October 25th 2016 – 10:29 UTC by Merco Press

Macri said that his government understands Uruguay´s need to have access to other markets and open to the world's second largest economy.

Macri said that his government understands Uruguay’s need to have access to other markets and to be open to the worlds’ second largest economy.

Argentine president Mauricio Macri promised his Uruguayan peer Tabare Vazquez to look into the draft of a Uruguay/China free trade deal, and expressed their deep concern about political events in Venezuela suggesting that under the current circumstances the Nicolas Maduro government cannot be considered a member of Mercosur (Things in Venezuela are not looking good. Drastic shortages of food, medicine, electricity and other necessities are causing small riots. Organized crime and extrajudicial police killings have given the country a frighteningly high rate of murder and violence. Runaway inflation means that from March 2015 to 2016 a basket of basic goods for a family of five became 524 % more expensive).

During a meeting on Monday midday at the Olivos presidential residence in Buenos Aires, Macri said that his government understands Uruguay´s need to have access to other markets and open to the world’s second largest economy.

“China is an option for Uruguay. With Vazquez we ratified the need to speed up this deal, in principle from inside Mercosur, but anyway I promised an open attitude and to look into what Uruguay is requesting”, said the Argentine leader. (Mercosur, which translated means Southern Common Market, was created in 1991 as a trade agreement aimed at providing free circulation of goods, services, and productive factors within member countries (Brazil, Paraguay, Venezuela, Uruguay, and Argentina) through the elimination of obstacles to regional trade).

“We understand that Uruguay produces food for ten times their population (A population of only three million people currently feeding 50 million) so it is only natural they should look for markets, but the ideal situation would have been for the issue to have been presented by Mercosur as a block, as we are doing with the European Union” emphasized Macri (Earlier this year, the EU Trade Commissioner and the Foreign Minister for Uruguay, who currently holds the rotating presidency of Mercosur, discussed the next steps in the negotiations on an EU-Mercosur trade agreement. The EU and Mercosur agreed to exchange market access offers specifying ways to increase mutual openness to each other’s goods and services, including access to public tenders. Those discussions also resulted in the adoption of a road map for talks during the rest of the year).

Vazquez underlined the very generous attitude of Macri and thanked Argentina for having such consideration.

“We coincided in advancing in a free trade agreement with China through Mercosur. But [we need to take] into account that Beijing came up with the possibility of such a deal six years ago and Mercosur did not reply, it would be positive that at the next Mercosur meeting we address the issue”, indicated Vazquez.

“In the meantime Uruguay will continue to explore the way to advance in a free trade project with China. We’ve already presented the road map for such a treaty and the extent planned. China has not replied yet but when they do, it will be shared with all Mercosur members”, he added.

Regarding Venezuela, both presidents agreed that under the current situation, “we are deeply concerned with the political problems, and we shared the opinion that under these circumstances they can’t be members of Mercosur. The Maduro administration must be condemned and disavowed by all American countries since there is no respect for human rights” (As another point of context, in May of this year, Uruguay prepared to pass the president-pro-tempore seat to Venezuela by the end of June. However, Argentina, Paraguay, and Brazil fiercely opposed this. Their arguments against Venezuela’s new role cited the country’s failure to follow the union’s rules as well as concerns about the government’s stance against its opposition).

Vazquez went further and said concern, regrettably, grows by the minute and “we are looking forward to a peaceful solution to the controversy, to dialogue between the Venezuelan government and the opposition. We also talked about the mediation from Pope Francis”.

Macri and Vazquez added that during the next Mercosur meeting whether to apply or not the democratic clause on Venezuela will be considered, since that is the correct place to consider such option.

“Uruguay will be attending the meeting and demand respect for peoples’ right to express their opinions and be respected. That is the essence of democracy and the direct participation of peoples”, added the Uruguayan leader.

Other issues considered by the presidents were drugs and crime, pollution in shared rivers and water ways, natural gas sales and the possibility of building another bridge across the River Uruguay that acts as a natural border between the neighboring countries.

Finally Vazquez, who never had a good relation or chemistry with the Kirchner couple, was most grateful with Macri and his hospitality. “I am profoundly grateful for his hospitality and friendship, with the Argentine president we have found ample paths of understanding”.

An excellent article about the need for patience with the unfolding political and economic situation in Argentina. My emphasis is in bold with my comments in italics

Herd Behavior: Why A Lack Of Patience Could Spark Argentina’s Next Crisis

President Mauricio Macri is making the right economic moves, but that is hardly enough to prevent the next crisis.

By Bianca Fernet – Oct 26, 2016 at 12:29

It’s been almost one year since President Mauricio Macri shocked the world by winning Argentina’s presidential elections, and the country is in a state of flux — hovering in an uncertainty characterized by hope, anxiety, fear and just a few whiffs of the dreaded stench of failure.

Besides displaying a shocking lack of political PR and taking on a few petty wastes of time, this government is doing most things within its power correctly to right the course of a vessel that seemed destined to crash. (This includes eliminating a parallel exchange rate from the previous administration, completing an oversubscribed bond sale, and eliminating export taxes on many agricultural commodities like corn and wheat).

Despite these positive steps, one sinister question looms: Has the Macri government managed to avert the looming economic crisis entirely, or is it merely kicking the can down the road? It’s scary, but Argentina is in uncharted territory. Rather than boom, the economy is in a prolonged recession that could be heading for an all too familiar outcome — bust.

Yet this time, the question really isn’t about economic fundamentals. The real variable threatening Macri isn’t economic at all — it is time. (To me, this says that many potential foreign investors recognize Macri’s attempts to repair some of the underlying fundamental economic issues facing the nation. I believe, based in part on the oversubscribed bond sale, that there are many more foreign investors waiting on the sidelines to see if a resilient Macri administration and patience from the international community can allow these economic changes to positively affect the foreign investment climate of Argentina) Time, that fickle mistress, is persistently stalking Macri’s administration and is not on his side. And Argentines aren’t exactly famous for patience.

Now that Argentina is back on the world stage, there seem to be no shortage of Argentina investment-themed symposiums, conferences, forums, delegations, road shows, panels, seminars, and other names they give to the indistinguishable gatherings of hundreds of white men in suits assembled in windowless spaces to watch powerpoints and exchange business cards over mediocre coffee and stale snacks. (While I don’t necessarily agree with all of the author’s points here, I appreciate both her sarcasm and perception, especially the part about windowless spaces and mediocre coffee).

In the past, representing Argentina at these business rituals meant repeating some variation of the tagline, “Argentina: it’s not so bad!” Now the conversation invariably veers first to new opportunity, but then quickly pivots to the question of Argentina — same old risk?

People love to say that “Argentina has a crisis every ten years.” A nice round number, except it is 2016 and the country’s last real crisis was in 2001 (no, the 2009 global downturn doesn’t count). The truth doesn’t follow simple formulas. (This saying may actually be more applicable to the US market with the collapse of the dot com bubble in the early 2000s, the Great Recession in 2008/2009, and the unstable economic times of today.)

To understand the situation, let’s think of economies like dinner plates, spinning atop sticks. Balance is essential.

iStock_000012016504_Medium — A balanced, diverse economy leads to stability

A poorly balanced plate will wobble dangerously and even crash to the floor from external conditions. Take a look at Argentina’s neighbors. Chile was thought to be as stable as they come, but a sudden drop in world copper prices have caused the country to wobble. Brazil was the next big thing in biofuels, technology, renewables — you name it. But a plunge in oil prices spun out the endemic corruption and tipped that plate right over.

So what do spinning plates and susceptibility to external crises have to do with Argentina?

From a purely economic standpoint, Argentina is just about the most stable, well-balanced, solid plate there ever was. The economy and the geography are large and diverse (One of the few countries in the world with the ability to be completely self-sustaining, hosting an abundance of natural resources, an educated population, and of course, famed agricultural land covering nearly 55% of the country). Argentina was resilient through the global economic crisis of 2009. Sure, soy is important piece of the pie but even when soy prices took a nosedive in 2014, Argentina’s plate wobbled a bit but kept on spinning. The good news is that despite more than a decade of Kirchnerism, during which Cristina Fernández de Kirchner and her ~~band of merry thieves~~ administration carried out a heist worthy of its own Netflix series, the plate was somehow able to keep spinning.

Macri’s government has acknowledged systemic flaws and is leading the country to come to terms with uncomfortable and unpopular realities, such as that 30 percent of Argentines live in poverty. The administration has acknowledged persistently high inflation and taken painful steps to bring it down. It has dismantled the capital controls that created a de-facto dual currency system (RIP Blue Dollar), settled with the holdout creditors (aka “vulture funds”) and are setting clear rules for doing business (To further highlight the points I made earlier).

Perhaps most laudable, the administration has forced the population to acknowledge that energy subsidies for both electricity and gas are unsustainable and has launched a clear plan for prices to rise to meet generation costs. It’s not easy being Energy Minister Aranguren, the public face of these unpopular hikes. The man basically looks like he needs a hug all the time.

Yet that analysis misses a fundamental point of Macri’s challenge: to succeed, he won’t just have to right a plethora of economic distortions and rise above a mire of tragicomic corruption, he must also change a culture (This will take time, patience, and resilience on Macri’s part, but I think it can be done).

If Argentina’s economy is a plate, its next crisis won’t be caused by an external shock that throws an overweight area off balance. Argentina’s next crash will be caused by its people, who run from one side of the plate to the other, like an emotionally charged herd. Call it passion, color, soul, whatever you want — but we in Argentina are opinionated, loud, and most importantly impatient.

And without political patience, Macri will fail.

The key test will come next year, when the midterm elections will serve as a de facto referendum on his policies, many of which while are unarguably necessary albeit damningly unpopular.

Macri’s real challenge is not only to convince the world that Argentina can change; rather, he must lead his own people through a painful recession and politically maneuver entrenched powerful interests to restore an attractive labor market and an unsubsidized energy matrix.

There is no doubt he is dedicated, but the question looms as to whether it is possible to convince a country of fiery, passionate Argentinos to endure a recession without throwing a tantrum and inexplicably sprinting off the edge of the plate (It is easy to understand that Argentines are looking for quick evidence of progress, as I’m sure many Americans will on the heals of our US elections, but after over a decade of systematically taking apart the economy, it will take time to fix the country’s inflation and poverty problems).