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10 August 2017, Gateway House

Argentina: in the ascendant

Once a laggard, Argentina is now a rising star in South America. Its economy is recovering, GDP growth is stable and financial reforms have taken hold. In 2018, it will host the presidency of the G20, its first step onto the global stage after over a decade in isolation. With Argentina’s G20 agenda fully aligned with India’s priorities, how can India gain?

Researcher, Geoeconomic Studies and Assistant Manager, Research Office, Gateway House

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Argentina is re-emerging onto the world stage after a 15-year hiatus. Its re-entry was marked by a successful return to the international capital markets in 2016 with the largest bond issue ever from an emerging economy. Following a domestic financial and structural reform process, many key macroeconomic indicators are turning in its favour. In June 2017, a ‘century bond’, a 100-year sovereign bond worth $2.75 billion attracted offers worth $9.75 billion, indicating returning investor confidence in the country’s long-term prospects.

On the multilateral front, Argentina has been busy positioning itself well. In addition to taking on the presidency of G20 in 2018, Argentina is chairing the regional body, Mercosur, in 2017. It will host the 11th WTO Ministerial Conference in December 2017. Its membership of the China-led Asian Infrastructure Investment Bank (AIIB) was approved in June 2017. And most ambitious of all, like its neighbour, Chile, it seeks membership of the most elite, developed country institution, the OECD.

Many rating agencies are bullish on Argentina. Moody’s Investors Services [1] has raised the country’s rating from ‘stable’ to ‘positive’. J. P. Morgan Chase is also likely to admit Argentine peso bonds into its benchmark indices[2].

This turnaround has been aided by three factors that have featured high on President Macri’s priority list: upgrading infrastructure, reducing corruption and furthering multilateral trade ties. These dovetail strategically with Argentina’s international engagements and aspirations.

Upgrading infrastructure

Poor quality infrastructure and underinvestment under the previous Kirchner governments damaged Argentina’s international competitiveness. In 2016, President Macri introduced a $33 billion national transport infrastructure plan which will double highway networks, and add road corridors, freight railway lines and better port infrastructure. New systems to improve urban transport and modernise airports are underway. In February 2017, the government approved a Public-Private Partnership (PPP) law to bolster a framework for these investments. Infrastructure bonds worth $850 million have been issued.

Macri is also urging investors – public and private – to invest in the sector. Since the local capital market is still underdeveloped, he is turning to external sources, like the World Bank, to fund long-term projects like transmission lines. An AIIB membership will give him access to more funds and will lay the groundwork for Argentina’s engagements in Asia.

Expectedly, China already has large investments in Argentina’s infrastructure, including $24.242 billion in energy and transport, $12.5 billion for the construction of two nuclear power plants, $1.8 billion for natural gas pipelines and $1.15 billion for photovoltaic solar projects. Appreciative of Argentina’s support and participation in the Belt and Road Initiative, in May 2017, President Xi Jinping spoke about aligning the initiative with Argentina’s development strategy, signing 16 infrastructure deals worth $17 billion. During Argentina’s years in isolation, Chinese companies bought stakes in energy, mining and infrastructure and are deeply invested in the country. Now that Argentina is opening up to the world, any country aspiring to invest in Argentine infrastructure will have to account for a dominant Chinese presence in the nation.

Reducing corruption

Macri has also been rooting out corruption, a result of decades of state interference. Over time, it strangled the formal economy and helped informal economic activity dominate, making the judicial system vulnerable.

Macri worked to rectify both through a campaign of transparency. He restored the credibility of the state statistics agency through a ‘freedom of information’ bill, allowing access to official documents. This led to the arrest of several officials of the Kirchner administration on corruption charges. Encouraged, Macri is now using a tax amnesty scheme to entice Argentineans to declare their hidden income. A sum of $116.8 billion has been declared in assets. Some of the repatriated money will be channelised into the infrastructure sector.

Declining corruption levels will offer better coupon rates for the country’s bonds and will boost Argentina’s trade with the world. Most importantly, it will attract foreign investment in agriculture, helping Argentine agribusinesses upgrade farm infrastructure, carry out new research and further modernise the sector.

Furthering multilateral trade ties

All these steps will put Argentina’s domestic house in order. But will it be enough for the country to take on an ambitious international role with the OECD, G20 and Mercosur?

There are some hurdles. For example, Argentina’s non-compliance with certain aspects of OECD’s anti-bribery convention could be an impediment to its membership in the institution. As the chair of Mercosur in 2017, Argentina’s goal is to revive the South American bloc by concluding an FTA with the EU[3], already Mercosur’s biggest trading partner and foreign investor at $78 billion. This will offer EU companies privileged access to a market of over 250 million[4] consumers. As the only partner undergoing free trade negotiations with the bloc, the EU will have comparative advantage in the Mercosur market.

But the EU will come up against China, which, as Mercosur’s second largest trading partner, turns to the bloc for raw materials. Mercosur also provides markets for China’s manufactured goods.  China hopes to revive trade negotiations with Mercosur, which have been stalled since 2004. Recently, Mercosur’s foreign ministers have agreed to resume talks as well. However, an early conclusion of the trade deal seems unlikely.

Argentina and India

An arena where Argentina will have a reasonably easy win is its biggest international role – that of G20 president in 2018. The agenda will focus on agriculture after several years. As the 2017 chair of the Agricultural Market Information System (AMIS)[5], it will empower the body to fulfil its mandate of improving food market transparency and coordinating policy responses.

This is a fortuitous confluence of interests for India which seeks to highlight agriculture at the global level, but has been stuck on negotiations at the World Trade Organization (WTO) on issues, such as global food pricing and market access. India is in dire need of infrastructure upgradation and turns to multilateral development banks like World Bank, AIIB and New Development Bank (NDB) for funding. It has been battling corruption too, the demonetisation drive of 2016 being its first success: there are lessons it could borrow from Argentina’s own anti-corruption campaign. Besides, India is working towards forging bilateral and plurilateral agreements with its trade partners.

Prime Minister Narendra Modi aspires to double farmer incomes[6] by 2022 – a goal that will need sector reform and a tripling of agricultural exports. Here, Argentina offers a good model, and is a good partner for India. Learning from its experiences of a technologically advanced agricultural sector, India can support its partner’s global quest and further its own aims too. India must back Argentina in its pursuit of harmonising global standards, crafting attractive food legislations and achieving resource efficiency.

Together, they must urge multilateral financial institutions to create incentives, encouraging farmers to adopt new technologies and adhere to climate change norms. Climate funds can be set up to finance these technologies. India must partner with globally integrated Argentine agribusinesses by acquiring stakes in them and promoting joint ventures. With both countries supporting a large services market, they must jointly push for consensus at global services trade negotiations: India has submitted a proposal to the WTO for an Agreement on Trade Facilitation in Services (TFS) and Argentina can support this initiative.

If Argentina succeeds, it will provide the world with a new model of economic and governance success. Its domestic efforts and presidency of the G20 will be closely watched – and encouraged – around the world.

Purvaja Modak is Researcher, Geoeconomic Studies, and Assistant Manager, Research Office, Gateway House: Indian Council on Global Relations.

This article was exclusively written for Gateway House: Indian Council on Global Relations. You can read more exclusive features here.

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References

[1] Moody’s, Moody’s changes outlook on the Government of Argentina’s B3 rating to positive from stable ratings affirmed, 6 March 2017, <https://www.moodys.com/research/Moodys-changes-outlook-on-the-Government-of-Argentinas-B3-rating–PR_362741>, Accessed on 10 August 2017

[2] ‘Argentina is admitted to a widely tracked bond index’, The Economist, 14 January 2017, <https://www.economist.com/news/finance-and-economics/21714370-fifteen-years-after-spectacular-default-argentine-regains-respectability>, Accessed on 10 August 2017

[3] European Commission, Joint EU-Mercosur Communique Following the XXVIIth Round of Negotiations, Brussels, 27 March 2017, <http://trade.ec.europa.eu/doclib/press/index.cfm?id=1639>, Accessed on 10 August 2017

[4] European Commission, Comprehensive Free Trade Agreement with Mercosur: Potential gains for the EU, March 2016, <http://trade.ec.europa.eu/doclib/docs/2016/may/tradoc_154559.pdf>, Accessed on 10 August 2017

[5] Agricultural Market Information System, Argentina taking over AMIS Chairmanship, 28 June 2017, <http://www.amis-outlook.org/news/detail/en/c/900344/>, Accessed on 10 August 2017

[6] Press Information Bureau, Ministry of Finance, Government of India, Government to Double the Income of Farmers by 2022: Unified Agricultural Marketing E-Platform to be Dedicated to the National on 14th April this Year, 29 February 2016, <http://pib.nic.in/newsite/PrintRelease.aspx?relid=136979>, Accessed on 10 August 2017

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