“If the favourable international and local conditions continue, in five years’ time the world will be speaking about the Argentine economic miracle,” says Beatriz Nofal, president of the National Agency for Investment Development, Argentina’s newly created state body spearheading the country’s efforts to attract FDI.
A few years ago, Dr Nofal would have had a difficult time trying to talk up a country that was seen as an economic and political basket case. At the end of 2001, the country had five presidents in two weeks. Between 2001 and 2002, GDP fell by 20%. But last year the economy grew by 8.5%, the fourth year of growth of 8.5% or more. This is the longest period of sustained growth in more than a century. The only country that is expanding faster in the western hemisphere is Trinidad and Tobago. Argentina now has a non-financial primary fiscal surplus of 3.5%.
Virtue and fortune
Dr Nofal, who took up her post in October last year, although the agency was only officially launched in March this year, told fDi: “The new agency was set up because the country faces a unique set of circumstances, a combination of both virtue and fortune. Virtue because it has experienced sustained growth on the basis of solid macroeconomic fundamentals. This is not by accident, it is by political will. The president, Nestor Kirchner, considers fiscal solvency to be not only a necessary condition for economic stability but also for political and social sustainability.
“The fortune comes because Argentina is facing a highly favourable international environment. There are high commodity prices, favourable terms of trade, good export prices but also lower import prices. Asian countries, such as China, which are contributing to the demand for raw materials and agricultural commodities, are also producing industrial goods at lower cost,” she says.
“You have to look back a very long way to find such an auspicious set of circumstances on both the domestic and international fronts. On the domestic side, it has been 120 years since the country grew at such high rates with such high levels of fiscal solvency.”
Dr Nofal, who was a trade and industry minister during the presidency of Carlos Menem, says an indication of Argentina’s renewed confidence is the rising level of gross fixed capital investment against GDP (the latest figure for the third quarter of last year was 24.5% annualised against a historic rate of less than 20%).
Voice of reassurance
She has to spend a great deal of her time while travelling around the world (she recently accompanied the country’s vice-president, Daniel Scioli, on a trip to Rome) reassuring potential investors about Argentina’s rule of law. The country’s international reputation was severely dented in 2001, when the government froze bank accounts under the corralito. A default on $100bn of external debt followed (in 2005, the government forced through a haircut of about 75% of this, although about 24% of bond holders held out against it).
Wall Street analysts are also harshly critical of the government for not allowing utility companies, many of which have major foreign shareholders, to increase tariffs. The latest episode to damage investor confidence happened in February when the government sacked the head of the inflation-monitoring state agency, Indec, and apparently manipulated the inflation rate so that it came in for January at 9.6% annualised (local economists say the true figure should be about 15%).
“Argentina has restructured its debt, it has honoured its commitments, renegotiated contracts with companies. There has not been any more alteration of the rule of law,” says Dr Nofal. “On the contrary, the country is gradually improving it; a milestone was the declaration of the setting up of this agency.”