Foreign Investors are still cautious about returning to Argentina. We wonder why ?
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No matter how you look at it, investors are still hesitant or have not responded to the invitation the current government is presenting to them in the numbers that one would expect, given the opportunity that Argentina currently presents.
The government of Mauricio Macri received an extremely poisoned inheritance: and although his cabinet and his speeches seduce many abroad, the burden of the past is still very heavy.
And local Argentines often do not help themselves; short-term thinking rules and populism dignifies. The words efficiency and productivity have been forbidden for decades. Many politicians only want votes, not long-term stability and improved living conditions for all society.
The current President Mauricio Macri, is angry with the local entrepreneurs for not leading the charge to a better future with new investments.
But the reality is that, unlike Chile, Brazil or Colombia, in Argentina, most of the big companies are foreign, not local.
Their local managers lack the power to make investments and their parent companies are still cautious. Argentina is a country with a medical record, not a résumé.
After the abandonment of convertibility ( USD / AR Peso ) and the declaration of a default in 2001 ( not the first sadly ), Congress stood up and applauded the measures, and then with their support allowed Kirchnerism regime to proceeded to destroy the fundamentals that had allowed the arrival of foreign investments in public services and infrastructure works in the first place.
The Kirchner’s and their supporters, under the pretext of ensuring political stability, ignored any legal pretense. Worse, it expanded the state of corruption throughout the whole economy.
The pillars of private investment were demolished, legal contracts broken and major International Brands businesses paralysed.
Worse was to follow, with nationalisation without compensation of YPF oil company ( Spanish ), the brutal persecution of Shell Oil, the nationalisation of the AFJP (pension fund), exchange rates controls, price controls, constant devaluations, creation of a black market currency, the marked increase in debt of the State, the complete falsification of the inflation and other state indexes; the restrictions on the exports of beef, milk and wheat which destroyed many of these producers; the manipulation of oil prices, the ending of self-sufficiency in food production; a twisted regime of having to make false exports to allow imports.
The forcing of some private companies to allow political cronies to be put in place in senior positions.
The total manipulation of the press and of all the state institutions. The legal protection of political cronies and those of fascist leanings. The persecution of anyone who opposed them.
The State Corruption apparatus expanded into public works, Universities, State purchases, employment of phantom workers, close ties with the failed state of Venezuela.
This is currently perpetuated by the majority consensus in Congress, the strength of acquired rights, the arrogance of picketers, the defense of consumers, orders not to innovate and the lack of official conviction for change in the light of the upcoming October elections.
The president of the Argentina seeks abroad what he fails to achieve in his own country. In an economy that has been plagued by excess consumption and with very low productivity, strong investments are indispensable to achieve growth. However, without making strong adjustments, this will not happen.
Even the Emperor of Japan was surprised to learn that in Argentina 30% of the population is poor, comparing in silence what Nature has granted to Argentina and what Japan has on its small, narrow, rocky islands.
The delay in achieving virtuous convergence is reflected in the widening gap between domestic prices and the dollar conversion. The longer the current government delays making structural changes the worse the situation will become. The Government promotes more state works so that the economy might recover but this is not enough in itself. The more the state spends, the more inflation increases, the higher the interest rates, the USD weakens and the costs devour corporate profitability.
Before responding to the invitation to invest, investors are watching the country from a distance. Is it another Argentine mischief to have them loaded with the weight of the backpack as in the past? As soon as they invest, will they have to share, in solidarity, the burden of local pathologies? Inflation, fiscal pressure, exchange rate, backwardness, labor costs, union arrogance (with its unique status and social welfare funds), the legal industry, absenteeism, lack of skilled labor, inflexibility of labor; Industrial (other) privileges, selective protectionism, import barriers, tax evasion, unfair competition of evaders, regulatory distortions, municipal voracity, power outages, logistic cost, asphalt pirates , malicious inspections etc.
Untying these knots would be a puff of oxygen to the Argentine economy that it desperately needs; a magic pass that, stunned by decades of blows has withered. Perhaps the best chance for possible change comes from the generational change. Argentine youths who created successful companies worldwide, outside the regulatory tangle that stifles those who produce physical goods in the country, such as Mercado Libre, Despegar, Globant, Assa, Neoris and IMS, are inspiring other young people.
Such oxygenation would allow Argentina to truly address a number of social rights that Argentina has promised but as cheques without the funds to pay for them.
A governance agreement, a commitment to modernisation, a Moncloa Pact? The name is the least, but the productive transformation must not be the exclusive property of a coalition government, but a collective conviction of the population and its leaders.
A convergence of rationality for Argentina to abandon its empty speeches and surprise the next emperor of Japan with a productivity jump to eliminate poverty and exclusion.
When investors see that legal security is guaranteed and there is an end to the unsustainable party of public spending and corruption, investors might be happy to consider returning. In the meantime, they fret over Argentines high acceptance of criminality as evidenced in the lack of the past political elite in prison.
We live in hope.
This is an abridged version of the La Nacion editorial in today’s newspaper.
Post available in: English