Macri selling Kirchner-free economy to tough crowd of CEOs
BUENOS AIRES: President Mauricio Macri sees foreign investment as key to Argentina’s economic prosperity. This week, he will try to convince the world’s businessmen that they too should share that vision.
The president has invited the CEOs of Siemens AG, Coca-Cola Co, Dow Chemical Co and 2,000 other investors to join his entire cabinet in a three-day forum here starting today to once again spread the word that Argentina has turned a new leaf after 12 years of protectionism and belligerence under his predecessors, the Kirchners.
It’s a tough sell. The economy has been in recession since mid-2015, job losses have pushed the unemployment rate to 9.3% and inflation is running at an annualised 47%. After a brief honeymoon, Macri is sparring with unions over pay rises and efforts to increase gas tariffs – after 14 years of subsidies – were blocked by the Supreme Court.
Above all, economists and investors say that while Macri has made strides in reversing the Kirchners’ populist policies, the country still lacks a legal framework that establishes a safe environment for doing business.
“We have a long history of very populist governments and to change that is like changing the genetic code of a couple of generations,” Luis Secco, cabinet chief at state-run Banco de la Nacion, said in an interview in Buenos Aires. “Until now, the government has been very focused on macro issues. The next step should be the regulatory and institutional framework.”
What Macri can do for now is dazzle investors who have not been fully welcomed in Argentina for more than a decade. He chose to do this in one of Buenos Aires’ architectural marvels, an icon of early 20th century prosperity, which ironically the Kirchners renamed after themselves.
The Kirchner Cultural Centre, a former post office, “was probably picked on purpose to show people that the current administration is trying to overwrite past policies,” said Alejo Czerwonko, an emerging-market investment strategist at UBS Wealth Management. “What a better place to show the contrast between new and old than this particular venue.”
Since Macri took over in December after a tight election, he’s lifted currency controls and resolved a decade-long dispute with holdouts from the 2001 default, bringing a flood of dollars into the country. He’s also close to persuading the International Monetary Fund that the country’s economic statistics are once again credible.
Argentina has a “world-class labour force, renowned for its technical skills, creativity and versatility,” according to the forum’s website. Investors will discover an economy with “pent-up consumption and investment,” it said.
But the government acknowledges that it still has some way to go in molding a business culture that will satisfy investors and foster sustainable growth.
“It was not obvious in December, but the easiest part was to bring Argentina back to financial markets and to make it fashionable – and I think we did it,” Cabinet secretary Mario Quintana said in an interview at the presidential palace in Buenos Aires. “The tough part is going to be doing all the structural changes that will allow us to leave behind volatility.”
But the real money from foreign direct investment has been harder to come by as the memories of seven defaults in 200 years linger and deeply ingrained regulatory risks persist. A ticker on the Finance Ministry website has tallied US$32.5bil in investment pledges since December, but central bank data show only US$1.3bil has actually arrived in the first six months of 2016.
There are signs that some investors are showing faith in Macri’s ability to transform the country.
A renewable energies tender scheduled for October attracted six gigawatts of bids, more than six times the amount the government plans to sell. Bombardier Inc says jet sales in Argentina are offsetting weakness in Brazil and Venezuela, with five used jets purchased since Macri took office.Axion Energy will invest US$1.5bil in the expansion of its plant in Buenos Aires provinceCoca-Cola pledged $1 billion in investment to Macri in January and in June announced plans to buy Unilever’s AdeS soy-based drink brand, founded in Argentina, for about US$545mil.
Whether other companies will turn curiosity into concrete investments may depend on whether Macri can satisfactorily answer the questions they still have about the business environment in Argentina, said Daniel Marx, a former finance secretary and director of Buenos Aires-based consultancy Quantum Finanzas. Will they be able to freely import and export goods and materials or will they be forced to produce 100% of their products inside the country? What commercial advantages does Argentina offer over other emerging markets? – Bloomberg
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