I agree with the analysis of this article and that is why i am reproducing it here
How Argentina jump-started its economy
Buenos Aires' first couple revived the economy -- despite, not because of, the IMF.
By Mark Weisbrot October 30, 2007
Cristina Fernandez de Kirchner on Sunday became the first woman elected to the presidency of Argentina. Her victory is not difficult to explain. Her political party, under President Nestor Kirchner (her husband), led a dramatic economic turnaround that made Argentina the fastest-growing economy in the Western Hemisphere over the last 5 1/2 years.
More than 11 million people, or 28% of the population, were pulled above the poverty line as Argentina's economy grew by more than 50%. Its 8.2% annual economic growth was more than twice the average for Latin America. Unemployment has dropped from 21.5% to 8.5%, and real (inflation-adjusted) wages have grown by more than 40%.
Fernandez's victory was thus predictable and relatively easy. But the economic recovery that drove it was not so simple, and the people who led it deserve more credit than they have generally received. The Kirchners and their allies had to take on not only the conventional wisdom of the economics profession but also powerful international institutions such as the International Monetary Fund. Argentina's success may have some important implications for other developing countries.
When Argentina defaulted on a record $100 billion of debt at the end of 2001, almost all of the experts predicted that this would be the beginning of a long period of punishment. International financial markets and foreign investors would shun the nation, they said, and this would be very damaging. The government had better reach an agreement with the IMF and follow its advice. And it had better play nice with the defaulted foreign creditors.
The experts could hardly have been more wrong. The economy contracted for just three months after the default and then began to grow. It hasn't stopped since.
Contrary to a common belief, Argentina's expansion was not based on exports or high commodity prices: Only about 13% of the growth during the expansion was because of exports.
What did Argentina do right? Most important, the government got its basic macroeconomic policies right. After years of seeing its domestic economy crippled by an overvalued currency that made imports artificially cheap, the Argentine central bank targeted a stable and competitive real exchange rate.
In other words, the authorities made sure that their currency didn't rise too high and didn't swing wildly as a result of movements in financial markets. (Here in the U.S., where we have shed more than 3 million manufacturing jobs since 2001 -- the bulk of them lost because of an overvalued dollar -- we might take note.) They also kept interest rates low and made growth, rather than the lowest possible inflation, the top priority.
These policies are mostly a no-no among central bankers and economists, and Argentina had a few showdowns with the IMF, including a brief temporary default to the fund in September 2003. But the fund backed down, and most of the defaulted international creditors ended up settling for 35 cents on the dollar in 2005.
Of course, Argentina hasn't gotten a lot of foreign direct investment in the last five years, and it cannot directly borrow in international bond markets. But these handicaps -- which if you read the business press should spell doom -- turned out not to be all that important. Nor are they permanent. In time, foreign investors and lenders will find their way back to a fast-growing economy.
The lesson? Just as "all politics are local," so too are the most important economic policies for most countries. Getting basic macroeconomic policies right for your own economy is a lot more important than pleasing international financial markets. That goes double for failed international financial institutions like the IMF. The fund not only oversaw the train wreck that collapsed Argentina's economy from 1998 to 2002, it opposed the major policies that drove Argentina's remarkable recovery.
The fact that Argentina's break with the IMF and its policies was key to the country's economic success also has implications for other countries. Over the last quarter of a century, the fund and its allied institutions -- run from Washington -- have presided over Latin America's worst long-term growth performance in more than a century. As a result, most governments in the region have moved away from the IMF. Its loan portfolio in the region has shrunk from $49 billion just four years ago to less than $1 billion today. But it still holds sway in many poor countries.
Argentina's new government will face challenges, the kind brought about by a fast-growing economy: keeping inflation in check and assuring adequate supplies of energy. But these problems are manageable. Of course, there are analysts who argue otherwise, but their forecasts over the last five years have not been very accurate.
Mark Weisbrot is co-director of the Center for Economic and Policy Research in Washington. Website: cepr.net
Wednesday, October 31, 2007
Monday, October 29, 2007
My interview to an Argentine Business Daily on 24 October
This is the text of interview published by Infobaeprofesional.com ( a virtual business daily ) on 24 October. This interview was conducted in spanish. Readers can use the translation tool given in the right side of the blog for English.
India busca triplicar el comercio con la Argentina y apurar un TLC
Infobaeprofesional.com entrevistó al nuevo embajador de la India en el país. Aseguró que en tres años, de los poco más de u$s1.000 M en intercambio se pasará a u$s3.000 M. Además, pugnará en el Congreso por la ratificación de un acuerdo parcial de preferencias, con vistas a un TLC con el Mercosur.
Hoy en día, India se posiciona como una de las economías de crecimiento más rápido del mundo. Con una tasa récord del 9,3% durante el año pasado, superó las expectativas de los analistas internacionales. En los últimos diez años, el país tuvo un crecimiento promedio de 7%, sustentado por una mejora constante del sector agrícola y por una expansión en el sector manufacturero y, sobre todo, del de servicios. India es la potencia indiscutida en la industria del call center, por ejemplo, donde emplea a 350 mil personas, siete veces más que lo proyectado por la Argentina para este año.
Infobaeprofesional.com entrevistó al nuevo embajador de la India en el país. Aseguró que en tres años, de los poco más de u$s1.000 M en intercambio se pasará a u$s3.000 M. Además, pugnará en el Congreso por la ratificación de un acuerdo parcial de preferencias, con vistas a un TLC con el Mercosur.
Hoy en día, India se posiciona como una de las economías de crecimiento más rápido del mundo. Con una tasa récord del 9,3% durante el año pasado, superó las expectativas de los analistas internacionales. En los últimos diez años, el país tuvo un crecimiento promedio de 7%, sustentado por una mejora constante del sector agrícola y por una expansión en el sector manufacturero y, sobre todo, del de servicios. India es la potencia indiscutida en la industria del call center, por ejemplo, donde emplea a 350 mil personas, siete veces más que lo proyectado por la Argentina para este año.
A nivel comercial, desde 2001, las exportaciones crecieron 180% hasta alcanzar en 2006 una cifra superior a los u$s120 mil millones, según datos del Centro de Economía Internacional (CEI). Las importaciones, por su parte, ese mismo año alcanzaron los u$s174.000 M, casi 250% más que cinco años atrás.
Como contrapartida, si bien la relación comercial entre la India y la Argentina está creciendo, aún se trata de cifras chicas comparadas con el potencial que encierra el mercado indio.
Visto desde la Argentina, el año pasado las exportaciones alcanzaron los u$s909 M, mientras que las importaciones sumaron poco más de u$s303 M, según Abeceb.com.
En este contexto, el 10 de octubre pasado, llegó al país el nuevo embajador de la India, Rengaraj Viswanathan. Es especialista en temas Latinoamericanos y llegó a la Argentina con tres metas concretas: incrementar los niveles de comercio, promover inversiones de compañías indias en el país y organizar visitas de alto nivel entre ambos mercados para los próximos meses. De este y otros temas, el diplomático dialogó con infobaeprofesional.com.
-El comercio es bastante limitado para lo que es la india ¿coincide en esto?
-La relación comercial entre ambos países el año pasado arrojó una cifra de u$s1.200 M, es una cifra interesante pero está por debajo del verdadero potencial. Esto se debe a que la India recién en los últimos diez años enfocó sus fuerzas en América Latina y los empresarios en particular recién comenzaron a mirar a la región más seriamente en los últimos cinco años.
-Las proyecciones que manejan son ambiciosas...
-Sí. Estamos empezando a entrar al mercado de la Argentina. Tenemos optimismo en este país porque se recuperó de la crisis y esta estabilidad va a garantizar más crecimiento. Esto genera que sea un mercado muy atractivo para nosotros, de hecho, es el tercero más importante en la región para India. Esto es una visión que comparten tanto los empresarios como el gobierno. Por eso, nuestra meta es pasar de los u$s1.200 M a u$s3.000 M en tres años.
-En esto seguramente influirán mucho las inversiones...
-Exacto. Hoy contamos con cuatro empresas de la India del sector de Tecnologías de la Información que invierten en la Argentina, entre ellas, la número uno, que emplea a 150 personas en el país. También tenemos empresas en otras áreas como outsorcing, agroquímicos, genética y agrobusiness. Pero esto no va a quedar aquí. Constantemente estamos recibiendo a empresarios indios que están interesados en invertir en el país o que quieren realizar un joint-venture. Esto va a ser bueno para el futuro de la Argentina.
-Por otra parte, también anunció la realización de misiones comerciales para potenciar la relación bilateral.
-Estamos planeando recibir delegaciones de la India, realizar seminarios sobre áreas claves como TICs o la industria química. Además, personalmente me voy a encargar de realizar una campaña entre los empresarios argentinos para que vayan a la India, para que aprovechen un mercado que ofrece grandes oportunidades.
-Sin embargo, en la Argentina deberán lidiar con una imagen muy difundida entre algunos sectores industriales: la de una India que, como sucede con China, es vista en gran medida como una amenaza.
-Aquí se confunde a la India con China y se trata de cosas muy distintas. China es más grande, comercia más, es un gran jugador mundial. Por otra parte, nosotros apuntamos a exportar productos con muy alto valor agregado, y nuestras empresas son transparentes, no hay secretos, todo está abierto, no ocultamos los costos de producción. Además, no somos una amenaza porque nuestra expectativa es llevar estos u$s300 M que vendimos a la Argentina en 2006 a un máximo de u$s1.000 M. No hay una política del gobierno de la India de invadir el mercado argentino. Por eso, nadie tiene que tener miedo de la India.
-En los últimos días, Lula quiso reencausar el TLC entre la India y el Mercosur,¿cómo cree que evolucionará esto?
-Estamos descubriendo complementariedades entre países en desarrollo. Queremos facilitar el intercambio mediante un TLC. En este sentido, hemos concluido un acuerdo parcial de comercio (PTA, por sus siglas en inglés) entre la India y el Mercosur en el 2005 pero estamos esperando desde hace casi tres años la ratificación de los congresos de la Argentina y de Brasil. Uruguay y Paraguay ya lo ratificaron.
-¿Va a hacer algún tipo de gestión por este tema?-
Si, voy a ir personalmente al Congreso y a reunirme con autoridades del gobierno porque esto no tiene sentido. El PTA no es un acuerdo controversial, va a mejorar el comercio, no estamos abriendo totalmente el mercado, tendríamos algunas preferencias arancelarias para sólo 450 productos.
-¿Y en el caso del TLC?
Tenemos otra agenda para ese acuerdo entre la India, la Unión Aduanera del Sur de África (SACU) y el Mercosur. Pero esto necesita mucho más tiempo, recién se puede hablar de una acuerdo de aquí a cinco o seis años.
Juan Diego Wasilevskyjuandiego@infobae.com(c) Infobaeproesional.com
Saturday, October 27, 2007
Biodiesel production in Argentina and its implications for India
Last week one of the world’s biggest biodiesel plants with an annual capacity of 230,000 tons was inaugurated in the city of Rosario. The media highlighted the fact that the day of the inauguration of this plant coincided with the historic high price of crude oil at US $ 88 per barrel. The Rosario plant uses soya as the raw material and it belongs to an Argentine company Renova. A Swiss company Glencore has stake in this plant, which uses Belgian technology.
2. There are at present seven plants producing 400,000 tons of biodiesel. Other biodiesel plants coming up in the near future are: i), A joint venture plant of Bunge and AGT with a capacity of 250,000 tons, ii) Plant of Dreyfus - 300,000 tons, and iii) Molinos plant - 100,000 tons. Besides these, there are a number of other projects under various stages of planning. If all these materialise, the production capacity of biodiesel will reach around 1.7 million tons. According to a report, Argentina is the third largest producer of biofuel in the world after Brazil and USA.
3. The Argentine biodiesel industry is preparing for the growth in domestic demand to a small extent but is more interested in exports . Local demand will go up consequent to the new Argentine law which stipulates that biodiesel will account for 5% of all the diesel in the market by 2010 and also biofuel to account for 5% of all fuels consumed. This will mean domestic consumption of 600,000 tons of biodiesel. The industry’s main focus is exports in the light of the general global trend of increasing use of biofuels in view of the high crude oil prices as well as for sustainable development. Moreover, since the Argentine energy prices have been artificially suppressed by the government at low levels, the bio diesel producers would prefer exports to the international market which offer lucrative prices. The global biofuel market of US $ 15 billion in 2006 is expected to triple by 2015.
5. Argentina has a globally competitive advantage for large production and exports of biodiesel because of the following factors :
- Argentina is the third largest soybean producer and exporter in the world and the largest soyoil and soymeal exporter.
Top soybean producers of the world :
USA - 86 million tons
Brazil - 59 million tons
Argentina - 47 million tons
China - 17 million tons
India - 8 million tons
Paraguay - 6 million tons
- Argentina uses 16.8 million hectares of land for growing soya which occupies the largest cultivated area among other crops. If the prices are favourable, the Argentines have the flexibility to increase the area, given the availability of large arable land area.
- Argentina has favourable soil and climate for growing soya besides other crops.
- The Argentine farming is modern, large-scale and technologically advanced supported by research and development. A number of multinational corporations are in the Argentine market introducing the latest technologies for growing and processing soya.
- Cost of production is low and yield per hectare is high (2.3 tons per hectare)
- The infrastructure for storage, transportation and shipping is modern and is being further expanded.
Implications for India
6. The Argentine production of biodiesel and edible oil from soya has implications for India. Our annual requirement of edible oil is 12 million tons and it is expected to increase to 15 million tons by 2010 and 21 million tons by 2015. Out of the current requirement of 12 million tons, 5 million tons is imported. This includes 2.8 to 3 million tons of palm oil from Indonesia and Malaysia and 1.5 to 2 million tons of soybean oil from Argentina (80%) and Brazil (20%). In 2006 soyoil imports accounted for US $ 700 million out of our total imports of US $ 950 million from Argentina.
7. Besides soy, Argentina grows a number of other oilseed crops which can be used for producing biofuels. Diversion of edible oil crops to biodiesel will cause shortage of edible oils increasing their international prices. At the same time, Argentina has also the potential to grow Jatropha and other non-edible oilseeds to make biofules. In any case, there is no domestic debate about the food versus fuel competition, since their focus is mainly exports. Local consumption by the 40 million Argentines is a small proportion of the production of both fuels and food crops.
8. A delegation of Solvent Extractors’ Association of India (SEA) visited Argentina, Paraguay and Brazil in May-June 2007. This was sponsored by our Commerce Ministry. The SEA delegates have been impressed by the farming techniques and crushing technology. They have praised the crushing technology used in Argentina as the best in the world including in USA, Brazil and China. Some of the members of the SEA have formed a Consortium to buy a soy farm of 12,000 hectares in Paraguay at a cost of US $ 40 million. Due diligence for this purchase is currently going on. Argentina offers even greater opportunities for investment in soy farming and processing. There is no restriction on foreign investment in land or plants.
2. There are at present seven plants producing 400,000 tons of biodiesel. Other biodiesel plants coming up in the near future are: i), A joint venture plant of Bunge and AGT with a capacity of 250,000 tons, ii) Plant of Dreyfus - 300,000 tons, and iii) Molinos plant - 100,000 tons. Besides these, there are a number of other projects under various stages of planning. If all these materialise, the production capacity of biodiesel will reach around 1.7 million tons. According to a report, Argentina is the third largest producer of biofuel in the world after Brazil and USA.
3. The Argentine biodiesel industry is preparing for the growth in domestic demand to a small extent but is more interested in exports . Local demand will go up consequent to the new Argentine law which stipulates that biodiesel will account for 5% of all the diesel in the market by 2010 and also biofuel to account for 5% of all fuels consumed. This will mean domestic consumption of 600,000 tons of biodiesel. The industry’s main focus is exports in the light of the general global trend of increasing use of biofuels in view of the high crude oil prices as well as for sustainable development. Moreover, since the Argentine energy prices have been artificially suppressed by the government at low levels, the bio diesel producers would prefer exports to the international market which offer lucrative prices. The global biofuel market of US $ 15 billion in 2006 is expected to triple by 2015.
5. Argentina has a globally competitive advantage for large production and exports of biodiesel because of the following factors :
- Argentina is the third largest soybean producer and exporter in the world and the largest soyoil and soymeal exporter.
Top soybean producers of the world :
USA - 86 million tons
Brazil - 59 million tons
Argentina - 47 million tons
China - 17 million tons
India - 8 million tons
Paraguay - 6 million tons
- Argentina uses 16.8 million hectares of land for growing soya which occupies the largest cultivated area among other crops. If the prices are favourable, the Argentines have the flexibility to increase the area, given the availability of large arable land area.
- Argentina has favourable soil and climate for growing soya besides other crops.
- The Argentine farming is modern, large-scale and technologically advanced supported by research and development. A number of multinational corporations are in the Argentine market introducing the latest technologies for growing and processing soya.
- Cost of production is low and yield per hectare is high (2.3 tons per hectare)
- The infrastructure for storage, transportation and shipping is modern and is being further expanded.
Implications for India
6. The Argentine production of biodiesel and edible oil from soya has implications for India. Our annual requirement of edible oil is 12 million tons and it is expected to increase to 15 million tons by 2010 and 21 million tons by 2015. Out of the current requirement of 12 million tons, 5 million tons is imported. This includes 2.8 to 3 million tons of palm oil from Indonesia and Malaysia and 1.5 to 2 million tons of soybean oil from Argentina (80%) and Brazil (20%). In 2006 soyoil imports accounted for US $ 700 million out of our total imports of US $ 950 million from Argentina.
7. Besides soy, Argentina grows a number of other oilseed crops which can be used for producing biofuels. Diversion of edible oil crops to biodiesel will cause shortage of edible oils increasing their international prices. At the same time, Argentina has also the potential to grow Jatropha and other non-edible oilseeds to make biofules. In any case, there is no domestic debate about the food versus fuel competition, since their focus is mainly exports. Local consumption by the 40 million Argentines is a small proportion of the production of both fuels and food crops.
8. A delegation of Solvent Extractors’ Association of India (SEA) visited Argentina, Paraguay and Brazil in May-June 2007. This was sponsored by our Commerce Ministry. The SEA delegates have been impressed by the farming techniques and crushing technology. They have praised the crushing technology used in Argentina as the best in the world including in USA, Brazil and China. Some of the members of the SEA have formed a Consortium to buy a soy farm of 12,000 hectares in Paraguay at a cost of US $ 40 million. Due diligence for this purchase is currently going on. Argentina offers even greater opportunities for investment in soy farming and processing. There is no restriction on foreign investment in land or plants.
Sunday, October 21, 2007
FDI inflow into and outflow from Latin America in 2006
The following information about Foreign Direct Investment ( FDI) inflow into and outflow from
Latin America and Caribbean should be of interest to Indian companies which are exploring opportunities for investment in the region.
-FDI inflow into Latin America and caribbean in 2006 was 84 billion dollars, increasing by 11% from 2005.
- 70 billion$ was pure FDI while 14 bn went into offshore financial centres.
-Top recepients of FDI : Mexico-19 bn, Brazil - 18.8 bn, Chile- 8 bn, Colombia-6.3 bn, Argentina-5 bn, Peru-3.5 bn, Panama-3 bn, Ecuador-2 bn.
-Manufacturing received the largest share of FDI at 41%, followed by services 37% and primary sector 21%.
- notable investments: In Peru investment is taking place in oil and gas development. 31 contracts have been signed in the last 2 yrs by Petroperu.. There is a 2.8 bn$ project for development of a petrochemical complex to produce fertilisers and polyethylene. Colombia attracted FDI of 1.8 bn in oil and gas sectorin 2006. In Chile mining investment in 2006 was 2 billion while Peruvian mining sector attracted 1.6 bn. Argentine automobile industry got new investment of 800 million$ in 2006. Volkswagon has announced ( oct 2007) invetsment of a billion dollars in a new pick-up truck plant.
-recent history of FDI in the region: It started increasing from 30 billion in 1995 and reached a peak of over 100 billion in 1999. It declined thereafter dropping to 40 billion in 2003. It went up to 90 bn in 2004, declined to 70 bn in 2005 and had increased to 84 bn in 2006.
- FDI in 2007 is expected to increase moderately, helped by high commodity prices, trade surplus and increase in foreign exchange reserves.- FDI in 2007 is expected to increase moderately, helped by high commodity prices, trade surplus and increase in foreign exchange reserves.
- FDI outflow from Latin America was an impressive 43 bn $ in 2006. Top investor was Brazil with 28 bn followed by Mexico with 5 bn, Chile- 3 bn, Argentina-2 bn and venezuela-2 bn.
- Brazil's outward investment of 28 bn $ was the highest-ever in its history. It was more than the FDI inflow in 2006. The largest contributor to this record was CVRD through its acquisition of the Canadian Nickel producer Inco for 17 bn $ . After this, CVRD has become the largest metal mining company in the world in terms of value of production. This is the largest-ever acquisition by a Latin American company.
source: UNCTAD 2007 report
Latin America and Caribbean should be of interest to Indian companies which are exploring opportunities for investment in the region.
-FDI inflow into Latin America and caribbean in 2006 was 84 billion dollars, increasing by 11% from 2005.
- 70 billion$ was pure FDI while 14 bn went into offshore financial centres.
-Top recepients of FDI : Mexico-19 bn, Brazil - 18.8 bn, Chile- 8 bn, Colombia-6.3 bn, Argentina-5 bn, Peru-3.5 bn, Panama-3 bn, Ecuador-2 bn.
-Manufacturing received the largest share of FDI at 41%, followed by services 37% and primary sector 21%.
- notable investments: In Peru investment is taking place in oil and gas development. 31 contracts have been signed in the last 2 yrs by Petroperu.. There is a 2.8 bn$ project for development of a petrochemical complex to produce fertilisers and polyethylene. Colombia attracted FDI of 1.8 bn in oil and gas sectorin 2006. In Chile mining investment in 2006 was 2 billion while Peruvian mining sector attracted 1.6 bn. Argentine automobile industry got new investment of 800 million$ in 2006. Volkswagon has announced ( oct 2007) invetsment of a billion dollars in a new pick-up truck plant.
-recent history of FDI in the region: It started increasing from 30 billion in 1995 and reached a peak of over 100 billion in 1999. It declined thereafter dropping to 40 billion in 2003. It went up to 90 bn in 2004, declined to 70 bn in 2005 and had increased to 84 bn in 2006.
- FDI in 2007 is expected to increase moderately, helped by high commodity prices, trade surplus and increase in foreign exchange reserves.- FDI in 2007 is expected to increase moderately, helped by high commodity prices, trade surplus and increase in foreign exchange reserves.
- FDI outflow from Latin America was an impressive 43 bn $ in 2006. Top investor was Brazil with 28 bn followed by Mexico with 5 bn, Chile- 3 bn, Argentina-2 bn and venezuela-2 bn.
- Brazil's outward investment of 28 bn $ was the highest-ever in its history. It was more than the FDI inflow in 2006. The largest contributor to this record was CVRD through its acquisition of the Canadian Nickel producer Inco for 17 bn $ . After this, CVRD has become the largest metal mining company in the world in terms of value of production. This is the largest-ever acquisition by a Latin American company.
source: UNCTAD 2007 report
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