Argentina: Elections Passed, Problems Remain

The 2019 electoral marathon in Argentina ended on October 27 with the election of Alberto Fernández, a candidate of the Frente de Todos (Front for All) alliance. The new head of state will take office on December 10, and “without a peep”, will be forced to solve a complex set of vital tasks, primarily economic ones. Many of these problems have accumulated for decades, but their resolution is an urgent concern. Among them are the cancellation or preservation of restrictions on citizens' access to their foreign currency accounts (the so-called cepo), introduced by the Central Bank on the night after the elections at the request of the winning party. The fact is that when the opposition comes to power, it could lead to another sharp depreciation of the national currency and the massive withdrawal of dollar savings from local banks. Initially, the introduction of cepo was seen as a temporary measure, which the current leader Mauricio Macri agreed to in order to provide the country with a peaceful transition of power after the elections. But, recalling the presidency of Cristina Fernández de Kirchner (2007-2015), who was elected on October 27 as vice president, Argentine citizens literally froze in waiting for the main decision by the new authorities.

Other urgent priorities include curbing inflation, which currently hovers around 60% per year (third in the world after Venezuela and Zimbabwe), as well as reaching an agreement on the restructuring of public debt, which totals about 90% of GDP. The medium-term programme of action of the Argentine authorities should be to eliminate macroeconomic imbalances, curb external debt growth (over 280% of GDP) and reduce it if possible, establish relations with world credit organisations and investment funds, ensure the inflow of foreign investment into the country, and create conditions for increased investment by local companies in fixed assets. In addition, the cabinet will have to seek an increase of the state budget revenues through tax maneuvers, stimulate the buildup of foreign exchange reserves, and prevent an increase in unemployment as well as the further decline in living standards of the population.

No less complex is the future international economic agenda of the new government. First of all, there is an acute problem of interaction with foreign trade partners in order to expand markets for the export goods. Argentina reacts painfully to changes in the world market, it experiences negative consequences when the global economy slows down, and is suffering from US protectionism and Washington's “trade wars”. There is also an urgent question about the alignment of trade with China, given the huge bilateral trade deficit of about $8 billion.

Relations with Brazil take centre stage in the foreign economic relations of Buenos Aires. Brazil is the largest Latin American economy and a key partner of Argentina in MERCOSUR , South America’s common market. Despite the decline in bilateral trade caused by economic turmoil in both countries (from $ 39.5 billion in 2011 to $ 26.9 billion in 2018), Brazil remains the main trade partner, accounting for over 21% of Argentina's aggregate foreign trade. In any event, the negative bilateral trade balance in 2018 amounted to about $4 billion. But the main problem is that extensive investment and production cooperation has been established between the two countries in the energy sector, the automotive industry, mechanical engineering, the food industry, agriculture, banking, etc., which makes the Argentine and Brazilian economies not only closely connected, but interdependent.

Alberto Fernández’s strategic task will be, at a minimum, to maintain a high level of Argentine-Brazilian interaction and to prevent a sharp deterioration in bilateral relations. This will not be easy to do, given the ideological and political differences between Brazilian President Jair Bolsonaro, a right-wing populist, and the new Argentinean leadership, which is more left-wing. In particular, Alberto Fernández and Jair Bolsonaro have adopted diametrically opposite approaches to the settlement of the Venezuelan crisis.

Perhaps the touchstone of the Argentine-Brazilian cooperation will be the fate of the free trade agreement between MERCOSUR and the European Union, signed on June 28, 2019, on the sidelines of the G20 Summit in Osaka. It means the creation of the world's largest free trade zone, which will include countries with a combined population of about 800 million people. Now the trade turnover between MERCOSUR and the EU is relatively modest - a little more than $100 billion, due to existing trade barriers, and does not reflect at all the capabilities of these states.  Argentina and Brazil are vitally interested in expanding their exports to the European market and, logically, should actively cooperate, seeking to ratify the agreement by the parliaments of all participating countries. Frankly speaking, the task looks very difficult. Already the near future will show what will prevail in Argentine-Brazilian relations: ideological differences or trade and economic pragmatism. The general political climate in Latin America and the role of the region in a dynamically changing world economic system will depend on how Buenos Aires and Brasilia address their differences.
Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.