President-elect Mauricio Macri Signals Radical Change in Argentina
In the first few days since he won the presidential election in Argentina, President-elect Mauricio Macri has already shown a glimpse of what can be expected of his economic and foreign policy – and it’s a radical change. The new government takes office on December 10th, 2015.
Foreign policy and trade:
- Within hours of his election victory, Mr Macri called on the Mercosur customs union and trade bloc to suspend Venezuela on various counts including persecution of the opposition and curbs on freedom of expression and other human rights abuses – which are core values of the trade bloc. Mercosur members include Argentina, Bolivia, Brazil, Paraguay, Uruguay and Venezuela;
- Mr Macri voiced his intent to forge a closer relationship with the European Union and the Pacific Alliance trade bloc that includes Chile, Colombia, Mexico and Peru – economies that, grouped, would be the sixth largest in the world with a GDP of about US$3.6 trillion and a per capita GDP of US$16,500;
- USA: The head of the Foreign Relations Committee of the House of Representatives, Republican Ed Royce, and Committee member Democrat Eliot Engel, sent a letter to President Obama asking him to prioritize revitalizing relations with Argentina. The letter states: “The United States and Argentina should be natural partners. Both have highly educated populations, diversified economies and vast natural resources. As a renewed partnership would be a win-win for the two countries, respectfully we urge you to consider the following actions in order to revitalize the bilateral relationship in the coming months”. The Committee members went on to make six specific recommendations for improvement of the bilateral relationship between the countries including: renewed public diplomacy, initiation of high-level economic dialogue, the offer of technical assistance on economic and trade issues, supporting the resolution of arbitration claims and conflict with the “holdout” bond-holders, promoting regional leadership and enhancing cooperation against drug trafficking.
Re-rating of risk status of Argentina:
- On the basis of Mr Macri’s showing in the first round of the Argentine elections on October 25th, 2015, Moody’s changed its outlook on Argentina from “negative” to “stable” on November 3rd. After his election win on November 25th, Moody’s further improved Argentina’s outlook to “positive” from “stable”. Moody’s did caution, however, that depleted foreign reserves would make it difficult for Argentina to service its foreign debt in 2016 without access to international financial markets – access that has been blocked due to the dispute with the “holdout” bond-holders;
- Mr Macri’s team first met legal counsel for the “holdout” bond-holders in October and two subsequent meetings are reported to have taken place at which a framework was established for negotiation after Argentina’s new government is installed on December 10th. Once Argentina has formally reopened negotiations with the “holdout” bond-holders, the court is likely to grant a stay, which would allow Argentina to pay the interest due to its current bond-holders without fear of the payments being seized against the amount claimed by the “holdouts”. The stay would also open international markets to a new bond issue by the Argentinian government.
Ministry of Energy and Mines:
- For the first time, mining will have ministerial representation in the cabinet – mining is now included with energy in the portfolio of the Minister of Energy and Mines;
- The person appointed as Minister of Energy and Mines, Juan Jose Aranguren, was CEO of Shell’s subsidiary in Argentina for 12 years. Mr Aranguren has deep experience in the resource industry: he graduated as a Chemical Engineer and has a post-grad degree in Systems Engineering. He started his career at Shell 37 years ago as a junior technician and ascended through the ranks via economic analysis, marketing, sales and refining and was appointed Vice-President of Supply and Distribution. His pragmatism and candor are reflected by his statement that “There are many Vaca Muertas [Argentine shale oil and gas basin] in China, the Ukraine, in South Africa and Colombia. And, if our policies are not more attractive than theirs, capital will flow to these other destinations [instead of to Argentina]”;
- Argentina has an unprecedented growth driver in the giant Vaca Muerta shale basin that contains one of the largest resources of oil and gas in the world. The incoming government has the opportunity, through the adoption of market-friendly policies, to emulate the USA’s success in which it reversed relentlessly declining hydrocarbon production to achieve self-sufficiency and have excess oil and gas for potential export today. This astonishing achievement was made in only six years with oil and gas production from shale basins that are spread around the USA. Argentina’s oil and gas from shale resource, in contrast, is from a single basin that has already been producing hydrocarbons from conventional sources for a century, so the required infrastructure is already in place (roads, pipelines, electricity, support services) and critically, the trained people are available in-country. If the USA can achieve a turn-around in six years from basins in which significant infrastructure had to built, there is absolutely no reason that Argentina can’t do the same in a similar time-frame. Argentina should emerge as a regional energy powerhouse, with associated economic drive, within President Macri’s term in office. This represents a unique opportunity for economic development that he should grab with both hands. Bear in mind that Argentina’s neighbours: Chile, Paraguay and Uruguay have no significant hydrocarbon reserves – and are natural markets for Argentine fuel exports. Chile is already linked to Argentina via pipelines across the Andes mountain range.
Sources: Apertura, Mining Press Argentina Reuters, The Guardian, Carpe Diem Blog, La Nacion, Cronista.