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3/28/17

Argentina: Lipsticking the pig (from IKN410)

Here's one of the 'Regional Politics' pieces from IKN410, out last Sunday evening. A sample of what goes on when I'm not goofing off on the blog and doing the real stuff.



Argentina: Lipsticking the pig
Last week in London, Argentina’s Finance Minister Nicolás Dujovne appeared at a conference organized by the Argentina/UK chamber of commerce and the Argentina Embassy called “Plan Minero 2017”, at which those assembled extolled the virtues of the country’s mining sector and the opportunities it affords today (8).

 “I urge you to find the motivation to invest in Argentina. You will be welcomed”, said Dujovne to the representatives from the world level mining companies at his presentation and he backed up this wish with his ten main points on what has improved in recent times. Here they are:

  • Macri has “normalized” the Argentine economy
  • There is now one normal, free floating exchange rate
  • The bond holdout court case is now resolved, which has allowed Argentina access to the world debt market again.
  • Its INDEC stats office now produces reliable data.
  • The tax haven forgiveness program which has seen dollar savings held in quasi-illegal offshore accounts come back into the country and bolster reserves.
  • The process of “disinflation”, which according to Dujovne has brought inflation back down to 18% annual.
  • Economic recovery, which according to Dujovne has seen Argentina move out of recession in 4q16.
  • Job creation which, again according to Dujovne, has seen jobs created at a rate of 25,000 per month recently.
  • The improvement in public sector accounting (a cute way of saying “less corruption”).
  • Lower overall taxes, estimated by Dujovne to be 1.5% less than in 2015.

He also told them that the Macri government’s plan was to see Argentina GDP grow in the long-term at between 3% or 4% per annum, a rate that could be sustained over many years.

Now some of those points are valid, such as the improvements made to the exchange rate mechanism and the dropping of the 5% export tax for mining products. Others are rather cherry-picked, for example the claim that inflation is down to 18% annualized when that’s just one study from a range that put 2017 inflation forecasts at between 18% and 22% (and there’s a lot of evidence to say it’s at the upper end at the moment, including the latest inflation measurements just out). Others still are rose-tinted specs stuff, such as claiming unemployment is dropping (highly massaged figures there, the truth is that in the 2016 recession plenty of jobs were lost or became lower-paid) or there is less corruption in Argentina today, a bit like saying a standard nuclear bomb is less dangerous than an H-bomb. And in ironic timing, his claim that the INDEC stats office came on the very same day a court of law ruled that the INDEC data during the CFK government was totally reliable (in a case brought against the country by index-linked bonds holders who claimed they were due more money because INDEC rigged inflation data). What’s more, the new INDEC is now at the centre of a small scandal when it was discovered the people collecting price data weren’t bothering to go to the full range of shops and supermarkets and just using numbers they saw in shop windows next to their subway stations on the way to the office. So much for the new capitalist work ethic.

But what really amused your author was the total lack of mention of the “Federal Mining Agreement”, the grand plan of the Macri government to bring a level playing field to the whole of the country and by-pass the provincial problems that companies have had forever in the country. That’s because the whole plan, pushed hard all through 2016, has been quietly dropped by the Macri government because it cannot get the “anti-mining” provinces on board. The whole plan (as predicted on these pages) was a total waste of time/money, the ineffectiveness of the country’s Mining Ministry is writ large against this failure and it points once again to the most basic of truths about mining there; whatever national-level advantages Argentina thinks it has, any mining company worth its salt knows that without a welcome and agreements at provincial level you cannot do mining business in the country, period. In real terms, that means Navidad (Pan American), Agua Rica (Yamana), Suyai (Yamana), San Jorge (ex-Coro, now those Russian guys) and a whole host of other projects located in anti-mining areas will never happen.

And all this is aside the problems faced by an increasingly unpopular Macri government coming up against the mid-term elections (starts August, big votes in October), because all this good will and future projection of a rosy future would all be for naught if Macri’s party is beaten at the polls later this year, we would be in immediate dead-duck presidency world. In short, IF Macri does well at the polls in October and IF the country shows real signals of macro-economic improvement, you may see big mining companies start to commit to Argentina. Until then all these conference talks and optimistic presentations are an exercise in lipsticking a pig. Argentina is still a basket case country like no other, I care not if you prefer the policies of the current President to the previous one.