Southern Exposure

Desde as Entranhas dos Labirintos Latinos.

Monday, December 08, 2003

A good article from "The Economist", and some extra notes

This The Economist's article posted at Bonobo Land by Edward is a remarkably good one, but it can bear a few extra notes (an article, as a poem, is never finished, just abandoned):

As Edward noted, a decisive source of fiscal income has been the taxes on agricultural exports, chiefly among them soy products, of which China is a big consumer. Although income from internal demand is rising, next year's expected slowing down of Chinese growth will certainly impact negatively on Argentina, as it will impact all commodity exporters.

The Economist is right pointing out that a big factor in Argentina's rebound has been the output gap left by the collapse of a few years ago. It's one of my reasons to be somewhat bearish about Argentina in the middle term; the "1998's GDP in 2005" figure is sobering. That output gap, on the other hand, gives the Kirchner administration some breathing room to negotiate with creditors, as the country can still grow for a while without resorting to the capital markets.

Unemployment, too, is part of the output gap, but I should remark that, unlike India and China, Argentina is a country just coming out of a collapse, not rising from a previous lower level. A good part of Argentina's poor were middle class but a few year's ago, and are understandably trying to go back to their previous status. Societal expectations being different, the kind of low wage-driven capture of outsourcing possibilities might never be a workable option for the country on any big scale.

It's also important to note that even in the best of cases, the average Argentine is not overly warm any more to foreign capitals. The image of banks bailing out of the country as quickly as they could -in some cases deliberately hollowing out their Argentine branches- leaving middle-class and old people without their life savings, is not one that will pass away from the Argentine political psyche any time soon. So there's an image problem for capitals there, although not an insurmountable one.

Overall, The Economist's implicit assessment of President Kirchner as a ruthless and pragmatic political operator working out of a base of strong internal support seems correct. If he can manage the three outstanding threats to his political control -keeping the unemployed piqueteros in line, preventing the security issue from exploding, and maintaining his political alliance with former President and Buenos Aires' de facto caudillo Eduardo Duhalde- then he will have a chance to work on the most difficult of Argentina's problems: finding a path for growth that can work in the long term.

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