Looking at the numbers, there is no reason for Argentina President Mauricio Macri to be cheerful. The neoliberal head of state has just a few months remaining in his term and seems to be on his way out, with little to shout about from his three and a half years in charge. 

Seeing no realistic possibility of re-election—after being crushed in primary elections by Kirchnerist candidate Alberto Fernández—Mr. Macri’s economy keeps shrinking.

With a 54.5 percent inflation rate in the last 12 months—even higher than 2018’s record of 47.6 percent—2019 is on its way to be a tragic moment of reckoning for the country&#8217;s conservatives. Poverty and unemployment rose, and buying a single USD requires almost ARS 60. </p> <p>Besides all the government&#8217;s macroeconomic mistakes, including a failed liberal project involving no privatizations, Mr. Macri had a different stance toward one specific sector: agribusiness.</p> <p>The last four years in Argentina have been something of a see-saw. In 2016, tragedy hit with Mr. Macri&#8217;s unpopular <em>tarifazo</em> plan—involving raising energy prices by hundreds of percent—and a downturn in economic growth. However, 2017 was far less lousy, seeing investments increase and inflation calm. The following year, on the other hand, was disastrous.</p> <p>With the U.S. Fed bumping up the interest rate, foreign investors fled Argentinian funds and the local currency melted. But the big issue occured in the fields, with Argentina suffered from its worst drought in 50 years. Amid a series of problems, one of South America&#8217;s top soybean producers had another issue to solve.</p> <script src="https://www.buzzsprout.com/299876/1422364-69-why-argentina-s-presidential-election-matters-to-brazil.js?player=small" type="text/javascript" charset="utf-8"></script> <hr class="wp-block-separator"/> <p>In Mr. Macri&#8217;s final year, results haven&#8217;t made much improvement. In a not-so-liberal measure, he even announced a freeze in the price of essential goods and public services. However, agribusiness results recently dominated much of newspapers&#8217; controversial headlines. “Agriculture takes Argentina out of recession,” they said, based on information from the <a href="https://www.indec.gob.ar/uploads/informesdeprensa/pib_09_1921AFDF29D4.pdf">National Institute of Statistics and Census (Indec)</a>.&nbsp;</p> <p>While Brazil&#8217;s third-largest trade partner has certainly been repelling any optimism about good times on the horizon, could agribusiness be the salvation for Maurício Macri in his final days at the Casa Rosada?</p> <h2>Argentinian agribusiness, in numbers</h2> <p>According to recent reports from the government, GDP saw an increase of 0.6 percent between Q2 2018 and 2019, dragged along kicking and screaming by agriculture. When looking at quarter-to-quarter results, however, the economy dipped 0.3 percent in Q2.</p> <p>This wasn’t the only interannual index with promising performance. Livestock and forestry sectors showed their highest growth since 2015, when President Macri took office. These industries corresponded to an extra USD 1.8 million in Argentina&#8217;s domestic product.</p> <p>Argentina is the world&#8217;s third-largest producer of soy, with over 20 million hectares growing the crop, putting it behind only China and Brazil. Some 18 percent of the world&#8217;s soy supplies come from Argentina, meaning that if the country&#8217;s biggest sector is struggling, this poses a risk to trade partners, including Brazilian markets.&nbsp;</p> <hr class="wp-block-separator"/> <h4 style="text-align:center">What does Argentina export?</h4> <figure class="wp-block-image"><img src="https://brazilian.report/wp-content/uploads/2019/10/argentina-exports-1024x462.jpg" alt="argentina exports" class="wp-image-25605" srcset="https://brazilian.report/wp-content/uploads/2019/10/argentina-exports-1024x462.jpg 1024w, https://brazilian.report/wp-content/uploads/2019/10/argentina-exports-300x135.jpg 300w, https://brazilian.report/wp-content/uploads/2019/10/argentina-exports-768x347.jpg 768w, https://brazilian.report/wp-content/uploads/2019/10/argentina-exports-610x275.jpg 610w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Total exports: BRL 59.2 billion (2017). Source: OEC</figcaption></figure> <hr class="wp-block-separator"/> <p>Argentina&#8217;s former deputy secretary of industry and commerce, Miguel Ponce, told <strong>The Brazilian Report</strong><strong><em> </em></strong>that the news coming from the field could be seen both ways. Like many results under Mr. Macri’s administration, the economy’s oscillation often stands at a low level.</p> <p>“The increase in the agribusiness sector creates a false sense of security, as the external and internal scenarios are in a critical stage. Farming numbers do show a surplus, but a non-virtuous surplus,” he explains. </p> <p>The government spent its last few coins on its soy market dominance, in a desperate attempt to answer to the sector on the crest of a wave. However, President Macri continues to state that the economy has a positive outlook. Mr. Ponce, however, says that besides the risk of creating a dependent economy, not meeting promises has also been a recurring error of the current administration.&nbsp;</p> <p>“Despite having a primary export matrix closely linked to agriculture, the government made a mistake when it officially defined 2019 as ‘the year of Argentinian exports.’ The first measure referred to the export of services, not goods. The government could have taken more advantage of the trade war between China and the US.”</p> <p>That potential of a more profitable bond between Buenos Aires and Beijing became clear on September 18. Argentina&#8217;s agriculture ministry signed a deal with Chinese trade representatives to start exporting soy flour.</p> <p>With a stroke of a pen, Argentina managed a new export source of around 5 million tons, representing USD 1.6 billion in income. However, Mr. Ponce believes this was a missed opportunity to help the economy recover.</p> <p>Even if the soy deal wasn’t the ace up country’s sleeves. Argentina is the world&#8217;s largest exporter of soybean meal, while China is the largest buyer of unprocessed soybeans in the South American country. It was only the following step of an apparent relationship. </p> <p>&#8220;This historic deal for Argentina represents a great opportunity to access the biggest consumer market in the world for vegetable protein to feed animals,&#8221; said the Argentinian president in a statement.</p> <h2>How does this affect Brazil?</h2> <p>Brazil has no blame itself in the Argentinian crisis, but Mauricio Macri’s attempt to get closer to his Brazilian counterpart Jair Bolsonaro has not worked out. Since Mr. Macri became Mr. Bolsonaro’s first official contact in the region, expecting economic support, things didn&#8217;t get any better. In a presidential entourage to Buenos Aires, Bolsonaro even astonished markets and experts when spoke about a <a href="https://brazilian.report/power/2019/06/07/common-currency-brazil-argentina/">common currency</a> to be shared between the two nations.</p> <p>While Argentina crumbles, its neighbors to the north must stand with it. Brazil is Argentina’s leading trade partner, while Argentina is only below China and the U.S. in the Brazilian economic cooperation list.&nbsp;</p> <p>A rebounding Argentinian economy is naturally positive for Brazil, but the solitary rise in the agribusiness sector may spark a warning of competition. Even with good diplomatic relations—which <a href="https://brazilian.report/podcast/2019/07/17/argentina-presidential-election-brazilian/">could come under threat</a> with the return of the Argentine left—the strength of soy exports is a common factor in both countries.</p> <p>While Argentina makes up for lost ground by investing in bilateral negotiations with China, Jair Bolsonaro&#8217;s government still seems stuck to its ideological business model. <a href="https://brazilian.report/money/2019/05/14/us-china-trade-war-impact-brazil/">Since 2009, Beijing has been Brazil&#8217;s leading partner</a>. The current government needs to understand that in practice, there is no room for ideological conspiracies.&nbsp;</p> <p>However, Brazil cannot give a hostage to fortune. In the latest chapter of the tax dispute between Washington D.C. and Beijing, the Brazilian market raised a smile. In retaliation for higher tariffs on Chinese manufactured goods, President Xi Jinping decided to tax several American agricultural products at 25 percent. Soybeans were on that list.</p> <p>Brazilian producers thanked Xi, but must keep its eyes open in these situations. In the end, Brazil ended up riding a smooth wave, while Argentina is not doing enough to clean up the mess. The trade war is set to continue indefinitely, and Brazil and Argentina&#8217;s economic agenda will feel the effects of these tectonic displacements. Hopefully, without spoiling the fertile land.

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MoneyOct 09, 2019

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BY Lucas Berti

Lucas Berti covers international affairs—specializing Latin American politics and markets. He has been published by Opera Mundi, Revista VIP, and The Intercept Brasil, among others.