Argentina’s treasury minister, Nicolas Dujovne, talks to Silvia Pavoni about reversing damaging fiscal decisions and bringing investment back to the country.

Nicolas Dujovne

Since Mauricio Macri’s election as Argentina’s president in 2015, the country has earned praise from market practitioners, investors and trade partners alike by re-engaging with the international community and normalising its economy. Latin America’s third largest economy had been cut off from the markets since its disastrous 2001 sovereign debt default and the bitter legal battle with holdout investors that followed.

Foreign claims settled, the new administration has passed a number of important reforms that introduced fiscal discipline and will hopefully improve competitiveness. Gross domestic product (GDP) growth for 2017 is expected to have reached about 3% and is set to rise further in 2018; the primary fiscal deficit has become a key target and was reduced to 3.9% in 2017, with a plan to slash it further to 1.2% by 2020. Inflation is under control, managed by an independent central bank, and hovering at about 25%, down from 41.2% in 2016, and set to decrease further to 15% by the end of 2018.

Crucially, the government also eliminated market distortions, which were obstacles to trade. “We are convinced that Argentina needs to be integrated with the world,” says Nicolas Dujovne, the country’s treasury minister, offering Argentina’s experience as a warning against the perils of a closed economy. Fuelled by populism that led to fast-deteriorating economic conditions, the previous administration created export taxes and restrictions on imports. The latter were so drastic they violated World Trade Organisation (WTO) rules: they included an imposition on foreign companies intended to bring about the substitution of imports with locally sourced products, to reduce the trade deficit.

Lifting barriers 

“The first thing the government did when Mr Macri took office was to remove the tax on exports. How can you tax exports when we need to export more?” says Mr Dujovne. “We also removed the system of restrictions on imports that wasn’t compliant with WTO rules that was introduced by the previous administration.” The government, he says, is “strongly committed to trade negotiations to make Argentina a more integrated economy”.

Indeed, Argentina intends to use its status as the first Latin American country to assume the G20 presidency to combat protectionism.

Plans for a more integrated economy will likely benefit regional trade, too. Part of Mercosur, the customs union with Brazil, Paraguay and Uruguay, Argentina is also an observer in the Pacific Alliance, the bloc formed by Chile, Peru, Colombia and Mexico, which has been hailed as Latin America’s free-trade poster child. The four Mercosur countries represent just over 3% of world GDP; this compares with the preferential trade access to 16% of world GDP enjoyed by countries such as Chile or Peru through the Pacific Alliance and the Comprehensive and Progressive Trans-Pacific Partnership, the bloc that brings together 11 countries including Canada and Japan, of which they are part.

“Mercosur is a very closed bloc,” says Mr Dujovne. “Our exporters have a clear disadvantage compared with Chile’s exporters.” This is why, he adds, reaching an agreement with the EU, a market representing about 24% of the world economy, is crucial. A deal seems to be on the horizon.

Investment path 

A more open Argentina will mean greater chances to meet its infrastructure needs, and create a virtual cycle for trade. Poor connections and high logistical costs have been a drag on the country’s economy. Budget constraints had led to a quest for private sector involvement, which, until now, did not have a solid framework on which to build its investment decisions. In 2016, the government introduced a public-private partnership (PPP) law aiming at creating just that, according to Mr Dujovne. “Of course [investors’] concerns are typical about an economy that comes from 12 years of populism. History is something we cannot change. [But what we can do] is have a very clear PPP framework and we think we’re delivering on that.”

Given what Argentina’s government has already been able to achieve on the macroeconomic front, delivering on its other goals, in infrastructure, trade and, more generally, engaging with the world’s economy, all seem within reach.


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