Jorge Faurie, Argentina's foreign affairs minister, tells Silvia Pavoni why he is confident the country will bounce back from economic crisis, despite facing fiscal tightening, with help from China.

Jorge Faurie

Jorge Faurie

As many wonder about the economic future of Argentina, foreign affairs minister Jorge Faurie remains optimistic. 

Argentina’s currency crisis earlier in 2018 forced the government to request assistance from the International Monetary Fund (IMF) as a precautionary measure to ensure it would meet its foreign debt obligations. But as things deteriorated, the bailout programme ballooned to $57bn – the IMF’s largest ever. It stopped being precautionary and became discretional, meaning the funds can all be used to finance the budget as and when needed. 

The IMF also tightened its requirements, demanding the government reaches fiscal balance in 2019 and a surplus in 2020. 

But Mr Faurie insists this will work out. “The [IMF] plan is the one [proposed] by the government – it has all the elements. The only thing that is being [changed] is the velocity in which it has to be applied,” he says. 

A short, sharp shock

The speed of implementation of the fiscal tightening, however, makes a big difference. Currently, the government expects to close 2018 with a fiscal deficit of 2.6% of gross domestic product. Balancing the budget in 2019 requires steep adjustments, which Argentines will be asked to endure while the economy is only beginning to emerge from 2018’s recession. 

To complicate things further, 2019 will be a presidential election year so the government will need to balance respecting its commitments to the IMF with its likely desire to appease the electorate and win votes.

Mr Faurie concedes that despite the social safeguards included in the bailout programme, cutting spending in such economic conditions would be painful. “It’s very much affecting everybody. We have to be aware of the delicate situation with our lower classes – those who have no way to face the economic crisis, which is unavoidable – and we all have to tighten our belts,” he says.

Foreign perceptions

The government’s ability to deliver that fiscal adjustment along with several reforms will be closely watched by international investors too. Regaining their confidence, the loss of which brutally manifested itself through the currency crisis, will be crucial to helping the economy grow. Long-term investors, in particular, are needed, according to Mr Faurie, who says: “We need energy [projects… we need] to revamp the railway system.” 

For much of this, Argentina has come to rely on deep-pocketed Chinese lenders. According to think tank Inter-American Dialogue, China Development Bank and China Ex-Im Bank lent a total of $18.2bn to Argentina in the 10 years to 2017. Other players, including ICBC and Citic, also joined some of the loans by the two policy banks.

Larger investments from the Asian economy, as well as the development of trade relations, are important to Argentina. Currently the country has a large trade deficit with China, something Mr Faurie says can be improved. The disastrous drought that hit Argentine crops in 2018 has not helped exports, but the potential for expansion in other areas, such as tourism, could create new income sources. “We count on having much more tourism from China,” says Mr Faurie. “We try to facilitate air connections; now [Chinese tourists] have to fly through Europe, the US. [There may] be more direct connections coming from the south of China through Australia into Latin America.”

Venezuela concerns

Another subject on Mr Faurie's mind is the economic and humanitarian crisis in Venezuela. Argentina has been vocal in its condemnation of Nicolás Maduro’s government and has expressed concerns over the legitimacy of the May presidential elections that reconfirmed his leadership.

Despite regional and international pressure, there is no resolution in sight for a country that has been driven into a deep and painful recession and shocking hyperinflation, which the IMF expects will reach 1,000,000% this year. There is not much room for optimism in this case.

“Legitimacy derives not only from a vote – [and it] is very difficult to ascertain how clear that vote was – but it comes from respecting a system of democracy, liberty, freedom of speech, and [the Venezuelan government] is not recognising that,” says Mr Faurie. “It does not have any [chance] if it does not negotiate [with the international community] and it knows that the room for negotiation is [becoming] smaller. The collapse will come one way or another because the situation is unsustainable.”


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