Argentina is back in 2017. After a decade of financial and commercial isolation, President Mauricio Macri set an economic and political course that calls for deepening trade and investment ties with the international community. The new government unified the exchange rate, opened international trade and is on the brink of resolving its debt conflicts with holdouts who have been litigating in New York courts for over a decade. These three decisions, taken rapidly and boldly during the first three months in office, set the stage for an economic revival after four years of stagnation and high inflation.
Argentina can be a positive force in the current global scenario. It is the eighth largest country in the world, accounting for 2,4% of global biocapacity according the World Wildlife Atlas. It is the country in Latin America with the highest human development index according to the UN, and leads the region in both nuclear and satellite technology. Argentina has highly skilled labor. World Economic Outlook human capital rankings place Argentina in the top 3 of Latin America. More importantly, these natural and human resources imply that the country can be a key player in food security, energy security and regional stability.
Argentina is the third largest soybean exporter, and has the natural conditions and the human and business resources to safely and effectively produce high quality agricultural products. Our agribusiness sector has achieved significant progress, increasing production and yields thanks to cutting edge technology and proprietary developments. The country currently produces food sufficient to feed 400 million people, and this figure could double over the next decade. Export taxes, artificial real exchange rate appreciation and inconsistent policies limited the productive potential of the agribusiness sector during the past decade, but the new government has moved quickly to correct these distortions.
Regarding energy, in addition to its relevant conventional resources, Argentina boasts the Vaca Muerta structure in Neuquén province, the second largest global reserve of shale gas and the fourth largest of shale oil in the world. Furthermore, the potential for renewable energy is spectacular. Solar power in the north, wind power in Patagonia and tidal energy on the Atlantic coast could provide an increasing proportion of the electricity supply for the whole continent over the following decades. A law passed last year calls for 8% of Argentina´s energy supply to come from renewables by 2018. We estimate an extra 3,000 MW/h from wind power over the next four years, involving investments of around $3,5 billion.
The growing role of renewables, together with Argentina´s leadership in biodiesel production (it was the fifth-largest producer in 2012, according to the US Energy Information Administration) and its spectacular potential in the forestry section (eighth largest forested area, with almost 1 million km2), highlight the key role the country can play in the global effort to curb carbon emissions.
The new government recognizes the significant role Argentina can play in the 21st century and is working on a consistent plan for sustainable development. President Macri outlined the three key objectives of his administration: zero poverty, defeating drug-trafficking and strengthening democracy. To further these objectives, we trust more than ever in the opportunities that lie in building a cooperative agenda. We believe in the benefits of integration, cultural exchange and trade, and in partnership with nations that share our values of democracy, human rights and tolerance. The current global scenario is certainly challenging. Still, we are confident that the path we are embarking on will generate tangible impacts for our citizens, regional neighbors and the nations of the world.
This plan has moved swiftly during the first three months of the Macri administration. Some of the key decisions include:
Exchange rate unification: until last year, Argentina had an official exchange rate that was artificially overvalued, leading to the development of an informal, parallel exchange rate. We have allowed the official exchange rate to float freely, with the Central Bank intervening only to limit excess volatility.
Dismantling of capital controls: we have eliminated restrictions on buying and selling foreign exchange, repatriating profits and other arbitrary capital controls, whose effect was to limit investment.
Removal of trade barriers: we have eliminated arbitrary trade barriers that impeded the free flow of goods and services, such as export taxes on agricultural products and mining. Some of these trade barriers had been challenged in the WTO by the US, the EU and Japan.
We have provided the Central Bank and the National Statistics and Census Institute with the independence and technical competence required to carry out their jobs.
Solving the holdouts problem: we are on the brink of resolving the complex debt conflict with holdout bondholders, who have been litigating in New York courts for over a decade. This will allow Argentina to tap international financial markets to finance the transition and an ambitious infrastructure plan.
Inflation targeting and fiscal consolidation: we are also working on a solid and orderly transition: we are committed to an inflation targeting and fiscal consolidation program that leads to inflation in the low single digits and a balanced primary budget by 2019.
Revitalizing trade and investment relations: we have held meetings with MERCOSUR, Brazil, Chile, Mexico, the United States, the EU and other countries to reset trade and investment links. We are committed to foster a constructive investment climate as a catalyst for capital inflows, technological development and job creation.
As a signal of Argentina´s new stance, President Mauricio Macri attended the Davos conference in January, and is encouraging all the members of the government to generate an agenda that develops partners and links with the rest of the world. Presidents Francois Hollande and Matteo Renzi visited Buenos Aires recently, and President Barack Obama will be there with a delegation of hundreds of businesspeople at the end of March.
We are confident that with the support of the international community, we will succeed in an orderly transition towards sustainable development and a constructive role for Argentina in the global economy and polity.