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February 26, 2017

Macri: 12 months on

Friday, December 9, 2016

Argentina, Brazil, China and the Trump enigma — the numbers and politics behind the idea of growth

Office workers are reflected in a building’s decorative mirrors in downtown Buenos Aires.
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By Leandro Renou
For the Herald

Argentina, Brazil, China and the Trump enigma — the numbers and politics behind the idea of growth in 2017

The economic and political problems afflicting Argentina are — today more than ever — the consequences of a multiplicity of factors. They are so complex that the local indicators pick up any time the Mauricio Macri government can put across its policies. In that respect, the government’s economic team and the Foreign Ministry have differing views on Argentina’s new agenda in the world. Numerical data points toward reasonable levels of growth for next year (upward of four or five percent), permitting some genuine recovery from the setbacks of 2016 as being improbable due to the consumer trends on the domestic market but also the new reality in Brazil, the triumph of Donald Trump in the United States, the new set of needs being imposed by China and, of course, the constant mutations in the decision-making of the Let’s Change coalition as they face an election year which looks tricky and even recessive.

“There has been a fall in general consumption but we hope that some money will trickle down into purchases from decisions like the AUH family benefits and the higher income tax floor,” says Juan Vasco Martínez, the executive director of the Asociación de Supermercados Unidos (ASU) grouping the country’s biggest hypermarkets — a sector which has undergone at least four months of sustained contraction.

Local consumption accounts for 80 percent of gross domestic product (GDP), hence its relevance in the fall of the economy’s global numbers. What has happened is that the loss of purchasing-power has hit the waterline of the consumer pyramid. In the years of the Cristina Fernández de Kirchner presidency — according to the supermarkets themselves — the logic of the consumer pyramid was inverted and shops sold more than 70 percent of their turnover to the middle, lower-middle and lower classes. Today it is these segments which are cutting back on their purchases, sending sales tumbling in general. A report by Scentia consultants prepared for companies shows consumption falling by between five and seven percent since October. The reduction reaches goods of low elasticity, like the family shopping-basket, which are normally the last things people stop buying — alcoholic beverages have fallen nine percent, non-alcoholic almost seven percent and house-cleaning items over 10 percent. From October onwards, the consultants working for the supermarkets diagnose “price disarray, the economic situation and the high level of single-item purchases” as factors influencing the general fall. Apart from a mutation to second and third brands which already explains 20-30 percent of shopping bills.

A further inconvenience

A further inconvenience with an impact on the domestic market is the status of national production. Yellow lights began flashing this week at the Argentine Industrial Union (UIA) when sector sources found out what their counterparts in São Paulo were up to with the Argentine government. They suspect that the Brazilians are requesting higher quotas for their products, a typical case of dumping on the part of an economy exponentially larger than the local. The UIA leaders are looking for something different, which the Brazilians do not accept for now — to join forces to fight another import wave, the Chinese invasion of the region. But it is a desperate play for markets, above all in the auto industry, which again has a high deficit within bilateral trade.

Our Big Brother’s behaviour, which represents an enormous difficulty for Argentina, is fairly predictable in the international context and given Brazil’s pronounced recession. In the third quarter, measured against the same period last year, the neighbouring economy contracted 2.9 percent. It was, according to Austin Rating consultants, the worst performance among 40 countries. All within the framework of Michel Temer’s transitional government occupying a power vacuum which is basically being exploited by the financial sector with its demands for major economic reforms and spending cuts.

This became evident two months ago at the Federación de Bancos de Latinoamérica (Felaban) Congress in this city when Brazil’s two top bankers spelled out the conditions required of Dilma Rousseff’s enforced heir. No doubt, Brazil’s transition remains open-ended, a situation representing over 50 percent of Argentina’s chances of recovery.

“We tried to approach the CNI (the Brazilian equivalent of the UIA) and their industrial federation but they are in a very big crisis. My estimate is that Brazil will not advance until 2019 unless there are early elections soon,” ventures Juan Carlos Sacco, vice-president of the UIA and head of the local federation of printing companies. He was annoyed because “the only thing until now was a meeting arranged by the two governments with 100 Brazilian businessmen trying to sell stuff to us. But the point is that we are all in recession.”

The worrying thing linking the Argentine market’s bad numbers to Brazil is imports — off the record some are angry that food, cleaning products and cosmetics are arriving from the Brazilian head branches of companies operating in Argentina at much lower prices. From there many affirm that these imports add an extra problem to the fall in general demand.

Globalisation at odds

with the world

What Brazil is doing is constant throughout the planet. In a context of triumphant protectionism, Argentina is acting anti-cyclically by approaching the outside world. A paradox, no doubt, but the country wants to open itself up to a world which is closing. A clear process of

“deglobalisation” resulting in greater protectionism (even in leading countries) is underway. About the only thing still global in the world is recession and there are very few countries willing to buy from abroad and many (indeed almost all) who want to sell. Here Argentina finds itself in a dilemma between the ideological and the economic — what should its relations with the US be after the rise of Trump to power and (a parallel challenge) what it should do with the ties woven with China in the Kirchnerite years.

The week before the Let’s Change spiritual retreat in Chapadmalal, Macri brought together his economic team with Foreign Minister Susana Malcorra at Olivos presidential residence. Those present at the meeting, entitled “Argentina’s intelligent insertion in the world,” assure that it was virtually a “stand-up” by Ban Ki Moon’s former United Nations Cabinet chief. Malcorra laid down the law and pulled all the ministers into line behind the idea (also propounded by the Argentine ambassador to Beijing, Diego Guelar) that China — in crisis — was still suffering from its lack of food sovereignty. And that Argentina must fight to continue being the food provider while maintaining financial links in case Trump’s campaign promises end up leaving the government without access to credit. The problem is that the competition to fulfill China’s food sovereignty demands pits Argentina against its ally in crisis, Brazil, and that recent enigma, the US — three of the world’s biggest food producers.

Malcorra has a direct line to the Chinese Central Committee dating back to her UN years — she has thus more or less been championing China’s cause since the beginning of the year. Some months ago the Atlantic Council, a sort of thinktank and business hub strongly linked to the Republican Party, came to Argentina. At an event at the Bolsa Stock Exchange, Malcorra said almost the same as at the Olivos meeting. Apart from one detail — then she spoke of a relation of equals between Argentina and China before the disapproving gaze of seated industrialists. The government restored the industrial relationship with China even before the recession which is closing down one factory after another every day. Techint is the biggest enemy of the Chinese invasion. Paolo Rocca sells his construction steel at two or three times the price and does not want competitors, especially those whom he accuses of dumping.

But for small- and medium-sized companies (the PyMEs), the context is even more difficult. Juan Carlos Lascurain, vice-president of the ADIMRA metal chamber, spelled out that “the only way to maintain links with China is to be protected and for the moment we have no definitions along those lines from the government.” For this industrialist “saying yes or no to China goes beyond declaring it a market economy because we emerging countries suffer most in a recessive world so that the Chinese cannot place in other parts of the world what they want to sell in our countries.”

As for the US, the government evaluates that Argentina does not occupy a very important place on Trump’s map. In any case, something which might serve to enlighten the geopolitical thinking of Macri and his team — Trump’s opposition to declaring China a market economy, which will enable them to align with US thinking, after having gambled on the losing candidate, Hillary Clinton.

The only thing the government has clear for now is that local industrialists do not even want to hear the name of China and that trade with the US will continue to be an illusion — especially in lean years. On the basis of the government’s data, in the best of scenarios and if the Brazil/China/US triangle improves, Argentine growth might be around three percent. If everything continues as now, according to the forecast of Economía y Regiones (the consultancy once headed by Interior Minister Rogelio Frigerio), there will be a meagre growth rate of one percent. The only green buds in 2017 would be some sectors of agriculture and construction, where a recovery from this year’s 12-14 percent loss has already been forecast. Apart from the good numbers continually enjoyed by the financial sector, which has thrived under Kirchnerism and Macri alike.

@leandrorenou

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