Hyperinflation Argentina is poised to flourish

Expressing optimism about Argentina may seem like an act of madness.

Inflation runs over 100 percent a year, the government finances itself by printing money, and crippling exchange controls mean that a black market dollar is worth almost twice the official rate.

Cut off from international markets after its ninth standard in 2020 and suffering from a severe drought, the South American food exporter could slide into hyperinflation or even economic collapse this year.

But look a little further and a tantalizing array of possibilities comes into view. These, along with a new government in October, could offer Argentina its best chance in a generation.

“There is no doubt that this will be a very difficult year,” says Pierpaolo Barbieri, founder and CEO of online bank Ualá. “However, in the medium term, four sectors make me very optimistic: agribusiness, energy, mining and digital services.”

The gigantic Vaca Muerta development in Patagonia is changing that. The world’s second largest shale gas field, Vaca Muerta, will this year begin pumping gas down a new pipeline to supply the Buenos Aires region. A second phase will open up exports to Brazil and Chile.

© Tomas Cuesta/Getty Images

“In two years we can go from an energy trade deficit of $5 billion a year to a surplus of $15 billion,” explains Alfonso Prat-Gay, a former finance minister. “There are other low-hanging fruits; I am very optimistic about the potential for copper and lithium. Last year, Chile earned almost DKK 50 billion. USD on mining exports, while in Argentina it was 5 billion. But we share the same mountain range.”

Argentina’s lush pampas, succulent beef and prized Malbec wine mean the nation sees itself primarily as an agricultural powerhouse. But another boom is coming in the northern part of the country, which is rich in lithium, the “white gold” of the electrical revolution. JPMorgan estimates that by 2030, Argentina will be the world’s third largest lithium producer.

In a nation almost as famous for squandering economic opportunity as for winning soccer World Cups, the question inevitably arises whether this vision of prosperity is just another mirage.

“Just because Argentina has huge opportunities to improve its economy doesn’t mean it will necessarily happen,” said Diana Mondino, an economist at CEMA University in Buenos Aires. “There is phenomenal uncertainty about the potential direction of Argentina’s politics.”

Mondino points out that Argentina has around 7 million citizens living on welfare, many of whom have never worked and have little incentive to do so. Millions more benefit from heavily subsidized energy prices. It will be difficult to remove such perks.

© Martin Silva/AFP/Getty Images

Marcos Casarín of Oxford Economics is skeptical of Argentina, pointing to the extreme generosity of the IMF in rolling over $45bn. of Argentine debt, while little is required in the way of belt-tightening. “It’s a super relaxed program,” he says. “It gives a false sense of prosperity.”

Much depends on the next government, which takes office in December. President Alberto Fernández and his radical vice-president Cristina Fernández de Kirchner are too unpopular to win again, and it is unclear who the ruling Peronists will field.

The opposition is divided, and a right-wing libertarian, Javier Milei, votes strongly against more established candidates, such as Buenos Aires Mayor Horacio Larreta or former security minister Patricia Bullrich.

But the most likely scenario is victory for a more pro-business government. If it moves quickly to deregulate the economy, cut spending and restore confidence in the battered peso, Argentina could take off – and the worse the crisis when it takes over, the easier it may be to adopt radical measures.

“The economy is still working, even with all the distortions that have been created,” said Fernando Jorge Díaz, an Argentine economist at Citi. “If you can bring some stability, it will start to grow very quickly.”

Argentina doesn’t need to do much to look good against the rest of Latin America. Sick growth is the order of the day from Mexico to Chile, as the region’s largely leftist leaders put wealth distribution before wealth creation. The perennial loser, Argentina may yet spring a surprise.

michael.stott@ft.com

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