24 April 2024

Argentina: seizing on new opportunities

| The European |

After years of institutional weakening and a challenging political-economic environment, things are looking up for Argentina’s economy. Changes in the political administration at the end of 2015 created a sense of “before and after” for the country in several ways – but there are now exciting opportunities on the horizon.

Since his inaugural ceremony, President Mauricio Macri presented a clear strategy to develop Argentina’s economic potential. Some of the main measures driving this transformation saw the government removing distortions by unifying the exchange rate and eliminating currency purchase restrictions. The government also recuperated international reserve stocks, came out of the financial default, improved free trade, relaunched public statistics, strengthened institutions, launched an ambitious infrastructure scheme plus a planning programme aimed at reducing the fiscal deficit. Argentina now has a solid base on which to sustain economic growth. The country has comparative strengths in several industries: its energy resource potential, both conventional and renewable and a highly developed human capital.

It is no surprise that after two years of the new administration, economic indicators show signs of improvement, with the consensus indicating growth for the coming years, along with a fiscal deficit reduction and a decrease in inflation.

It is now essential for the local financial markets to facilitate the development of the real economy, and provide the necessary tools to finance growth. To address this, the depth in liquidity, as required in the investment arena, is crucial, and it is here that Argentina must seize new opportunities.

How does the Argentine market compare with its peers in the region? Market capitalisation has reached $101.3bn, accounting for only 5% of the market capitalisation of Latin America. Therefore, Argentina remains well below the $1,072.2bn (51% of total) held by the Brazilian market, and even the $437.6bn of Mexico or the $299.3bn (14% of total) of Chile and the $130.2bn (6% of total) of Colombia. This same scenario is true if we look at the amounts negotiated in the region, where the Argentine market accounts for only 1% of the total.

There is still a long way to go, but it is clear that the potential for growth is very high. It will be important to keep renewed policies on track, with a focus on balancing economic discrepancies in order to generate confidence in investors. However, also crucial, is the ongoing situation concerning regulatory matters, such as the approval of the Capital Markets Law reform, which began in May. As well as other measures taken by the CNV (capital market authority) to adapt the country’s market to international standards. A key factor among them is the implementation of state-of-the-art financial technologies.

Furthermore, there is a possibility that Argentina will return to emerging market status after being downgraded to frontier market in 2009 by the MSCI. If this happens, it will provide an extra boost by ensuring the arrival of investment funds.

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