Mass vs. Milei: 3 good economic news that could benefit Argentina’s next president

Whether Sergio Massa or Javier Milei wins Sunday’s presidential election, Argentinians will continue to ask themselves the same questions.

How much will a kilo of meat cost next month?

What adjustment will government rates undergo with the new government?

How many pesos does it take to buy a dollar?

The year 2023 was difficult for Argentinians, with inflation of more than 140% per year, a drop of 5.5% in real wages in the first nine months of the year, a local currency falling between half and 60% lost its value compared to the US. dollar, depending on the exchange rate you’re looking at.

And they already came from a 2022 that had not been favorable either.

The government attributes this to the country’s lack of dollars, both to make payments and to build up reserves that will allow the country to defend the value of its currency.

Regardless of who wins the elections this Sunday, all indications are that the next president will be of Argentina will have better income in the public treasury in 2024.

“Next year, Argentina’s trade balance could increase by about $25 billion” in favor of the South American country for increased exportsArgentinian economist Miguel Kiguel told BBC Mundo.

Before these export revenues start to flow, Argentina’s economy is expected to decline even further, with a possible acceleration of inflation, but grains, fuels and lithium offer three good news items in the medium term for whoever becomes president.

1. Agricultural production

Considered one of the largest breadbaskets in the world, Argentina has vast areas mainly growing soybeans, corn and wheat, the main destination of which is export.

Two out of three dollars entering the country in 2022 came from exports related to the agri-food sector.

Because the sale of these grains abroad is heavily taxed, agriculture feeds the state treasury with significant foreign exchange every year.

But for the 2022/2023 harvest (which runs from the middle to the middle of each year), Argentina recorded one of the worst droughts in its history, significantly reducing production and, as a result, cash income in the South -American economy. .

This began to reverse in the second half of 2023, when the meteorological phenomenon La Niña – which caused drought – ended and gave way to El Niño, a period when rain prevails in that part of the world.

The Rosario Stock Exchange, based in Argentina’s interior and specialized in agricultural products, estimates that 136 million tons of grain will be harvested in Argentina in the 2023/2024 harvest, significantly improving on the 80 million tons of the previous agricultural year.

“In dollar terms, this gives us an estimate that exports amount to $34.3 billion,” Franco Ramseyer, market analyst at the Rosario Stock Exchange, told BBC Mundo.

That figure adds almost $10,000 million to the previous campaign’s exports.

The Buenos Aires Grain Exchange has similar forecasts, saying the sector will bring $14 billion into public coffers, up 50% from a year earlier.

“We are facing a reasonable harvest, which will not be the best, because we have a whole macroeconomic environment and so on, which has led to many not realizing their potential, but the harvest will not be bad,” said the president of the Beurs Cereales de Buenos Aires, José Martins, at the presentation of the screenings in September.

Ramseyer pointed out that “if the improvement is realized – because it has not yet been achieved – It would be an important contribution to the recovery of international reserves”.

According to official figures, the Central Bank has reserves of about $20.9 billion, $24 billion less than at the end of 2022, and the net balance after discounting its liabilities (debt) is estimated to be negative at $10.6 billion. the consultancy firm Ecolatina.

2. Change in the hydrocarbon equation

Until last year, Argentina was a net importer of hydrocarbons – gas and oil – because the country had a fair amount of these natural resources, but not enough to meet domestic demand.

The completion this year of work in the oil field Dead cowin the west of the country, allowed the country to increase gas and oil production and balance the equation by 2023 and energy trade surplus in 2024, i.e. greater exports than imports of these fuels.

According to the Minister of Energy, Flavia Royón, in 2024 there will be a surplus on the energy trade balance of $3.7 billion, while in 2022 the balance was negative at $4.4 billion.

The director of the consultancy Economía y Energía, Nicolás Arceo, told BBC Mundo that his estimates are a bit more conservative – he expects the energy trade balance surplus to reach $2.5 billion next year – but he agrees, pointing out that The transformation of the sector will have a positive impact on the country’s need for foreign exchange.

“Whether it is $2,500 or $3,700 million, it marks a structural change in the sector, which has been chronically short-suffering since the mid-first decade of the 21st century and is set to become a surplus sector in commercial terms. over the next decade,” he explained.

“There has been a long debate about whether the problem of the Argentine economy is fiscal or external. I lean more towards the external and in this sense the increase in exports from the hydrocarbon sector will be decisive in mitigating the [reducir] external constraint in the next decade,” he noted.

Arceo said that the impact of the expansion of the gas pipeline network in Argentina will be seen “in all its intensity” in the next southern winter and that this will mean not only the replacement of imports of liquefied natural gas, but also lower imports of liquefied natural gas. liquid fuels, especially diesel for the electricity generation system.

3. Lithium extraction

Argentina has one of the world’s largest reserves of lithium, a mineral used in battery production and now in high demand in the electric car industry, and it is the world’s fourth largest producer after Australia, Chile and China.

“The lithium industry in Argentina is currently attracting very important investments,” explains Patricia Vásquez, researcher at the Wilson Center think tank in the United States.

In addition to the two exploitation projects that already existed, a third became operational in the middle of this year, which plans to produce 40,000 tons in 2024, which will mean additional exports for the country for about $ 820 million if the price on the international market is increased. stays the same. .

Two other projects announced the start of production in 2024 and in total the sector plans to go from exporting 37,500 tons to 141,500 tons. That means additional revenues of more than $2.1 billion for the year.

In any case, the researcher qualifies the impact of these new exports on the overall economy.

“Lithium is a sector that is welcome for an economy like Argentina, for which any income is good, but it is also not what will save the country,” Vásquez said.

Lack of dollars or high government spending?

At the heart of the debate on the economic challenges remains the discussion about where the key to tackling the crisis really lies: increased foreign exchange earnings for the country, as Massa emphasizes, or a deep cut in budget expenditure , as Milei emphasizes.

“The Argentine economy is not functioning well and has many problems, but for me the central node is that it has no reservesand that is why the market expects a devaluation and very high inflation,” said Kiguel.

The economist predicts that the higher foreign exchange earnings will be used to pay off the country’s import debts in 2024.

Argentina’s Central Bank forecast a trade surplus of $22.4 billion in 2024, a figure that would rise to almost $42 billion by 2030.

If this prediction comes true, the Argentine market will have more dollars at its disposal and the country will be in a better position to meet its economic challenges.

However, not everyone believes the key is greater cash flow.

The chief economist of the Latin American Economic Research Foundation (FIEL), Juan Luis Bour, believes so The problem is not with the trade balance, as the government has said, but with government spendingand that the next government must make a budget adjustment.

“That’s a typical look from someone in charge of an equity economy.” [restricciones cambiarias] where the whole problem of the Argentine economy is solved by getting a few dollars to distribute them with a certain discretion, to control the exchange rate, etc. These are all measures that are against a sound economic policy,” said Bour against BBC Mundo.

“Although Argentina has some sectors that will recover next year and others that may show growth compared to previous years, it is likely that these sectors will not achieve this as most of the economy comes from services and industrial sector, and the majority will probably consist of services and industry. Inflation will start to fall in the coming year as part of an adjustment process to avoid hyperinflation,” he predicted.

Some analysts say a combination of higher tax revenues from exports and a drop in government spending will likely help the next president stabilize finances.

It won’t be easy for those who arrive at Casa Rosada. But at least it’s not all bad news in the medium term. (JO)