Revamping the Argentine Development Model

On 25 May 2010, Argentina will celebrate the 200th anniversary of the revolution that led to independence. Strengthened by the crises it has successfully surmounted, South America’s second economy has risen to the forefront of the regional integration movement. H.E. Luis Maria Ureta Saenz Pena, the Ambassador of Argentina to France, gives us an overview of President Cristina Fernandez de Kirchner’s key projects and efforts to retool the Argentine model in a fast-changing world.

The Diplomatic Letter: Mr. Ambassador, in 2010 Argentina will celebrate the 200th anniversary of the May Revolution that led to independence. Could you tell us about the strides made by your country in the ensuing years and the new challenges it is currently facing? Will the cultural events scheduled to take place during this celebration be carrying any specific message?

H.E. Luis Maria Ureta Saenz Pena: Every national commemoration, in particular the celebration of the 200th anniversary of the May Revolution, is a wonderful opportunity to launch a wide and multisided debate on the past, to reflect upon the present, and to envisage our future. But these reflections must translate into actions, which is why the preparations for Argentina’s bicentenary celebration are centered around key objectives.
This involves, first of all, building infrastructures to enhance our cultural assets. Some of these projects are already underway or have been completed, such as schools, theaters, museums and historical monument renovations. Secondly, a number of reforms need to be implemented, such as tax and judicial reforms. We must keep pushing forward with reindustrializing the country as well. And finally, we must make our citizens realize just how important this bicentenary celebration truly is.
On the global level, Argentina will participate as a guest country in the 2010 Frankfurt Book Fair, the largest event of its kind. Argentina has a very long history in the publishing business, but won’t be going to Frankfurt just to promote its book publishing and magazine industries. We intend to take advantage of this opportunity to put forward a well-rounded image of our country, highlighting its culture, economy, tourism activities and sports.
Argentina has obviously changed a great deal since the 100th anniversary of the May Revolution, celebrated in the early 20th century. It was a country of just four million people back then. 20th-century Argentina swayed back and forth between hope and frustration, between periods of growth and periods of crisis. Our world has become far more complicated since those days. Its countries are more interdependent and its crises are wider ranging, as confirmed by the crisis we are now facing. In short, we are taking advantage of the bicentenary, in Argentina and elsewhere, to rethink the blueprint for the country we are growing into: a modern country well integrated with the rest of the world.

T.D.L.: The International Center for the Promotion of Human Rights was opened in Buenos Aires this past February 16th. It has been housed, quite symbolically, in buildings formerly occupied by the Navy Mechanics School (ESMA). Could you talk about your country’s commitment to this universal cause for our readers? How did the people of Argentina react to the death of former president and ardent champion of democracy Raul Alfonsin, on 29 March 2009?

H.E.L.M.U.S.P.: Immediately after the return to democracy, in 1983, Argentina began working hard to promote and ensure respect for human rights, not only on the domestic front but also working through international organizations. A number of human rights provisions acquired constitutional status with our 1994 Constitutional Reform.
We are also working very closely with France and other countries to bring into effect the United Nations Convention on the Protection of All Persons from Forced Disappearance. These efforts underscore our determination to play a leading role in defending human rights. The fact this Center was opened in the former ESMA buildings is a perfect example of the importance the Argentine government lays on defending and guaranteeing respect for fundamental personal rights.
President Raul Alfonsin, widely recognized as an extraordinarily admirable person, was a great champion of human rights. He had the enormous responsibility of guiding Argentina through its delicate transition to democracy, an objective he fully achieved. He is now counted among the great men of History. His actions have put him a very special position, both in Argentine society and within the wider community of his contemporaries. His death has therefore left the Argentine people greatly saddened.

T.D.L.: Argentine GDP rallied after the 2001 crisis, growing steadily for six years until it was undercut once again by the collapse of the international financial system, like so many other emerging countries. Will your economy be able to ride out the global recession?

H.E.L.M.U.S.P.: Argentina has one of the fastest growing economies in the world. The average annual growth rate for 2003-2008 was 8.5%, just behind China (10.7 %) and ahead of India (8.4 %) and Latin America’s other economies. This excellent economic growth has spurred the creation of 3.8 million jobs since 2003. In 2008, we posted our lowest unemployment rate in the last fifteen years (7.3%). Unlike prior growth cycles, Argentina is now buoyed by two surpluses: a fiscal surplus and a current account surplus, standing respectively at 3.1% and 2.3% of GDP.
Thanks to this situation, exports of goods and services hit a record level of US$82.6 billion in 2008. The sale of goods abroad has nearly tripled over the past five years, climbing from US$29 billion in 2003 to US$70.6 billion in 2008. Our country’s trade surplus is also hitting record levels.
These strides can be put down to our expanded export capacity, in particular in sectors with high added value such as manufacturing industries. In 2008, service exports, led by the information technology sector, climbed to a record US$2 billion, one of the highest levels in Latin America.
What’s more, according to data from the United Nations Economic Commission for Latin America and the Caribbean (ECLAC), foreign direct investment in Argentina rose 23% in 2008, reaching US$8 billion. A mere US$1.65 billion flowed into our country five years ago, which means transnational companies still consider Argentina one of the best destinations in the region for their investments. Total investment equaled 23% of our gross domestic product (GDP) in 2008, the highest percentage in the past thirty years and higher than the figures posted in key Latin American countries.
Forecasts for 2009 confirm that Argentina will be one of the countries affected the least by the global crisis in our region. Its ability to withstand crises is an outgrowth of its sound and stable financial system, which has a sustained and adequate level of liquidity. Our banking network has also steered clear of problematic financial products such as “sub prime” loans, unlike other countries.
Reserves held by the Central Bank of the Republic of Argentina are still hovering at an unprecedented level, giving our overall financial system a very sound footing. However, given events in the real economy, the slowdown in international trade has obviously made our exports lose value. Our companies’ great competitiveness has all the same enabled them to offset falling international prices with an increase in the total volume of exports, as confirmed by our trade balance figures for the first four months of this year.

T.D.L.: President Cristina Fernandez de Kirchner hopes to offset job losses and the impact of the global economic crisis by launching a public works “megaplan.” Could you tell us how this investment program is being carried out, including where the money will come from and whether foreign investors will be invited to join? Will this new program focus on specific infrastructure sectors?

H.E.L.M.U.S.P.: The plan to kick-start the Argentine economy is being launched alongside similar plans put forward by most of the developed countries. The goal is to rekindle consumption and increase competitiveness by making significant investments in infrastructures and working to keep economic activity going strong.
This package of measures has several different parts, starting with an increase in credit lines for the private sector, tax breaks for companies that hire new employees, a corporate fiscal moratorium, a repatriation law for capital poured into investments and production, a public works program with heavy investments in infrastructures, and the creation of a Ministry of Production.
As regards the public works sector, the kick-start program is part of a strategic plan Argentina has been laying out for several years now. Thanks to this plan, public investments rose from 0.7% of GDP in 2002 to 3.1% in 2008. The goal is to reach 5% in the near future. This growth is all the more significant when we consider that Argentina’s 2008 GDP was 63% higher than the 2002 figure. This latest US$30-million package of measures, designed to jump start the economy, is a step in this direction.

T.D.L.: President Cristina Fernandez de Kirchner, who represents Latin America in the G20 along with her Brazilian and Mexican counterparts, has praised the decisions taken at the London Summit on 2 April 2009. With the world economy continuing to deteriorate, how do you expect them to effect your country and Latin America as a whole? What do you think of the first IMF-led plan, which has drawn wide criticism in your country since the 2001 crisis?

H.E.L.M.U.S.P.: As a member of the G20, Argentina is working with this forum in a climate of consensus to reach decisions that will enable us to overcome the global financial crisis. The decisions taken at the London Summit show that the world is moving toward a multi-polar system. Emerging countries, in Latin America and other regions, clearly have their place in this system.
With regards to Argentina specifically, let me just add that our wide experience, bolstered by our successful handling of earlier crises, has enabled us to tackle the current problems in a different and far more effective manner.
Argentina does, however, still have some reservations about the monitoring and auditing mechanisms the International Monetary Fund (IMF) uses to grant loans, which were established with the Washington Consensus. The Argentine experiment exposed the IMF’s failings in its efforts to assist countries, in particular during the period immediately preceding the drastic economic crisis of 2001.

T.D.L.: Argentina has been trying to ease away from the dollar, for instance by signing agreements with China and Brazil that drop the dollar for bilateral trade. What does your country hope to achieve by taking this step, and does it plan to do the same with other countries, starting with its ALADI partners?

H.E.L.M.U.S.P.: Brazil is Argentina’s number-one trading partner. It takes in 19% of our country's total exports and supplies 31% of our imports. With that in mind, the Local Currency Payment System (LCPS), set up between our respective central banks in October 2008, has been put into effect in both Argentina and Brazil. It allows Argentine and Brazilian importers and exporters to carry out their transactions in their respective currencies, without being forced to change any money into U.S. dollars.
The goal of this measure is to expand bilateral trade between our countries, by eliminating costs for financial and administration transactions. The LCPS has grown steadily over the first few months it has been in place. It should be noted that a good number of small- and medium-sized companies have opted to participate in the system.
As for using the Latin American Integration Association (ALADI) as a way to counter the drop in regional trade before the crisis hits, we are looking to expand and refine the Convention for Reciprocal Payables and Receivables (CCR), a mechanism that enables ALADI central banks to compensate payments for interregional trade between member countries.
With regards to China, it is the second leading destination for Argentine exports, purchasing 9% of our total exports. Conversely, 12% of our total imports come from China. Our agreement with this country is a similar attempt to increase the volume of trade conducted between our two countries.

T.D.L.: Argentina and Brazil are the cornerstones of the South American Common Market (Mercosur), accounting for nearly 80% of total trade. During a meeting in Buenos Aires on 23 April 2009, their Heads of State reaffirmed their desire to forge even stronger regional ties. Have any concrete projects been launched to help speed up this process? What can be done to resolve the trade disputes dividing your countries, starting with the disagreement over customs duties?

H.E.L.M.U.S.P.: The Mercosur (South American Common Market) integration process is still in the coming-together stage. This process is very important to our country, as reflected by the strong economic ties between Argentina and Mercosur. In 2008, nearly one-fourth of Argentina’s foreign sales were bound for Mercosur countries. That same year, more than one-third of our country’s imports came from Mercosur.
The headway made by our countries' regional and municipal networks affords a recent and concrete example of the closer integration between Argentina and Brazil. I am talking about Mercociudades (Mercocities), which keeps other economic blocks abreast of the negotiations conducted within the trading block and makes information available on a variety of issues, ranging from city-to-city programs to customs duty questions.
Mercosur member countries, for their part, continue to make investments to improve our infrastructures and foster closer commercial integration on our main roads and transportation lines. I remember quite clearly the old days before the region returned to democracy, when relations between Argentina and Brazil were governed by the “war hypothesis.” The subsequent change in attitude is irreversible. The trade differences that arise now and again are always resolved around a negotiating table, working through the institutional mechanisms now in place.

T.D.L.: Venezuela is poised to join Mercosur, giving the South American Common Market added economic weight. Do you have high hopes for this expansion, given the wide array of bilateral agreements signed between Argentina and Venezuela in March 2008?

H.E.L.M.U.S.P.: Welcoming Venezuela into Mercosur will bring new advantages in terms of oil and petroleum product supply, which will is sure to boost the energy sector as well as industrial production within Mercosur.
When Venezuela joins Mercosur, 28 million additional consumers will join the market, which will swell to more than 260 million people. Don’t forget that Venezuela’s production infrastructure must still import value added products. Mercosur countries are in a position to meet this demand in a satisfying and competitive manner.

T.D.L.: In March 2008 President Cristina Fernandez de Kirchner traveled to Caracas to sign an important cooperation treaty with Venezuela on oil. Could joint management of South America’s vast energy resources become the “driving force” behind regional integration, along the lines of initiatives like the Garabi hydroelectric project and the building of a joint Argentine-Brazilian uranium enrichment plant?

H.E.L.M.U.S.P.: Joint management of energy resources will, clearly, be an important aspect of the regional integration process. It must, however, be underscored that Argentina and Brazil have traditionally relied on different energy production sources. My country has relied on hydrocarbons while Brazil has relied on hydroelectric energy. The two countries must consequently work together to integrate their differences, taking heed of the challenges raised by global warming and their international commitments in this arena.

T.D.L.: South America armed itself with an ambitious cooperation tool when it created the Union of South American Nations (UNASUR) Defense Council, which convened its first meeting on 10 March 2009. Will UNASUR countries be focusing on any specific areas, as they step up their cooperation on transnational security?

H.E.L.M.U.S.P.: The Defense Council is, first and foremost, a space for dialogue and political coordination. We try to reach a regional consensus within the Council that can subsequently be put forward in other bodies, enabling us to add a military dimension to our regional integration efforts.
The Council’s primary objectives include consolidating South America as a peaceful zone and expanding military cooperation in the defense arena. Argentina, specifically, strives to launch trust-building and cooperation measures within the Council, reflecting my country’s commitment to integration. Within this context, the talks between UNASUR countries on regional issues are always very energetic and action-oriented. Our Defense Ministers, for instance, are scheduled to meet every six months.

T.D.L.: The Summit of the Americas, held in Trinidad and Tobago on 19 April 2009, brought a renewed commitment to bolstering ties between Latin American countries and the United States. Should we start to see changes fairly soon, given President Barack Obama’s determination to seek a “new beginning” with the region? Will this new vision bring any changes in relations between Buenos Aires and Washington?

H.E.L.M.U.S.P.: I think the new entente between the United States and the countries of Latin America will take a different shape for every country in question, in tune with the priority each country gives to its own development needs.
These “reconcilations” should become more obvious rather quickly, within the framework of the international organizations to which the United States and the countries of Latin American belong, such as the Organization of America States (OAS) and the United Nations. We hope to see President Obama’s government lay greater importance on multilateralism.
Latin American countries have taken a common stance on a great many issues, such as the battle against poverty, human rights, and international peace and security, to name only a few. On many of these issues, we expect to be in closer agreement with the Obama administration than we were with the prior administration.
With regards to relations between Buenos Aires and Washington, we hope to continue forging interesting cooperative ties across the board, based on dialogue and mutual respect between two sovereign countries with shared interests. I believe that issues such as the battles to end international terrorism and drug trafficking - problems the U.S. and Argentina are both facing - will take their place alongside issues such as the poverty battle, the drive to implement social policies to protect at-risk populations, and efforts to strengthen the regional integration system and reform the international financial structure, among other things.

T.D.L.: During the Trinidad and Tobago Summit, Argentina’s president called on President Obama to lift the sanctions imposed by the U.S. on Cuba since 1962. What do you think of the steps taken by the U.S. to improve its ties with Havana? President Cristina Fernandez de Kirchner traveled to Cuba in January 2009, in the first official visit by an Argentine head of state in more than twenty years. What role will your country play in helping foster this nation’s development?

H.E.L.M.U.S.P.: Let me point out, first of all, that the UN General Assembly has been urging the United States, since 1992, to lift the embargo it has imposed on Cuba for more than four decades. This resolution has been approved in New York every year, by a nearly unanimous vote. In 2008, the vote was 185 to 3, with two abstentions.
Argentina, like most of the international community, has voted in favor of the UN resolution every single year. So it is hardly surprising that President of Argentina told President Obama, at the Trinidad and Tobago Summit, that she would like to see this unjust situation come to an end.
Argentina clearly appreciates every little gesture by the United States indicating a thaw in its relations with Cuba, especially the lifting of various restrictions affecting Cubans living in the U.S. They have been allowed to visit the island and transfer money to their families, for instance, since April 2009. President Obama has also expanded the list of humanitarian supplies that can be sent to Cuba, a move welcomed by Argentina. We hope to see this list steadily expanded, until the embargo is completely lifted.
As to my country’s role as concerns Cuba, we will continue to support anything that could help foster this country’s economic development and full integration in the regional system. Just recently, during an historic meeting of the OAS General Assembly convened in Honduras in early June 2009, this American organization annulled a 1962 resolution that had prevented Cuba from joining this body. An outdated stance and an injustice were put to an end. Argentina has also been actively involved in the group responsible for drafting the new OAS resolution that will allow Cuba to join the inter-American system. My country sees these advances as a victory for multilateralism, a principle on which we lay very great importance.

T.D.L.: During an official visit to Paris on 6-7 April 2008, President Cristina Fernandez de Kirchner reiterated her determination to reenergize bilateral ties. Plans to build a high-speed train in Argentina have been put on hold, for the time being. Do French firms still have a role to play in your country’s market? President Sarkozy is set to visit Argentina soon. In light of your own experiences in France, what else could be done to breathe fresh life into bilateral cooperation efforts?

H.E.L.M.U.S.P.: Bilateral relations between Argentina and France are clearly at one of their all times highs right now. Scientific and technical cooperation has always been a key part of our countries’ bilateral ties. Many generations of Argentines have been nurtured and educated on French theories and scientific advances, in a wide variety of arenas: medicine, law, public administration, architecture, urban planning, etc.
In like manner, most of the Latin American researchers working with the CNRS are Argentine, and they are leading a large number of our joint projects.
These scientific exchanges and this ebb and flow between our two countries have been very intense. In 2007 alone, 250 CNRS research missions were carried out in Argentina, focusing on: sciences of the universe (30%), engineering and technology (19%), physics (15%) and social sciences (12%). This underscores the great many human resources at our country’s disposal, explaining why France has decided to conduct five large-scale international scientific cooperation programs (PICS) in Argentina.
As I have already stressed, our bilateral ties are extremely important to Argentina. In fact, Argentina signed its very first scientific and technical cooperation agreement with France, back in 1964. I have a little anecdote I would like to share with you. The Louvre Museum was able to create its prestigious restoration laboratory in 1931 thanks to a donation from Mr. Fernando Perez, the Ambassador of Argentina to France at the time.
In the economic arena, the volume of bilateral trade rose to US$1.82 billion in 2008, a 16.5% increase and an all-time record. Argentine exports to France swelled to 867 million euros, up 45.5%. French exports to Argentina totaled 951 million euros. French firms have been closely involved in the Argentine business world for quite some time, led by key sectors such as the automobile industry, agribusiness, the pharmaceutical industry, and the public and financial service sectors. There are a great many French companies working in Argentina right now, and French investors are pumping in a good deal of money.
Argentina continues to offer excellent investment opportunities. For the past three years, foreign firms have seen a return on investment above 10%, the highest return seen in the past fifteen years. The leading French firms’ annual average profit-to-sales ratio has been above 15% for the past three years.
The information technologies sector appears to hold great promise for French investors at this time, as software production has increased markedly. Argentina also offers big advantages in other sectors: the wine industry, mining, the timber industry, biotechnology, biofuels, the olive industry, the food and beverage industry, the professional services sector, and the tourism industry. In recent years there has been considerable growth in all these sectors, which hold great growth potential for the years to come. We also plan to carry out wide-scale infrastructure work in the near future, focusing on: railways, the subway system, roads and highways, and ports. Argentina also intends to undertake projects to expand its energy capacity.
Finally, with regard to new foreign companies coming to work in our country, let me emphasize that Argentina offers highly qualified human resources, an additional advantage for firms seeking a competitive workforce. This is why we hope that French companies will continue to invest in Argentina, either in the form of direct investments, or working through subsidiaries, or by launching joint ventures with local partners. I hope to see this happen more specifically in sectors where France commands superior know-how.