Written By: Matthew Hemmings – Corporate Finance
Argentina’s legislative elections—slated for October 27, 2017—will be a de facto referendum on President Mauricio Macri’s economic-reform package. While slow to start, his shock-therapy approach appears to be bearing fruit as the country finally wrenches itself free of years of protectionist Peronism. The improved conditions and positive outlook have many investors willing to bet on Argentina again. With the country rejoining global credit markets, recovering billions lost in tax revenue, and liberalizing the economy, indicators have shot through the roof—such as the country’s MSCI Financials Index being up nearly 50 percent thus far for 2017. Moreover, credit demand has increased substantially in the face of improved conditions. Banks are currently undergoing substantial shifts in their business models to take advantage of the new business environment, driving growth and encouraging external investment.
The improved conditions are a stark departure from the monetary and fiscal policies of Macri’s predecessors: husband-and-wife presidential team Nestor Kirchner and Cristina Fernández de Kirchner. Their presidencies were characterized by intense protectionism and state intervention. More importantly, Fernandez’s rejection of the global economic ecosystem resulted in the country’s isolation from global capital markets. Making matters worse was her penchant for using helicopter money to finance government projects. This option was pursued in lieu of austerity measures or increased taxes—a measure that yielded skyrocketing inflation numbers in addition to stagnant growth.
Macri’s election in 2015 was seen as a patent rejection of the Peronist policies of his predecessors. He promised to return the country to growth through market-friendly policies and reforms that would liberalize the country’s economy. When his “shock therapy” approach did not yield immediate results, some cast doubts on his efforts, but Argentina quickly made right by its holdout creditors—returning to global capital markets; seeking out better relations with its neighbours and international trade partners; and seeing its credit ratings jump considerably. As the reforms begin to bear fruit, and regular Argentines benefit from the changes, Macri is receiving greater support for his efforts. At present, his government has unveiled a “Global Investment Advisor” role within the country’s regulatory body to facilitate investment and help the country’s wealth managers perform against global market rivals. Presently, the banking sector in Argentina stands to gain enormously if the reforms are successfully passed, and they have already begun to show signs of accelerated growth in the face of reduced inflation and a waning fiscal deficit. With this backdrop, financial activity in Argentina is on the rise. Billions of dollars in offshore funds have been repatriated, and swathes of the population are re-entering the formal employment market—which should result in windfall revenues for government coffers.
To capitalize on this re-engagement, companies such as Ualá—a smartphone app that offers users without access to bank services a no-fee banking solution—are working toward enticing some of the cash back out of Argentine pockets and into investment vehicles. This complements the newly developed bidirectional cryptocurrency ATMs (automated teller machines) due to be installed in Argentina. The joint venture with Panama—which possesses a large financial sector—promises a new frontier on the real-world use of cryptocurrencies. With Argentina only now catching up with much of the world’s banking sectors, it stands to reason that they would skip past traditional technologies and straight to new developments. However, the focus is not merely on novel technologies. Loma Negra—the country’s largest cement producer—recently filed for its IPO (initial public offering) and listed for US$100 million.
Only a few short weeks lie between now and Argentina’s elections. Perhaps this bout of good news could be what hands Macri the keys to get the country back on the road.