Massa vs. Milei: 3 good economic news that can benefit the next president of Argentina

I win Sergio Massa either Javier Milei On Sunday in the presidential elections, Argentines will continue asking themselves the same questions.

How much will a kilo of meat cost next month?

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What adjustment will public rates have with the new government?

How many pesos will it take to buy a dollar?

The year 2023 has been difficult for Argentines’ pockets, with inflation exceeding 140% annually, a 5.5% drop in real wages in the first nine months of the year, a local currency that lost between half and 60% of its value against the US dollar, depending on the exchange rate you look at.

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

The government attributes this to the lack of dollars in the country, both to face payments and to accumulate reserves that allow it to defend the value of its currency.

Regardless of who wins the elections this Sunday, everything indicates that the next president of Argentina will have better income in the State coffers in 2024.

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

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

1. Agricultural production

Considered one of the largest breadbaskets in the world, Argentina has vast expanses of land where soybeans, corn and wheat are mainly grown, the main destination of which is export.

Two out of every three dollars that entered the country in 2022 were from exports related to the agri-food sector.

As the sale of these grains abroad is heavily taxed, agriculture feeds state coffers with considerable 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, which substantially reduced production and, as a consequence, the income of money into the South American economy.

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

The Rosario Stock Exchange, located in the Argentine interior and specialized in agricultural products, estimates that in the 2023/2024 harvest, 136 million tons of grains will be harvested in Argentina, greatly improving the 80 million tons of the previous agricultural year.

“Taken to dollars, it gives us an estimate that exports reach US$34.3 billion,” Franco Ramseyer, market analyst at the Rosario Stock Exchange, told BBC Mundo.

That figure adds almost US$10,000 million to the exports of the previous campaign.

The Buenos Aires Grain Exchange has similar projections and states that the sector will bring in US$14 billion to the State coffers, 50% more than a year before.

“We are facing a reasonable harvest, which is not going to be the best because we have a whole macroeconomic environment and so on that has meant that many do not deploy their potential, but the harvest is not going to be bad,” said the president of the Stock Exchange. Cereales de Buenos Aires, José Martins, when presenting the screenings in September.

Ramseyer pointed out that, “if the improvement is realized – because it has not yet materialized – It would be an important contribution to rebuild international reserves”.

The Central Bank has reserves of about US$20,900 million, US$24,000 million less than at the end of 2022, according to official figures, and the net balance when discounting its liabilities (debts) is negative at US$10,600 million, according to estimates. from the consulting firm Ecolatina.

2. Change in the hydrocarbon equation

Until last year, Argentina was a net importer of hydrocarbons – gas and oil – because, although it had a good amount of these natural resources, they were not enough to supply domestic demand.

The completion this year of works in the oil field of Dead cowin the west of the country, allowed the country to increase gas and oil production and for the equation to become balanced in 2023 and energy trade surplus in 2024, that is, greater exports than imports of these fuels.

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

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

“Whether it is US$2,500 or US$3,700 million, what it marks is a structural change in the sector, which was chronically in deficit since the middle of the first decade of the 21st century and which is going to become a surplus sector in commercial terms throughout of the next decade,” he explained.

“There is a long discussion about whether the problem of the Argentine economy is fiscal or external. I am more inclined towards the external and, in that sense, the increase in exports from the hydrocarbon sector is going to be decisive in mitigating [reducir] external restriction over 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 not only mean the substitution of imports of liquefied natural gas but also a lower import of liquid fuels. , particularly diesel for the electricity generation system.

3. Lithium extraction

Argentina has one of the world’s largest lithium reserves, a mineral used in the manufacture of batteries that is now highly demanded by the electric car industry, and is the fourth largest producer in the world after Australia, Chile and China.

“The lithium industry in Argentina is currently attracting very important investment,” explained 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 began operations in the middle of this year that plans to produce 40,000 tons in 2024, which will represent additional exports for the country for about US$820 million if its price in the international market remains the same. .

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

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

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

Lack of dollars or high public spending?

At the center of the debate on economic challenges persists the discussion about where the key to tackling the crisis really lies: a greater income of foreign currency to the country, as Massa emphasizes, or a deep cut in fiscal spending, as Milei highlights.

“The Argentine economy is dysfunctional and has many problems, but for me the central knot is that it has no reservesand that is why the market expects a devaluation and there is very high inflation,” said Kiguel.

The economist predicts that the higher foreign exchange income in 2024 will be used to pay import debts that the country has.

The Central Bank of Argentina projected a trade surplus of US$22.4 billion by 2024, a figure that would increase to almost US$42 billion in 2030.

If that forecast comes true, the Argentine market will have more dollars and the country will be in a better position to face its economic challenges.

However, not everyone believes that the key is a greater flow of currency.

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

“That is a typical look of someone who is in charge of an economy of the stocks.” [restricciones cambiarias] where the entire problem of the Argentine economy is solved by getting a few dollars to distribute them with a certain discretion, to keep the exchange rate under control, etc. They are all measures opposed to a healthy economic policy,” Bour told BBC Mundo.

“Although Argentina has some sectors that are going to rebound next year and others that may have growth compared to previous years, it is likely that these sectors will not reach because the majority of the economy is services and industry, and probably the majority will be falling during the next year as part of an adjustment process to avoid a hyperinflationary one,” he predicted.

Probably, some analysts say, a combination of higher tax revenues from exports and a decrease in public spending will help the next president stabilize finances.

It will not be easy for whoever arrives at the Casa Rosada. But at least it’s not all bad news in the medium term.