In 1929, Argentina boasted the world’s fourth-highest GDP per capita, putting it on a par with America, says Peter Ferrara in the American Spectator. Today it’s 53rd in the global rankings, after years of “wildly irresponsible” economic populism damaged the private sector and led to hyperinflation and a huge debt load. In 2001, investors had another shock when Argentina defaulted on more than $100bn of external debt. But now it is “self-evidently not the basket case it has been in the past”, says David Stevenson in the FT.
In fact, its macroeconomic fundamentals are impressive. A key part of the story is the soft commodities boom. Argentina is the world’s third-largest soy exporter and second-biggest corn exporter. It also has plenty of metals and minerals. Commodity-hungry China’s investments in Argentina rose tenfold to $137m between 2004 and 2009.
Industrial production and consumption are also going strong. Growth exceeded 9% last year and has averaged 7% over the past five years. Commodity earnings have created a current-account surplus, while the government budget is in the black. Throw in international currency reserves of more than $52bn, or 13% of GDP, and these days Argentina has plenty of money to service its external obligations, says Walter Molano of BCP Securities.
One problem is inflation. Official statistics (which are widely disbelieved) put it at around 10%; many reckon it’s twice as high. With an election due later this year, monetary and fiscal policy is loose, so inflation is unlikely to fall back soon. Politics also remain a risk. In recent years the government has indulged in “serial asset grabbing”, says the FT. Early last year it nationalised $30bn of private pension assets. Profitable resource firms could become a target for “government looting”, says Martin Hutchinson on the US website Moneymorning.com.
Nonetheless, reckons Stevenson, “ look beyond the politics”, as we do in other risky countries, and there is money to be made here – especially now that Argentina’s big firms have cut debt and become more efficient. Until now there has been scant fund interest in this frontier market, but those with a stomach for risk may wish to research the newly launched US-listed Global X FTSE Argentina 20 ETF (US: ARGT). It tracks the biggest 20 firms that either have headquarters in Argentina or substantial activities there.