The truth is Neither Milei is Menem, nor the LLA is Peronism, nor is society the same and much less as we analyze in various notes the world of that time (fall of the Wall and “end of history”) is the world of competition protectionist hegemonic between China and the United States.
However, the Government promotes a growth model whose cornerstone is the RIGI, the regime for large investments, which refers within the framework of the Bases law to the economic emergency, state reform and privatizations of those years.
It could be argued that unlike a model in the 90s that privileged investments in non-tradable services, the current model prioritizes investments in tradable mining and oil, which would avoid incurring the current account deficit that was the Achilles heel of Convertibility. .
The privatizations of the 90s included non-tradable activities (telephony, mail, water) and partially or totally tradable activities (electricity and especially oil and gas), which due to the regulatory framework of privatizations and the macroeconomics of the time (type of delayed change and opening) aggravated the problem.
The world has reflected various negative experiences in underdeveloped countries with extractive enclave economies in gold, silver, rubber, sugar, etc. that ended in depletion of natural resources, environmental disaster, external crisis and zero linkages with the development of the country. The dichotomy is not not exploiting resources or generating enclaves of irrational extractivism, but rather rational exploitation within a framework of the country’s development.
A current example of “El Dorado” is the case of Guyana. The discovery of oil took place in a large exploitation since the end of 2019. Thus, one of the poorest countries in South America tripled its GDP and generated a spectacular GDP growth of 62.3% in 2022, with an expected growth according to the IMF of 38% in 2023 and 20% from 2024 to 2028.
Guyana has a small population of 805 thousand inhabitants and is in 95th place in the 2022 human development ranking, it was 108 in 2019, a poverty of 48%, unemployment of 12% and a life expectancy of 65.7 years, only above Haiti if the economies of Central America and the Caribbean are considered.
Although Argentina is very different from Guyana, the Government and oil businessmen are enthusiastic about the prospects for oil and a similar evolution. According to Paolo Rocca using the technology of fracking, Vaca Muerta production could reach 1.5 million barrels per day in the next 6 to 7 years. This level of production would mean that Argentina would produce more oil than Venezuela, and even Guyana, whose maximum production would be 1.2 million barrels per day. Even for Rocca, Argentina could produce 2 million barrels per day, surpassing Libya and Nigeria. A key factor that determines the feasibility of investments is the future evolution of the oil price.
The truth is that the current model based on the RIGI can generate a period of positive foreign exchange flow, but it will generate a structural deficit starting in the third year.
This is because the RIGI allows not to receive 100% of the foreign currency from exports from the third year onwards, in addition to not establishing a national purchasing mechanism or a local supplier scheme. The editorial changes in the Senate ruling do not guarantee that the inputs used by oil and mining concessions are of national origin and, if they do not exist, they are manufactured in the country.
The potential worsening of the external sector will occur due to greater imports and the free distribution of profits and dividends that do not guarantee a positive currency balance.
Another potential risk has to do with the fluctuation in the price of commodities. In 2024, there will be a boom in the price of copper and lithium due to the strong demand from developed countries and especially China to develop clean technologies. As we have seen throughout history, the terms of trade are oscillating and do not ensure that prices are maintained that compensate for growing imports, with the aggravating factor that companies are not obliged to invest foreign currency. The outlook for oil is diverse but many experts expect a drop in 2025 if geopolitical tensions do not worsen.
In the 90s, Brazil did not experience a structural crisis like Argentina in convertibility, beyond the aforementioned correction of its exchange rate delay in 1999 due to the influx of financial capital, after the Real Plan.
This was because Brazil, in its regulatory framework, imposed the development of local suppliers in privatizations and national purchasing regulations, apart from having a Development Bank and industrial policies that attenuated the neoliberal bias and its negative effects on the external sector and on the economic activity.
The fact that the current model does not guarantee a currency balance or productive chains, will generate with the RIGI as it is formulated an extractivist enclave economy that does not reproduce regional development, greater employment or better salaries.
This will depend on high commodity prices or a very high exchange rate to guarantee external balance and productive development, that extreme commercial and financial opening generates the conditions of structural deficit, after the boom phase as we live in various times of implementation of a similar model.
It would be very different if instead of exporting lithium, the production of lithium batteries in the country was negotiated and so on for each mineral, oil or gas. The key is the generation of productive chains with added value to promote production and employment, in addition to minimizing imports, guaranteeing the use of local inputs and technology, within the framework of having productive policies, a protectionism in line with that carried out the world today and a type of change that reconciles stability and development.
Just as the Plan Fénix Open Chair points out in its document “Incentive regime for large investments (RIGI): Towards the formation of enclaves without benefits for Argentina (…) The RIGI stands as an instrument incapable of promoting a process in-depth development. Instead, it entails the formation of enclaves that will yield little in terms of foreign exchange, linkages and capacity creation. These enclaves, to the extent that they concentrate on extractive activities, will also mean a premature and sterile depletion of our natural resources and serious environmental consequences.”
Historical experience and the global situation demand a broad discussion of the economic and productive model to avoid the crises that similar experiences caused us and in any case analyze how other countries stimulated the entry of new investments, but guaranteeing sovereignty and development.
Source: Ambito
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