The Inter-American Dialogue was kind enough to ask me to answer a question on Argentina for their latest publication. I copy below the question and my response.
About the Author: Carlos St. James is an advisor to energy investors and developers in emerging markets. He co-founded the Argentine Renewable Energies Chamber in 2005; has been a board member of the Latin American & Caribbean Council on Renewable Energy since 2010; founded the Middle East-Americas Energy Council in 2014; and publishes the Latin American Energy Review in his free time. He was recently named Summit Chairman of the upcoming LAC-CORE Finance Summit held at the Ritz Carlton in Miami, Florida this Oct. 3-5.
Q: In an attempt to improve Argentina’s international credibility for its economy, the country’s government on June 15 released its first set of official inflation figures since President Mauricio Macri took office late last year. Since 2013, the International Monetary Fund has said Argentina’s official inflation index has been inaccurate, accusing the government of underreporting economic problems. Meanwhile, the Argentine government has been pushing to boost investment in its energy sector in order to lower the country’s reliance on imported energy, which weighs heavily on the country’s fiscal deficit. Will releasing inflation statistics ultimately help or hinder Macri’s push for more international investment in Argentina’s energy sector? What policies should the government pursue as it tries to pay down its debt while expanding the energy sector? Will the effects of efforts to decrease reliance on imported energy arrive in time to make a meaningful impact on Argentina’s economy in the near-term?
St. James: Argentina’s credibility problem is far greater than any of its economic woes, so the government needs to focus on transparency, data accuracy, and acting professionally.
The latter was shown clearly when the energy minister declared an energy crisis as soon as he took office – and also set the crisis’ end: January 2018. The Macri administration has until then to show clear progress. Ministry staffers are being dispatched around the globe to make the case for investing in the Argentine energy sector. They’ve announced a tender to attract capital into long term energy generation assets, most notably seeking one gigawatt in fresh renewable energy – in which significant weight will be given to projects that can be generating by December 2017.
The government is also making the most of thawing relations with supranationals. The World Bank, for example, will provide a guarantee for this same tender to reduce off-taker (essentially, sovereign) risk.
Releasing inaccurate or doctored economic data would be the death of the Macri government from an investor standpoint. Foreign investors may be travelling to Argentina these days, but only the boldest (and locals, who have the best understanding of what is taking place) are actually investing. If they stay the course the energy crisis will be over by the self-imposed deadline; the renewable energy tender may even be oversubscribed.