Gas and mining boom to transform Argentina’s economy, minister says

Exports of gas, lithium and other minerals offer Argentina a “phenomenal growth opportunity” and will significantly boost the heavily indebted South American nation’s ability to repay creditors from 2025, the country’s economy minister has said.

“We are going to start gas exports to Chile in the next few days and we could start exporting gas to Brazil from September,” Sergio Massa said.

Even without additional investments, Argentina’s trade balance on energy would swing from a deficit of more than $5bn last year to a surplus of about $12bn in 2025, he said, adding: “This will give Argentina a very strong ability to pay [debt] in 2025, 2026 and 2027.”

Massa, who took on one of the world’s toughest economic challenges last August, is under no illusions about the severity of Argentina’s crisis. Central bank money-printing has helped push annual inflation to almost 100 per cent, exchange controls have hurt industry and fed a black market in the US dollar, while the country remains cut off from international markets in the wake of its ninth debt default in 2020.

“When we took over, we understood that we were dealing with a patient who was in a coma,” the minister told the Financial Times in an interview. “Today he is in intensive care and we have to get him down on to a ward and then walking out of hospital. That’s my job.”

To get the Argentine economy back on track, Massa said he would reduce inflation to 60 per cent by keeping spending under control. The Peronist coalition, which is facing an election battle in 2023, had last year met all their IMF objectives on reducing the government deficit and building reserves, he said. According to the economy ministry, Argentina owes the fund $44bn from a 2018 bailout.

“The objective has to be that interest rates, the speed of devaluation [of the peso] and inflation go hand in hand in an orderly way, because that will allow us fiscal discipline with economic growth, with job creation, with a recovery of consumption and a recovery of incomes,” the minister said. “This needs a lot of discipline and a lot of political order.”

Argentina has a longstanding history of political instability. President Alberto Fernández’s leftwing coalition has been weakened by constant infighting between pragmatists and a more radical Peronist faction led by the powerful former president and current vice-president Cristina Fernández de Kirchner. One of Massa’s predecessors, Martín Guzmán, quit last year after the vice-president publicly criticised him for not spending more.

Fernández de Kirchner, mindful that more internal strife might cost the Peronists the next presidential election, due in October, has been more supportive of Massa. “I have been working with the president, the vice-president and all the coalition without anyone putting a spoke in the wheel,” he said.

After years of delay, investment is taking off in the Patagonian deposit of Vaca Muerta, the world’s second-biggest shale gas formation © Emiliano Lasalvia/AFP/Getty Images

To justify his optimism about the country’s medium-term prospects, Massa noted that after years of delay, investment was finally taking off in the Patagonian deposit of Vaca Muerta, the world’s second-biggest shale gas formation. This opens the way for Argentina to become self-sufficient in gas and start exporting.

A gas pipeline that is meant to boost domestic gas production by 25 per cent when eventually complete is due to be finished in June, and work will start on a $1.8bn pipeline for exports within the next 90 days. This will be partially financed by Brazil’s national development bank BNDES and other multilateral lenders. There is concern, however, over whether all the necessary infrastructure will meet those targets and actually get built.

During a visit to Buenos Aires on Monday, Brazil’s president Luiz Inácio Lula da Silva reiterated that he would create the conditions to fund the pipeline.

Mining is also performing strongly, with 95 lithium, copper and other projects in the pipeline, from exploration to development stage, according to mining ministry officials.

Plenty could go wrong in the meantime. Economists point to the government’s need to refinance $85bn of short-term peso-denominated debt this year. They are also concerned union demands for wage rises could fuel an inflationary spiral, and have voiced fears that export earnings could be hit by a severe drought that could hurt soy and wheat crops.

Massa is sanguine about the risks, saying the government has refinanced its large pile of domestic debt as it falls due and that pessimistic forecasts for the wheat harvest have proved unfounded. He is confident about negotiations between the government, unions and business to limit inflation.

One yardstick for success will be whether Argentines repatriate some of their wealth held overseas. Years of economic instability have prompted citizens of one the world’s most heavily indebted countries to stash hundreds of billions of dollars of assets abroad.

Massa said that even after an amnesty for undeclared overseas assets in 2016-17, which led to $117bn coming back, the government estimated that Argentines still held $300bn in the US, a sum equal to half of the country’s gross domestic product.

“If the Argentines see that we are orderly in fiscal matters, they will believe in their currency again,” the minister said. “If they believe in their currency, they will stop having their assets abroad.”

Many believe that if Massa, a seasoned political operator, succeeds in stabilising the economy this year, he will become the most obvious Peronist presidential candidate in the October elections. “I like politics, I am a political animal,” he said. “But at the moment I have to work obsessively and concentrate on meeting the targets we have set.”

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