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Investment: Argentina’s delicate balancing act

President Mauricio Macri’s economic inheritance was toxic; his policy of gradual fiscal realignment looks like it will lead to success in this year’s crucial mid-term elections, but the country desperately needs investment to maintain the transition.

Mauricio-Macri-looking-up-R-600
The broader picture is positive for president Mauricio Macri

Let me answer in the words of a financial investor I was talking to last month,” says Rodrigo Park, head of economics research for Santander Rio.

 “He asked me why FDI [foreign direct investment] was so low and I said: ‘You should tell me.’ And he did, and I agree with what he told me. ‘One reason is fear. And the other is the fiscal deficit. If there is no fiscal consolidation there is no stabilization in the economy. These are the two main reasons why there has been no significant increase in FDI.’” 

That is why direct investment has failed to materialize – abroad or domestically, Park tells Euromoney. And that investment is critical for Argentina. Without it the economy will, at best, stutter along in low-but-positive growth and will fail to attain the level that is needed for economic rebalancing and for the government to reduce its sizeable financial deficit (currently close to 7% of GDP). 

But, as Park points out, many investors are waiting for a fiscal adjustment before committing capital. Solving this economic contradiction will need skill, patience and luck.