feat. Eric Miller
Standing Senate Committee on Foreign Affairs and International Trade
May 5, 2016
Madam Chair. Senators. Thank you for your kind invitation to appear today.
My name is Eric Miller. I am a Fellow with the Canadian Global Affairs Institute and a Global Fellow with the Woodrow Wilson Center’s Canada Institute.
It is a great pleasure to speak to you today about Argentina – a country of so much promise, but which has consistently failed to deliver peace, prosperity and good governance to its citizens.
The Macri Ascension
The election of Maurcio Macri as President of Argentina last November offers a much welcome break from the populism and destructive economic policies of the Kirchner years.
President Macri is again positioning Argentina as constructive partner in hemispheric affairs, including in its relations with countries such as Canada.
We should all welcome this development.
His deliberate decision to cool Argentina’s embrace of less than friendly governments, including Russia, Venezuela and Iran, has important and positive ramifications.
Undoubtedly the most overt sign of President Macri’s desire to turn the page on the past was his just-completed move to settle with the so-called “holdouts”. In late 2001, Argentina defaulted on $132 billion in sovereign debt. Over the coming years, Argentina addressed the claims of most of its creditors. Yet, a small group of Argentine debt holders refused the government’s offer to settle at a substantial haircut.
After a long legal battle, Argentina was left with few options, but to settle with these claimants on favourable terms if they wanted to return to the bond market. While criticized by economists such as Joseph Stiglitz’s for setting a horrible precedent for other defaulting countries, President Macri correctly decided that he had to settle the debts of the past if Argentina had any chance of returning to a growth path.
Importantly for President Macri, Argentina’s Congress agreed with him, suggesting that he has some political capital that will allow him to get things done.
And what an agenda he is facing.
Kill run-away inflation.
Normalize economic policy.
Find sources of economic growth.
Restore confidence in the political process.
To deliver on these and other necessary reforms, Argentina needs to substantially improve on its greatest handicap: governance.
Understanding the Past
To assess the future prospects for Argentina and to design an optimal Canadian policy, one most look briefly at its history.
Many historians argue that the beginning of Argentina’s decent came in with the military coup of 1930. This legitimized will to power and men with guns as source of political legitimacy in Argentina.
The rise of Juan Peron in 1945 and the canonization of his wife Evita fused hardcore populism with authoritarianism.
By the time Peron went into exile in 1955, the country’s institutions were severely compromised.
The country ambled forward until the chaos of the mid 1970s set the table for the 1976 coup and onset of the “Dirty War”.
When the generals returned to their barracks in 1983, the nation was traumatized and a whole generation that could have built the country was dead or exiled.
The 1990s became period of delusion. President Carlos Menem magically dollarized the economy and Argentina became an emerging market darling. The house of cards disastrously collapsed in late 2001 with the aforementioned sovereign debt default.
Out of the crisis emerged Nestor and then Cristina Kirchner. Their hyper- nationalism, authoritarian tendencies, friendships with everyone the United States was not friends with and dysfunctional economic policies led to the sorry state in which President Macri found the country.
In looking back at Argentina over the past century, it is hard not to be reminded of Bruce Cockburn’s line: “The trouble with normal is it always gets worse”.
So where to now?
A major question facing Argentina and the hemisphere in the coming years is how President Macri fares and whether he even survives politically.
The Kirchner supporters, who, in earlier generations, were the Peronists, have regularly taken to the streets since he took office. Past centrist reformers have not tended to fare well in Argentina.
President Macri’s task will be none other than to change the fundamental trajectory of Argentine governance, economics and society.
Canada has an interest in helping him to do this. That said, we have to be realistic about the exceptionally hard hill he has to climb and the ugliness that will ensue if he fails.
There are a number of Canadian companies that run successful operations in Argentina. By and large, however, they have successfully learned to manage the complex ebbing and flowing of the country and its politics. Unless one is prepared to take substantial risks, learn the system, and take realistic steps to mitigate against the impact of a future return of Kirchnerismo, they should probably look elsewhere.
Canada should, at a minimum, not be pushing Argentina as an investment destination. Governments sometimes underestimate the complexities of certain international markets, especially if they have a foreign policy interest in ramping up the presence of their nationals in a country.
Given Argentina’s history, a few months of a positive government, especially one that does not enjoy a majority in its national Congress, is not enough to make me, in good conscience, advise companies looking at investing that this time will be different.
The experience of companies like Scotiabank, which had to write off its substantial investment in an Argentine bank after the 2001 crash, is still quite fresh.
Realistically, the Macri Government will have to show a track record of moving the economy in the right direction and successfully managing the impact of the Peronists on the streets, if it is to secure investments from those with less than a maximalist risk tolerance.
That said, if President Macri cannot stabilize the Argentine economy and show tangle benefits from his policies of engagement with the outside world, he is likely to face grim prospects.
Canada could help to bolster the Macri Government in a variety of ways:
- On the economic side, mobilize a combination of EDC, pension fund and private capital streams to invest in intellectual property-intensive technology projects. The outputs of these linkages support economic activity, but are moveable if the nationalist policies and exchange controls return;
- On the political side, look for common projects on which to work in the hemisphere that will convey the message that Argentina is “back”. The public has to see that strong relations with North America and Europe yields greater results than with Iran and Russia; and
- Undertake a joint polar initiative, perhaps focused on climate science. Argentina’s presence in the Antarctic meshes nicely with Canada’s large presence in the Arctic. This would be both useful and present a way to deepen the Canada-Argentina relationship.
Canada has reasons to support the new Argentina, but must be realistic that countries, like people, are never far from their past.
In terms of prioritizing relations within the Hemisphere, Argentina does not rank very highly. Canada should place a much greater emphasis on deepening relations with Mexico and the other Pacific Alliance countries – Chile, Colombia and Peru.
In order for this ordering to change, Argentina has to earn its way back to the table – a process that would take much time and patience.