Volume 45, Number 179, October-December 2014

Argentina: Strategic Resources and High Financial Profitability

revista164Argentina is a country that wants to achieve autonomous development, but it is also a zone of strategic resources to satisfy the interests of rentier capital, as Keynes wrote. Will Argentina be able to embark on a path of economic growth and development without kowtowing to financial interests? Beyond the geographic borders of a country are the forces that hold sway over open economies in their attempt to implement autonomous economic development projects, to such an extent that Latin American development theory has sought to make a structuralist contribution to this issue. The ideal of defeating poverty and improving human development indicators through a set of public policies that would achieve sustained growth and greater stability to improve living conditions for the population has been on the agenda of the government of Argentina over the past decade, pursuant to Millennium Goal guidelines. Even so, economic and financial fragility persist in the country. Recurring crises have prevented more equitable public policy and the region continues to channel enormous capital flows to its creditors without settling its loans. Moreover, debt service obligations can be extremely burdensome in light of the interests of creditors.

We cannot understand Argentina without the tools of Latin American development theory, whose roots go back to the ideas of Mariátegui, Agustín Cueva, Raúl Prebish, Celso Furtado and Aldo Ferrer. Because of its strategic resources, a source of profitability for financial markets, Argentina is a nation embroiled in international financial circuits. It has been penalized by the WTO for trying to protect its domestic market and has faced discontent from its people, who demand higher wages due to runaway inflation, which the ECLAC calculated at 10.6%, and an official fluctuating exchange rate of 8.4 Argentine pesos to the dollar, as compared to the "blue dollar," or black market rate, of 14.30. This situation has obstructed long-term economic projects and delayed opportunities. It is now time to examine these complex circumstances with new theoretical proposals based on the implementation of full employment policy and fiscal policy that would improve income distribution to revive economic development.

In the current environment, economic policy has become an important topic of discussion. Beyond the saga of Argentina, in terms of its bond holdout situation and the sovereign debt debate, as well as the power of institutional investors over the nation, the future of its natural resources are in doubt. Their fate is important in a financial market with no limits on profitability and space to operate, but especially because the gas reserves discovered in Vaca Muerta hold the potential for profits. It is time to look at the situation of this country as a chance for Latin American nations to learn for future negotiations, in which so-called vulture funds have put the following questions, key to the future of Argentina, up for debate. Why are financial investors interested in offering credit to sovereign nations? At what point did these investors become the principal players in granting financing? How much strength can these investors gain to control a nation? How important is the numbers game? What is the problem as long as Argentina pays its creditors on time? And, finally, what other alternatives are there to emerge from this situation?

Hostile attitudes towards granting credit to Argentina serve a dual purpose, in the sense that the default to which lenders have led the nation remains unresolved, which restricts the granting of loans to the State to invest in and exploit Vaca Muerta. These oil and gas reserves are the second-largest in the world. They are bigger than the reserves found in Brazil and Mexico combined and would guarantee consumption to Argentina for over 150 years. Exxon Mobil, Chevron and YPF have begun exploitation, but not enough to satisfy domestic demand. The nationalization of Repsol, which owned the majority of YPF-Argentina, means that it is now in the hands of the public sector. Undoubtedly, this company will need foreign financing to expand exploitation and purchase cutting-edge technology. As long as these issues regarding the country’s relationship to the financial markets are not addressed, Argentina will remain trapped in trying to earn new money to pay off old loans.

At this point, it would be useful to look at the figures on external debt and payments made by Argentina over the last 25 years. Disbursements on external debt went from 49.855 billion dollars in 1992 to 114.097 billion in 2000. In 1993, external debt represented 30.5% of GDP, but this figure rose to 144.8% by 2002. Of this, 40% are public bonds, 26% is debt contracted with international agencies and officials and 34% was taken out with commercial banks and other entities. This data describes the external debt of the public sector, but if we look at total debt amounts, the figures are even higher. By 2004, total external debt in Argentina, that is, the sum of public and private sector debt, rose to 164.915 billion dollars. Following restructuring and exchanges, the average external debt in subsequent years was a little over 120 billion dollars. Even so, external debt service payments amounted to 106.010 billion dollars in the 2006-2012 time period. Now, if we look at external debt service for 2001-2012, the amount rises to 181.287 billion dollars. If these figures correspond to the payment of external debt, it is unfair for the holdouts to declare Argentina in default. As such, it is important to channel sovereign debt payments through other financial intermediaries in other countries or even within the same nation. A worthy lesson for sovereign debtors is the recent law on the sovereign payment of foreign debt passed by the Parliament of Argentina.

This edition of the journal begins with the article "Economic Development and Historical Trajectories: An Approach to Brazil and Mexico," written by Miguel Ángel Rivera Ríos, which offers a perspective on development theory to study late-developing countries. The concept of modern economic growth proposed by Kuznets seeks to describe the organizational features and dynamics of industrialized countries that have managed to sustain progress without regressing, thanks to historical scientific, technological and industrial transformations. One key element of this idea is that power is derived from the social capacity to control wealth production and reproduction, which gives rise to the concept of spaces for social mobilization, whose capacity to limit the power of the elites returns power to the base of society, to some extent. In addition, socioeconomic underdevelopment currently coexists with the extraordinary advance of global capitalism, supported by the technology revolution.

"The Modus Operandi of New Consensus Macroeconomics in Brazil, Chile and Mexico," by Aída García Lázaro and Ignacio Perrotini is a fundamental contribution to the inevitable discussion on the link between monetary policy management and the outcome of economic growth and development. It seeks to critically discuss the management tools employed by central banks operating under the principles of inflation targeting, the term coined by New Consensus Macroeconomics. This research reveals that the monetary stability achieved in Brazil, Chile and Mexico is not necessarily the result of strict adherence to these precepts. If the theoretical framework of the inflation targeting model is based on a direct relationship between variations in the interest rate and the effect on aggregate demand, monetary officials can determine desired price margins.

The article by Germán Alarco, "Real Salaries, the Balance of Payments and the Potential Product in Latin America, 1980-2011," analyzes the theoretical, explicit and implicit connections between real wages and the balance of payments. It offers a notable and relevant theoretical overview of the links between real wages, the balance of payments and the potential product. The article contrasts arguments made by the Neoclassical, Keynesian, Kaleckian and Post-Keynesian schools of thought. The author also discusses the relationship between external factors: the balance on goods and services and the balance of payments, which is better correlated, in theory, with income distribution, earnings, investment and the product. This analysis encompasses Latin America, with the exception of Caribbean countries, and is divided into blocks: South America, Central America and, specifically, Mexico. The analysis is also chronological and grouped into three time periods, 1980-1989, 1990-1999 and 2000-2011.

"The Origin of Macroeconomic Imbalances in the Spanish Economy," by Carlos Carrasco, describes how the macroeconomic imbalances of the Spanish economy, in an environment of economic and financial integration, became unsustainable after the economic crisis that began in 2007. The adoption of the single currency was another inflection point that exacerbated Spanish macroeconomic imbalances, impairing current accounts related to convergence towards the nucleus of the Eurozone. Looking at the dynamics of Spanish public debt, the lack of coordination between ECB policy and the economic policy of the government of Spain limited the effects of the latter’s fiscal policy. It is clear that the difficulties Spain is facing in emerging from the crisis are derived not only from the poor coordination between Banco de España and the ECB, but also, and more importantly, from the dependence of the Spanish economy on the real-estate market, which made its labor system extremely precarious.

The article, "Structural Determinants in the Spread of Waterborne Diseases in Brazil," by Marcos José de Souza, Elaine Fernandes and Lucas Vitor de Carvalho, presents the results of a quantitative study to support the hypothesis that public investment in infrastructure improvements, especially for water sanitation (distribution, quality and wastewater treatment), would directly reduce the infectious diseases, parasites and gastrointestinal ailments that spread when people ingest or handle contaminated water, thereby reducing the costs to treat these illnesses. The authors based their theoretical framework on studies addressing quality of life and environmental quality, looking to authors such as Sen, Sachs, Gallopin, Bojo, Leff and more, who ascertain that the environment is an important part of the human freedom to pursue development. This article analyzes the data by city in the two regions that had the most data available.

The article by Aleida Azamar and José Ignacio Ponce, entitled "Extractivism and Development: Mineral Resources in Mexico," aims to demonstrate the weaknesses of an economic growth model based on the extraction of mineral resources by private enterprises only looking for profits, which has had severe repercussions for the country, including low fiscal revenue, loss of income derived from tax payments and a variety of social and environmental problems. The authors discuss three types of extractivism: predatory extractivism, based on the total exploitation of lands to produce tremendous profits and supply urban and industrial centers, prudent extractivism, based on primary activities meant to maintain environmental benefits tied to the implementation of new technologies and, finally, essential extractivism, a system based on local exploitation to meet the specific needs of the population.

The article, "Rural Social Actors and Mining Mega-Projects in Mexico," by Roberto Diego Quintana, explains the reality of what David Harley called "accumulation by dispossession," in which major mining corporations, principally foreign, obtain great wealth at the cost of exploiting non-renewable natural resources and compensating neither the inhabitants of the regions in which they are exploiting these resources nor the Mexican nation as a whole for the destroyed and polluted land and major social conflicts they leave in their wake. The author begins by describing a scenario that will support his argument, by offering hard data to demonstrate the severity of the mining phenomenon, in which 17% of Mexican lands are under concession for mining exploration and exploitation, with the participation of 2,611 companies. Of that total, 301 are large corporations, principally Canadian, which, from 2000 to 2010, managed to produce double the gold and 50% of the silver that was produced in Mexico in the entire 300 years of Spanish colonization.

The reviews section recommends five books: Capital Accumulation and Income Distribution. An Alternative Theoretical Paradigm for Developing Countries, by César Salazar, reviewed by Santiago Hernández; Strategies for Sustainable Development in Three Crises: Financial, Economic and Environmental, coordinated by Eugenia Correa, Alicia Girón, Arturo Guillén and Antonina Ivanova and reviewed by Diego Juárez; The Global Crisis and its Effects on Mexico: An Analysis by Sector and Region, coordinated by Alejandro Álvarez and Germán Sánchez and reviewed by Marco Antonio López; Money and Financial Structures and Financialization: An Institutional and Theoretical Debate, by Noemí Levy, reviewed by Isabel Rodríguez and, finally, Economic Development in Middle Regions in Mexico, coordinated by Adolfo Sánchez Almanza and reviewed by Rafael Olmos.

Alicia Girón
Journal Editor
unam, September 2014

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PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 194 July-September 2018 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
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