What impact could the tension between Milei and Pedro Sánchez have on the Argentine economy?

What impact could the tension between Milei and Pedro Sánchez have on the Argentine economy?
What impact could the tension between Milei and Pedro Sánchez have on the Argentine economy?

The president of Argentina Javier Milei at the event of the far-right party Vox (Europa Press/Contact/Alberto Gardin)

The crossings between the president Javier Milei and the Government of Spain continue and although economic relations are not unrelated to politics, it should be noted that the investment deadlines cross different governments.

The conflict reached such a point that the Spanish government withdrew its ambassador in Buenos Aires, after which Milei redoubled his attack on the president. Pedro Sánchez.

Economic relations with the Kingdom of Spain are not minor for Argentina: in 21 of the last 23 years the Iberian country was ranked among the 10 main destinations for Argentine exports and it is the second largest contributor of Foreign Direct Investments with a stock more than USD 21 billion, behind the United States.

“Economic relations will be preserved in general terms. However, I believe that if a company evaluates two equal opportunities in Argentina and another country in the region, there is a risk that Argentina will arouse less interest/sympathy than the competing country” (Cristini)

In this context, and on the impact that the diplomatic conflict can have on the economy, Marcela Cristini, an economist at FIEL, said: “It is a shame that two very close countries like Argentina and Spain distance themselves, even temporarily. “It is not good that Argentina, which is a serial defaulter of its external debt and a country with instability in its rules for investors, does not take advantage of all opportunities to show that it is trying to recover a serious path of development.”

“But given the facts, I believe that private businesses look at economic results and prospects and opportunities. So economic relations will be generally preserved. However, I believe that if a company evaluates two equal opportunities in Argentina and another country in the region, there is a risk that Argentina will arouse less interest/sympathy than the competing country,” he said.

Gustavo Perego, director of the consulting firm Abeceb, said that “Argentina in the 90s was between the second and third recipient of foreign direct investment in Latin America. We were behind Brazil and sometimes we beat Mexico, sometimes Mexico beat us. Starting in the 2000s, Argentina began to easily occupy fifth or sixth place, where Chile, Peru, Colombia, sometimes Costa Rica, generated more foreign direct investment than Argentina. That said, first of all, investment in projects only happens because you have a stable macroeconomy and have the possibility of generating medium-term profits. So, today the government’s commitment is to improve the business and investment climate and have a stable macroeconomy. “Those are the pillars to generate foreign direct investment.”

Pedro Sánchez, president of the Spanish Government (Europa Press)

“This type of problem that arose in the context that there are elections in Europe in June, are passing noises of a very important relationship that Argentina has with Spain and that is not going to have a change in the market. “Whoever is going to invest in Argentina really doesn’t even care about Milei’s next four years, but rather whether the investment will generate a return in the next 10 years,” he added.

For its part, Marcelo Elizondopresident of the Argentine committee of the International Chamber of Commerce (ICC), maintained: “It would be necessary to see if businessmen who want to invest in Argentina may have some concern about these exchanges between the two leaders. It may be that a decision in this regard is postponed due to the noise between the two countries, but the truth is that, in my opinion, when businessmen invest in a country they do so for structural and substantive reasons, and not so much for these issues. circumstances that diplomacy later ends up correcting.”

“They are passing noises of a very important relationship that Argentina has with Spain and that is not going to have a change in the market” (Pérego)

On the other hand, Hector Torrestwice representative of Argentina on the board of the International Monetary Fund (IMF), told Infobae that Spain is the second source of foreign direct investment in Argentina. Likewise, together with Mexico, “he manages one of the ‘chairs’ of the Fund’s board of directors and not just any chair, but one of the ones that has supported us the most. Spain has always played the role of Latin America’s (informal) ‘advocate’ in the European Union. Curiously, Milei’s government is interested in ‘reviving’ the EU-Mercosur agreement, but has just provided public support to the head of VOX who opposes the EU,” said the specialist.

In 21 of the last 23 years, Spain was among the 10 main destinations for Argentine exports. At the same time, the Iberian country is the second largest contributor of Foreign Direct Investments.

In 2023, Argentina made sales to Spain for USD 1,441 million and in the first quarter of this year exports totaled USD 264 million, being the main destination within the old continent in that period, according to Indec. Imports totaled USD 220 million, so a positive balance of USD 44 million was recorded in the trade balance.

Mostly soybean meal is exported, but also oil and biodiesel. Argentina supplies about 60% of Spain’s soybean meal and oil imports, in addition to 62% of beans, 82% of quebracho extract and 42% of shelled peanuts. The other large export complex with insertion in the Iberian country is the fishing industry, which mainly sends shrimp and prawns. It is the destination that concentrates 20% of its sales abroad.

As a whole, Spain had a 16% share of agribusiness exports to Europe in 2023 and over the last 5 years, the average share was 21%. This is one of the most relevant sectors since it contributes 55% of foreign currency income, according to data from the Rosario Stock Exchange (BCR).

 
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