As the rest of the world closes its doors, Argentina is opening up. Treasury minister Nicolás Dujovne tells us about leaving his country’s protectionist past behind and stepping into a free future.
Suddenly it has become difficult to find someone – anyone – willing to defend globalisation and free trade. From Washington to London, its traditional supporters appear to have changed their tune. In the first few weeks of Donald Trump’s presidency he killed a trade deal with the Asia Pacific, stalled talks with the European Union and made clear that he wants to renegotiate the Nafta agreement with Mexico and Canada. Meanwhile in Europe, the UK has decided to leave the EU, a single market of 500 million people.
Nicolás Dujovne would like you to know that he still believes. Argentina’s new treasury minister, an economist and former political talkshow host, has no problem extolling the benefits of free trade and globalisation. While global events of the past decade have led many to question it, Dujovne argues that Argentina’s policies over the same period – when it was ruled by the protectionist Cristina Fernández de Kirchner – show what happens when a nation turns its back on trade.
Those policies helped end the Kirchner era, when her nominated successor lost the presidential election to the right-wing mayor of Buenos Aires, Mauricio Macri, in 2015. It has not been plain sailing since then – inflation, for instance, remains dangerously high – so much so, that Dujovne is President Macri’s Plan B. The president’s first finance minister, Alfonso Prat-Gay, was fired in December. Turning round Argentina’s economy, it turned out, was more complicated than Macri had anticipated.
Dujovne is on his way back to Argentina from Germany, where he took part in his first meeting of g20 finance ministers. It was also the debut of the new US treasury secretary Steve Mnuchin, who ensured that the final communiqué did not include the usual bland pronouncements on the benefits of globalisation and free trade.
Speaking in the office of the ambassador at Argentina’s embassy in London, Dujovne – calm, measured, polite – diplomatically suggests that his US counterpart was mistaken. He warns that Argentina, indeed the entire region of Latin America, is poised to take advantage of any US backtracking on free trade.
Monocle: You’re talking about free trade but the US suddenly isn’t. Does that worry you?
Nicolás Dujovne: We still don’t know how things will go in the US. It’s too early to know if the country is going to adopt a real protectionist stance. In our case, we’ve been there. We had a totally closed economy for 10 years. Our former president, Cristina Fernández de Kirchner, used to say that her goal was for Argentina not to import even a single screw. For Argentina that was dramatic. Every import needed authorisation from the government – with discrimination for political allies, with corruption. And then once you were approved you needed the permission of the central bank to access the foreign exchange market. Argentina is now opening up its economy and the impact of what happens abroad is still marginal. We will be more open even if the world is shifting, mildly, towards protectionism.
M: Does that shift concern you?
ND: It will create some opportunities for Argentina. Prior to Donald Trump winning the election the EU was negotiating a future agreement with the US. After that, plans were put on the shelf. The number-one priority for the EU in terms of trade agreements becomes the one between the EU and Mercosur. We are confident that we will be shaking hands with the EU and that we will have an important trade agreement with them.
M: So America’s loss is your gain?
ND: Yes. Mexico is looking south again too. Mercosur is approaching Mexico in terms of trade and right now Argentina and Brazil are working together. We will start a dialogue with the Pacific Alliance. Even when the world can be shifting towards protectionism, Argentina is moving towards intelligently integrating with the rest of the world.
M: If the US does become more protectionist could that represent an opportunity for Latin America?
ND: We still believe in trade. We all share this view that the world is a source of opportunities rather than a threat. We will persist with this process of integration with the world.
M: Why did you accept this job?
ND: I endorsed this government. This alliance represents the most modern approach that Argentina has had to government in the past few decades. I see this administration as one that can turn the page on what was a decadent story of failures and mistakes – I believe that this government can make a difference.
M: There is a cost-of-living crisis in Argentina. How can it be fixed?
ND: First of all Argentina needs to converge to a normal inflation rate. Since 2007 Argentina has been suffering from high inflation – rates of about 20 or 30 per cent a year. We also need to reduce the price of goods that are too high. Then we must rebuild highways, rebuild railroads, have proper infrastructure in terms of energy, improve competitiveness in terms of the cost of the ports. One of our most important programmes is the Plan Belgrano: a plan to develop the northwestern part of Argentina, one of the poorest regions in the country. The government is also rebuilding the Belgrano railroad, which is the most important means of transport for all the agricultural production in the northwest of the country.
M: There’s little faith in banks and the formal parts of the economy in Argentina – how do you get people to shift away from the black market?
ND: Argentineans were not using banks for their savings because for the past 10 years we have had a very loose monetary policy in which banks were incentivised to pay negative rates to their depositors. We now have an independent central bank, in which one of the important components is that the depositors are paid positive real rates. That is creating an important increase in the size of our financial market.
Dip into a news report about a robbery in an Argentinean “country” – the ridiculous anglicised name that the South American nation applies to its gated communities – and you’ll read about thieves making off with hefty amounts of cash, more often than not in greenbacks.
The reason for the looters’ windfall is that despite the almost 16 years since the country’s last economic crash, many in Argentina still don’t have faith in their system. That means that they’d rather keep their savings at home – and in dollars – than allot it to the banks. During the four years that I lived in Buenos Aires one of my closest friends kept his weekly earnings in a shoebox in his bedroom.
While recent evidence shows that the country’s economy is steady and employment is growing, world-weary Buenos Aires residents will tell you that, if you look at the nation’s history, a crash tends to happen about once a decade. However inaccurate this belief may prove in the future, the historical antecedents back it up. From the damaging policies of José Alfredo Martínez de Hoz, economy minister from 1976 to 1981 during the last dictatorship, to the hyperinflation of 1989 and 1990 and the decision to artificially peg the currency to the US dollar, which led to the country’s historic default, economic policy in the 20th century was marked by a series of poor to catastrophic decisions.
This goes some way to explaining why the anti-establishment ex-president Cristina Fernández de Kirchner – and her husband, Néstor, who was leader before her – resonated with a certain strata of the population. But while the former president may have declared war on the imf and “vulture” funds, she had the same problem that her successor Mauricio Macri has inherited: she wasn’t able to tame the inflation beast.
Kirchner blamed corporate supermarket owners and fake figures for manipulating “reality”, while Macri has been more realistic. But it’s been a rough ride: first he devalued the peso, making life more expensive for Argentineans. Then he took on government subsidies. But his economic team has struggled, especially when dealing with a drop in real wages due to inflation. There seems little doubt that Macri’s legacy will be judged on achieving a sustainable economic model.
Ed Stocker is Monocle’s New York bureau chief and former Buenos Aires correspondent.