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Buenos Aires Forum - April 19, 2012

Argentine and LatAm Economies Discussed at EMTA Buenos Aires Forum

Esteban Fernández Medrano of GlobalSource Partners and MacroVision Consulting delivered the keynote speech at EMTA’s Buenos Aires Forum on April 19, 2012.

EMTA’s Senior Legal Counsel Leslie Payton-Jacobs delivered opening remarks at the event, which was held in Spanish (with simultaneous English translation).  In her remarks, Payton-Jacobs noted that the nationalization of YPF, announced just days prior, made the Forum particular timely.

The event included a panel moderated by Fabio Saraniti (Banco Itaú Argentina).  Juan Verón, Ricardo Maxit (Galileo Argentina SGFCI), Javier Finkman (HSBC Global Research) and Claudio Achaerandio (TPCG Valores Sociedad de Bolsa) also participated on the panel, which drew 100 attendees.

Medrano opened his keynote address with an overview of the three economic principles he believes form the basis of the Argentine government’s macroeconomic policy.  The points he outlined were: (1) the government seeks a larger role in the economy, because it does not believe that the market is efficient in allocating resources; (2) consumption is the motor for Argentine growth; and (3) the government wants to avoid dependence on the capital markets, a risky strategy which necessitates a continued current account surplus.

Medrano discussed the differences between the administrations of President Cristina Fernández de Kirchner and her late husband, President Nestor Kirchner.  While Medrano believed that macro fundamentals have deteriorated, he concluded that the government should be able to muddle through in the short-term.

Medrano reviewed the recent nationalization of YPF and the factors that prompted the government action.  Despite saber-rattling, he did not expect the EU to take any official action, or to impose an embargo, in response.

He also reviewed the “blue market” and official rates for the Argentine peso, and touched on the issue of inflation.  While it hit approximately 24% last year, private firm forecasts for the 2012 inflation rate were predicted to be even higher, in the 28-30% range.

In closing, Medrano addressed criticism of Argentine government officials.  “Economists say that the government doesn’t understand the economy, but they do.  They are great firemen, they put out a lot of fires…but they have dynamited the building to put out the fire,” he commented.

Saraniti opened the panel, which followed Medrano’s remarks, with a review of the poll taken at the 2011 Forum on expectations for Argentina.  He noted that the country had outperformed expectations.  The audience had expected a 4.2% GDP growth rate, vs. 6.5% in actual growth.  The FX rate had been projected at 4.68 pesos per dollar, compared with the actual official rate of 4.30, and inflation came in at 22.8% (private economist estimates) instead of the projected 24.8%.

The panel included a discussion of the Eurozone.  Finkman expressed moderate pessimism regarding growth, while Achaerandio was more pessimistic.

Saraniti referred to low global interest rates and high commodity pricing, and asked whether Latin America had taken advantage of these conditions and improved social indicators.  Finkman replied that investment in human capital had not increased in tandem with commodity revenues, nor had the security situation in many cities improved.  He offered Southeast Asia as a model region that had parlayed a better economic situation into improved social indicators.

Would commodity pricing remain at current levels if Chinese growth fell to 6-7%?  Finkman affirmed he remained bullish on China, and predicted 8% growth in 2012.  Maxit commented that growth below 7% would affect the commodities markets.

The panel also addressed the possibility of another Greece-like meltdown, given that prices on European assets were still high.  Maxit stated that Central Banks would be aggressive if economic conditions were to deteriorate in Spain.

Saraniti asked the panelists their views on the Brazilian real and other LatAm currencies.  Finkman did not expect it to appreciate from its current level while Maxit observed that Brasilia wanted to see a weaker currency.  Veron commented that the government would like to push down the Chilean peso after its recent appreciation, but he expected that it would stay at current levels.

At the end of the event, the annual poll of the audience was revealed.  Attendees forecast GDP growth of 2.5% for Argentina over the following 12 months, an FX rate of 5.5 ARP/USD, and 24.8% inflation.