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May 20, 2016

Argentina now has Opportunity to Improve Lagging Infrastructure

After resolving its long running dispute involving creditors and its default of over a decade ago, Argentina is now positioned to once again tap into the international financial markets to address some of its infrastructure challenges. This is especially important in the northern part of the country where agricultural expansion is expected to be the most robust in the years ahead.

Argentina had been shut out of the international financial markets for over a decade resulting in a backlog of infrastructure improvements especially across the northern part of the country. With these restrictions now behind them, the federal, state, and local governments, as well as large-scale farming operations can now borrow money at much lower costs than they were able to for over a decade.

Some of the largest farming operations in Argentina have been moving part of their operations out of the country in recent years to neighboring Brazil, Paraguay, and Bolivia due to the adversarial relationship between the Argentine government and the agricultural sector. With the election of President Macri late last year, that relationship has now changed and some of these operations are now considering expanding operations in northern Argentina.

Some of changes instituted by President Macri that will benefit the agricultural sector include: an elimination or reduction of export taxes on commodities, the elimination of export quotas, and the devaluation of the Argentine currency. All of these changes are expected to greatly aid the farming sector.

Currently, Argentina produces approximately 100 million tons of grain and that is expected to increase to 160 million tons over the next ten years. In order to accommodate this increase, major improvements are needed in the country's infrastructure especially in northern Argentina where most of the agricultural expansion is expected to occur.

The federal government has already announced infrastructure projects to improve the highways, bridges, rail lines, barging operations, and airports in northern Argentina. These projects are specifically designed to facilitate trade with Chile, Brazil, Paraguay, and Bolivia and to lower the cost of transporting the grain to Argentina's ports. Some of the major projects could take a decade to complete.

Of more immediate concern are projects to improve the highway system and access to the Port of Rosario. More than 80% of Argentina's agricultural exports move through the Port of Rosario, so improvements at the port would have the most immediate impact on Argentina's access to the international markets.

In recent years, agricultural production in Argentina was actually been on the decline due to low commodity prices, high export taxes, and high transportation costs to move grain from northern Argentina to the country's main port. If Argentina is to reach its goal of 160 million tons of grain production within ten years, it must expand its agricultural production across the underutilized regions of northern Argentina.