Argentina: Time Will Tell

Argentina’s new government is taking drastic measures to fix its economy. The initial results are encouraging, but time will tell if they will last. I returned to Buenos Aires last month for the first time in five years. It was interesting to see that many companies were optimistic about the government’s initiatives, but they were also realistic in understanding that not all problems could be solved quickly.

Back in Buenos Aires after five years, I'm witnessing such unprecedented economic reforms for the first time.

President Javier Milei, who took office just late last year, has proposed some radical ideas for turning the Argentine economy around. His new government has slashed the peso's value by more than 50% and has cut down on public spending big time. He's even floated the idea of ditching the central bank and making the US dollar Argentina's official currency. When you're in a situation as dire as Argentina's — with annual inflation exceeding 200% and four in ten Argentinians living in poverty —bold and risky strategies might just be what's necessary.

I was at the Galerias Pacifico mall observing how shoppers navigate soaring inflation.

The government's drastic measures have started to show some promising signs. For the first time since 2012, Argentina saw a monthly budget surplus in January. There’s also been a noticeable boost in the country's foreign currency reserves. These are encouraging signs, but the path to recovery is fraught with challenges.

During my visit, I spoke to a variety of companies across sectors including property, aluminum, banking and utilities. There's a sense of cautious optimism in the air. People appreciate the government's efforts to fix the economy, but they're also realistic about the challenges ahead. Argentinians are used to dealing with the wild ride of high inflation and currency woes, and have come up with clever ways to keep their heads above water. I was truly impressed by how the people and businesses there are navigating through tough economic and social conditions with such resilience.

While in Buenos Aires, I had a delightful reunion with my former Franklin Templeton colleague, Santiago Petri. He even brought an old corporate poster for me to sign!

In fact, Argentina is no stranger to economic rollercoasters. The country has experienced its fair share of economic upheavals, including hyperinflation in the late '80s and early '90s, when inflation rates soared past 2000%. The central bank's practice of printing more pesos to help the government avoid defaulting on its debt has been a contributing factor to the current inflation crisis.

Looking ahead, the road to economic stability and prosperity for Argentina is undoubtedly long and uncertain. The government's willingness to tackle tough economic issues head-on and the initial positive outcomes are steps in the right direction. Popular support for dramatic change and the adaptability of businesses to the country's economic fluctuations are also reasons for cautious optimism.

While we are not yet investing in Argentina, we are closely studying the market carefully. The problems in the country do not deter me from investing, but we need to find the right combination of company factors to make that feasible.

Time will tell if the new government’s efforts will lead to lasting economic recovery and growth, but for now, Argentina's story is one of struggle, resilience and hope.

Share the article