DUBAI PROPOSAL TO HIT INVESTMENT
Buenos Aires Herald, October 30th 2003
Argentina's government has once again ignored those investors focused on the productive enterprise. Said like this, the reader might find it hard to understand - that's why I will clarify the reasons for my outrage.
In order to overcome its social crisis (poverty and unemployment), Argentina is in great need of a flood of investments in its productive infrastructure.
Local and international sectors must be tempted to create employment opportunities locally. The paradox is that due to the government's controversial payment plan of defaulted debt, those potential investors have been indirectly scared away.
The investor in productive means learns about the government's treatment toward bondholders through catastrophic headlines in US and European newspapers.
Yet Argentine officials seem to be completely unaware of the risks they are creating by making foolish public statements and proposals. The financial investor and holder of Argentine bonds quickly recognizes this language, but since he is captive, he is in inferior conditions to negotiate. However, the new entrepreneur or investor in productive concerns who is considering entering the Argentine market will, in light of these recent events, most likely delay any plans, and even re-direct the investment. He observes the maneuvering put upon bondholders and will certainly avoid finding himself in a similar position in the future.
Government officials must understand that all of their actions and statements have a second reading. New investors, especially those considering longer-term industrial opportunities, carefully weigh and consider every government statement before taking any decision.
The financial investor will fight for his commodities and most likely feel cheated, or worse, depending on how much he paid for his bonds and/or how long he has been investing in the country. But the new entrepreneur will certainly hold back and discard Argentina when he cannot fail to notice the government's lack of strategic planning of a long-term goal for the country, as we can observe these days.
Investments in productive means are long term by nature. Financial investors meanwhile, operate on a different timeframe. The first must be preceded by careful risk analysis and consideration of all environmental factors - once they are in it is difficult to pull out on short notice. The financial investor instead, can be in and out in the very same day. He takes a look at the current figures and makes the decision on the spot. The investor in productive means directly and indirectly creates employment, and in an economy such as Argentina's, he is very observant of the government's behavior. In fact, he is usually more attentive to the authorities than to his project's own cash flow. The signals the government is sending up today can only alarm him.
Argentine officials, under the pretence of defending society, have only managed to hurt it. They brag about protecting the citizens by lowering the fiscal surplus by one or two points. They proclaim that making "spectacular" cuts in the public debt creates favorable conditions for productive investments. This only reveals their complete ignorance of the basic rules of the economy, and their disregard for the potential new investor's point of view and concerns.
Argentine citizens will be really defended by the creation of conditions that encourage an avalanche of new industrial projects. Proposing exaggerated cuts based on claims that perfectly valid contracts can't or won't be respected only leads to a diversion of any potential new investment toward other countries in the region that show respect for previous commitments as their basis for development.
In short, Argentina's government officials can't deny that each move made in the financial arena has immediate repercussions on the productive investments market. Projects for productive enterprises can modify the declining trends under which we presently live. The government today is showing ignorance or disregard for the true drivers of the economy.
| Guillermo Carracedo |