Two years after the collapse of Argentina’s economy, including the withdrawal of foreign investments, the country is back on its feet and ready to move forward, said Argentine Consul General Carlos Layus, who arrived in Atlanta in May to fill the post vacated by Natalio Jamer.
Mr. Layus entered Argentina’s Commercial and Economic Foreign Service in 1977. He held his first post in Brussels from 1978-83 at the Argentine Mission to the European Economic Community. He served as the consul in Rio de Janeiro, Brazil, from 1986-92, and was deputy consul general in Chicago from 1994-99.
GlobalAtlanta interviewed Mr. Layus shortly after he arrived in Atlanta. The complete text follows:
Q: What is the status of relations between Argentina and the United States?
A: Our relationship with the United States is one of the most important for Argentina. Obviously, Mercosur (the trade alliance between Argentina, Brazil, Paraguay and Uruguay) and our neighboring countries are our first priorities, but there has always been a big concern about the relationship between Argentine government and the United States. We share a lot of common values, of which freedom, democracy and economics are very important. There are a number of American companies that have been established in Argentina for many, many years.
Also, the United States is our third partner in commercial issues such as imports and exports. Our first partner is Mercosur, secondly Europeans, and then the United States – despite having some controversial issues in regards to access to the American market, mainly on the agricultural side. We do have some work to do on that, but the field is still open for negotiations. We hope that we can get better access for our exports and expand trade.
This is very important to Argentina, especially at this moment. We had a very hard and insidious crisis about two years ago, and hopefully we are starting to overcome this crisis. We need to have more economic activity based on our ability to export. Having more access to big markets, like the United States, is essential to us.
Q: Exactly what are the issues in regards to agricultural products?
A: Mainly, there are quotas on various agricultural products like peanuts, like butters, like juice. Also, there are some controversies about duties on certain products. Mainly, the balance of trade is favored for many years on the United States.
Q: Has Argentina benefited greatly from Mercosur?
A: Certainly. Integration with neighboring countries – Brazil, Paraguay and Uruguay – means a great deal to Argentines, especially in the interior regions. They are able to export products to Brazil, which is the biggest market in South America. This means a lot to the economy in Argentina.
Q: Given that, do you think the proposed Free Trade Area for the Americas would benefit ALL the countries involved?
A: Certainly, though obviously we have to reach an agreement. I understand, from the last ministerial meeting last November in Miami, there has been a lot of improvement, especially because the framework became more flexible. Since then I have noticed that the United States has reached bilateral agreements with Central American countries. For South American countries, perhaps there is a different speed for negotiations.
For Brazil and Argentina, well also for Uruguay, agricultural products are very important. It is a sector that has a lot of influence in our economies. For us it is very important to have clear access to other markets, especially the developed markets. But I think we have not finished all the negotiations with the United States and Canada on the topic of agricultural subsidies, mainly for exports.
We have been suffering a lot in the international market because of competition from countries that are artificially subsidizing their exports. One of them is the European Union. But we have seen lately that reform of policy in the Union is underway to reduce their influence in the international market, which will permit the development of our exports that they are not subsidizing.
I also understand that the negotiations are slow on finance and services issues, but this is part of the game, and we look forward to reaching an agreement.
I saw an announcement that an agreement may be possible by the middle of next year. That would obviously be a good development for the whole region. The hemisphere needs to be united and to face competition from other regions, like Asian countries, especially China, and Europe. Therefore, we are all conscious that we have to make a big effort. Q: I was surprised to read in reports that Argentina’s economy has done so well recently. In one, Argentina’s economy was reported to have grown 8.7 percent in 2003 after shrinking 11 percent the previous year, which surpassed the Monetary Fund’s 5 percent forecast. Next year it is forecasted to expand 5.5 percent. What factors contributed to Argentina’s economy performing better than expected?
A: First of all you have to realize that our economy had fallen to a very low level, so the base for those increases is very low. But in any case, there has been an improvement, hopefully.
The increase in the economy is very welcome. It is mainly because, slowly, the people started to have confidence in how the country is being run. President (Nestor) Kirchner and his administration have done a very good job so far in tackling issues the right way. In the economy, for instance, there hasn’t been sharp intervention with the monetary system. The Central Bank has managed to stabilize the exchange rate.
After the sharp interruption of the last economic system – the one peso, one dollar – the exchange devaluated about three times. It became four pesos for a dollar. Now there is a free system of currency and we have monetary stability again. The exchange rate was been maintained at $2.90 to $2.85 for the last year and a half.
Many people said that maybe the inflation rate would get out of hand, but that didn’t happen. The inflation rate is very low. Exports are also growing, slowly, but they’re growing.
And our ministry of economy is working very hard to get an agreement for our region with all the people that have bonds and credit to see if we can have a better interest rate on future credit.
Q: Could you explain the former exchange rate in which the peso’s value equaled the dollar’s? How and why did that change?
A: That was a system that in the past some countries adopted, like Panama. It was imposed in Argentina in 1991. To do that in a free way, you have to have enough dollars in reserve to equal what is circulated – all the circulated money that is in the pockets of people and also in current accounts. If you have that you have convertibility. That means that if at any moment the people who adopted this monetary system are not confident with the local currency, they can go to the bank and exchange that for a dollar.
This system has advantages. In a wide-open economy, like Argentina had established from 1981 until 2001, this system brought a lot of good things. But the government didn’t follow certain adjustments for inflation and the Argentine currency became very incompatible against foreign currency – not just on exports, but also in the local markets where this incompatibility was reflected in the increased costs of our factories.
Our last government didn’t want to change the monetary system because it feared it might create some instability. But on the other hand, we knew if we stuck to that program that local manufacturers would not be protected from foreign competition.
Next, many industrials closed factories and unemployment rates started to have a big influence on the economy. The local market started to slow in terms of demand and that put pressure from the international funds on new credit.
With all of this, the economic risk rate jumped to a high level and the only way to get new credit was with a very high interest rate. It all started to snowball. We asked for more credit and the higher rate created more problems for the economy and so on. Argentina then was not able to get any new credit and all the investments stopped. When all the people wanted to exchange their pesos for dollars, the banks had to be closed because they didn’t have enough money at that moment. The crisis it generated in the economy was the worst in history.
Q: I understand that the peso’s devaluation, though initially deepening the economic slump by curtailing consumer consumption, is said to have later fueled the economy by cutting costs for manufacturers. Has it helped other industries, such as tourism?
A: Yes, certainly. There are now new opportunities because Argentina’s economic course is really on its way. See, with the former system’s enforced currency we were not competitive, in tourism, exporting, and many other fields. Now -– and there are many economic studies that reflect this – we have the right currency exchange rate. And even though some people say they need more ways to be competitive, I believe it has been demonstrated that we are on the right path.
Many sectors have started to develop and tourism is one of them, but not only for the exchange rate. The exchange rate helps to offer competitive prices, but we have a diverse geography, like in the United States. We have very high plains. We have waterfalls. We also have glaciers. Argentina is a very large country, so we can offer within the same time zone tropical weather in the north and a very winter-like ambience in the south. Also, Buenos Aires is a very attractive city. It is one of the best cities in South America to visit.
So, tourism is working very well and offers a good price, especially in restaurants. I noticed since I came here two weeks ago, that the prices in restaurants are very different here. Good quality, but obviously the price is different than what you get in Argentina.
Another sector that has developed is agriculture. We were fortunate to have two years in a row of very high prices for soybeans, and Argentina became one of the most important countries for soybean production, after the United States and Brazil. This has resulted in a great deal of technology on the farms. This technology mainly comes from the United States. The different seeds that we use mainly come from the United States.
And on the industrial side, the car industry has started to recover, with exports to Brazil. We have eight assembly lines. As the local demand has started to improve, the car industry is getting on its feet again.
All those figures you mentioned, though they are impressive numbers, for us you cannot say the Argentina economy is recovering. The Argentina economy is back on its feet. It was very, very low. Now we’re back on our feet and we have something to start working on.
Q: The “Telecommunications Liberalization Plan of 1998” was meant to open the telecommunications market to competition and foreign investment. Have any U.S. telecommunication industries shown interest in Argentina?
A: Yes, now telecommunications is quite open and we have seen many companies operating. BellSouth pulled out, but I don’t really know the reason. All the companies providing services are doing well.
Q: What types of companies from Georgia are in Argentina?
A: I understand there are quite a number of companies from Georgia, especially in technology support. I have seen by the visas we issue here that companies are going to Argentina for business – either in communications or in air conditioning fields, and also in computer programs and things like that.
In my short time in Atlanta, I have seen that many businesses are still active in Argentina. Obviously Coca-Cola, has been with us for many, many years. And I understand Delta Airlines will resume a direct flight from Atlanta to Buenos Aires in December. That is a good sign.
Q: I know, given what you have said, that these numbers are off, but in March imports were reported to have grown by 81 percent annually, with purchase of equipment and parts at a rate of 85 percent. What kind of equipment is being imported, and it this a reflection of manufacturing growth or consumer growth, or both?
A: I would say, though I don’t have the exact figures in mind, that that reflects manufacturing growth. The textile sector has had very good recovery. Now most of the clothes that we used to see on shelves that were manufactured abroad are manufactured in Argentina. Also we have seen construction growth, especially in housing. There have been imports of equipment to build, especially residences – not big buildings, but weekend houses, as we call them. Now with big highways, especially in the north of Buenos Aires, a great deal of people move from the city to these sort of weekend houses. They’re like here, I think, where people are commuting on the highways. In Argentina there are two or three big highways now. The homes are sort of a close convenience where middle class people live.
These are signs of recovery, but we need more exports. Today our exports account for only less than nine percent of the GDP.
Q: What will contribute to greater exports and how do you see that progressing?
A: Negotiations. We are negotiating not only with FTAA but also with the European Union, which hopefully will start at the first of January next year. We are also in negotiations with India and with South Africa. And our president is traveling in two weeks to China to see if we can improve our exports to that market. Recently, we signed an agreement with the Andean countries.
But all our commercial agreements go through Mercosur. There will be an agreement between Mercosur and the Andean countries, Mercosur and India, Mercosur and South Africa. Since our engagement with this integrated system, all negotiations include the four countries.
Q: I also read that March showed the first signs of an energy crisis. Do you expect this to be a long-term problem, and if so, how do you think it will impact Argentina’s economic recovery?
A: Those services were privatized, but very fast. Since the current government took over, Pres. Kirchner, we have had pressure from companies that acquired those services – electricity, water and gas – to modify the tariff. The negotiations were very hard and so far the government has managed to maintain those tariffs. This is one of the things that allows us to maintain our economic stability – that there has been no increase of rates, neither in transportation, neither in electricity, neither in gas.
With some fields in the energy sector, these tariffs were not enough of an incentive for them to carry more investment in preparation of further demand. So as industries started to recover and they requested more consumption of electricity and gas, I understand that the energy companies were not prepared.
The government is analyzing it to see if whether those companies providing a public service are fulfilling their contract, because by contract they must have a certain percent of reinvestment. Apparently in some fields – especially in gas, not so much in electricity – those percentages were not fulfilled.
The companies have argued that the low tariff that was established in the other economic system did not permit them to create new investment and to reinvest. That’s why they didn’t have enough revenue to maintain the system while also increasing infrastructure to face this new demand. I also believe that as winter approached you had more consumption of gas.
There are now certain recommendations from the government to reduce the use of gas. Also there have been some talks with the industry to seek alternative energies.
Q: Do you see this as having a dampening effect on the economy recovery?
A: I believe the government will be forced to increase the tariff. We don’t know if this tariff will have an effect on inflation. This is the main concern. Obviously, politically it is not good for the government to increase the tariff when you have a high percent of people under the line of poverty. But I hear they will increase the tariff so that those who consume under a certain level will not have an increase. Only the big consumers will have an increase on gas.