Can President Macri’s Economic Reforms Help Argentina’s Revival?



Argentina’s economic woes

High inflation, a fiscal deficit, and political issues have all crippled economic growth in Argentina. Argentina (ARGT), which is a crucial player in frontier markets (FRN), has seen negative growth rate over the past few years. However, according to the latest figures, Argentina’s economy emerged from recession in the third quarter of 2016, beating earlier estimates and registering positive GDP growth in 4Q16.

GDP growth in 2016

Argentina’s GDP expanded 0.5% in 4Q16, as compared to the previous quarter. According to Argentina’s National Statistics Agency, the third quarter growth in 2016 was revised to 0.1% from -0.2%.

However, in calendar 2016, the economy contracted by 2.3% in 2016. External factors including the recession of 2008 and falling oil prices had impacted the performance of fragile economies like that of Argentina, which has also been affected by a poorly run government, with leaders failing to implement economic reforms.

But Argentina’s economic activity had expanded for five straight five months as of March 2017, and these improved numbers suggest that economic activity is continuing to firm up, though at an uneven pace so far in 2017. The increase in export volumes seems to be the main driver behind this improved momentum.

President Macri’s efforts

Now, new government efforts under President Macri over the past year have focused on restoring credibility and establishing sound economic policies for sustainable growth. According to the latest IMF (International Monetary Fund) report, the government’s efforts appear to have resulted in a growth expectation of around 2.2% for 2017. Higher exports and investments in 2017 are expected to drive economic growth in 2017.

The Global X MSCI Argentina ETF (ARGT), which tracks the largest and most liquid securities with exposure to Argentina, has gained ~30% so far in 2017 (as of May 12). Some of ARGT’s top holdings include Tenaris (TS), MercadoLibre (MELI), and YPF (YPF).

Continue to the next part for a look at Peru.

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