Argentina - working
in a real e<onomi< landscape
4 International
Summer blues
ISSUE 32/15 AUGUST 1994
Until only three years ago, Latin America's third largest country was a
byword for economie chaos and mega-inflation. But radical government
measures have changed all that. Peter Greenberg explains the background
to Argentina's increasing stability, and what it means for Rabobank.
How has Argentina beaten
the inflation problem?
There were two principal me-
chanisms. One was an act of
congress which came into
force in 1991 prohibiting the
Central Bank from issuing a
single peso not backed by hard
currency reserves. The econ
omie consequences are, by de-
finition, a collapse of inflation.
So, now money supply
growth is limited by law to
economie growth, and not j
subject to deficit spending. j
The result was the destruction
ofthehyper-inflationpsycho- II
logy prevalent in Argentina,
Once the fog of inflation gets blown away, you
can do things like make annual forecasts. In
the past, an Argentine week was short-term,
two weeks medium-term and three weeks long
term.
How does an inflation psychology take root?
It's a lack of faith in the country's economie di-
rection, and most specifically in its exchange
rate. This is generated by mismanagement and
leads to a kind of economie paralysis. Fortu-
nately, Argentina is well into the fourth year of
its stability plan and people really want it to
work.
You said there were two mechanisms?
Yes, the other is privatization. State participa-
tion in industry was massive, persuasive and
corrosive. But in the past three years, the
government has privatized on a major scale -
telephone, Utilities, railroads, but especially the
YPF state oil company, which alone brought in
$3.5 billion to the treasury rather than sucking
it dry through subsidies which had been the
single largest contributor to budgetary deficits.
At one point the deficit was as high as 15 per
cent of GDP.
What about now?
In 1993, Argentina was one of only three coun-
tries worldwide with a national surplus. Infla
tion is under 8 percent and the forecast for this
year is between 4 and 6. Growth over the last
three years has averaged nearly 6, and is expect-
ed to be between 5 and 6 this year. It's all
looking very good, although there are some
dark clouds with respect to the trade deficit,
but this is very much recognized by the author-
ities. Last year, exports were only 12 percent
of GDP and totalled $13 billion, of which $7
billion were agri-products.
Why is it so low?
Costs of production are high here, and they'd
better get them down fast. If they do, and I'm
convinced they will, then
they'11 really be able to com-
pete internationally.
What does the new situation
mean for your portfolio?
It enables us as a bank to fo
cus increasingly on agri-com-
panies that produce value-ad-
ded products at the lowest
possible cost, and you can
now compare companies in
terms of cost of production.
You beaan here a year
ago with a sound base in
the oil-seed crushing sector
and have built on it.
Will you now be looking further afield?
Yes. We have a very good penetration of the top
ten soya and sunflower crushers, with lines of
credit that run from $5 to 40 million. I've in-
creased three lines, and our loan turnover last
year was $559 million. Because of very good
erop yields this year, the supply/demand fun
damentais in the Argentine oil-seed complex
are exceptional. So we're increasing our activ-
ity and I think there's a decent chance of mat-
ching last year's record results. We're also
beginning to diversify. In recent months, we've
effected two new relationships with multi
national grain producers, both of them CAM
clients. And I'm in very active conversation
with an integrated red meat processor.
Do you prefer to work sectors?
Defmitely. You then have a good basis for
comparison between companies and that's
important for evaluating credit worthiness.
Secondly, you become specialized and that's
value added for the cliënt. The problem with
Argentina is that there are few obvious sectors
to diversify into. In meat processing, there are
at least three companies and four in the dairy
sector. The problem with dairy is that right
now it's not very export driven. Then there's
fruit. Very, very selectively I think we'11 begin
to find things to do in that sector. But we're
really a one-horse operation with respect to
products. What we sell here is very plain
vanilla - pre-export trade finance. I'd like to
diversify into structured trade finance and
even financing against warrants, although
that's a very new financing vehicle here. I've
been inclined to wait for the market to mature
a bit more, and I'm not sure what the liquid-
ity is yet, so I'll be looking at warrants very
carefully. You know, with a base of $500 to
600 million in turnover in stable country con-
ditions with no credit problems I can see, we
could be more creative. I think it's about time
we moved actively into the second stage of the
bank's presence here.
>- Soaring temperatures of 30 and over,
sticky humidity and the usual summer sil-
ly season changed the face of Holland as we
know it. We're having a heat wave and there
seems to be little enthusiasm around for
anything but beach-bathing, ice-cream
and very cold beer. Holland is supposed to
be a cold country, a place where it rains all
the time and where we complain about the
weather with boring regularity. The Brits
may be famous for their predictably cli-
matological conversation, but the Dutch
aren't far behind. Fortunately, we can now
all complain about how hot it is, at least
those of us who are still here.
The world and his Dutch uncle seems to be
on vacation. Enquiries about the intro-
duction of the new house-style in the
foreign offices lead to the polite response
that so-and-so is away until then-and-
then, someone else will be back on August
22, and so on, and so on. It's not really
surprising, of course. In the run-up to the
house-style presentation in June, people
worked their soeks off in a frenzy of activ-
ity aimed at maximum effectiveness. Now
they're all cooling off - hopefully - on
some white strand caressed by gentle
breezes, either in a far-away land or no
further than Zandvoort aan Zee.
But to my mind, the real hitch in getting to
grips with the new house-style is not vaca-
tions, it's that the introduction seems so far
away. January next year is slated for the
grand revelation, yet it's somehow hard to
generate the right level of enthusiasm for
and appreciate the reality of something we
won't be dealing with for some time to
come. Holidays permitting, the extensive
manual that describes in detail how every
last little piece of paper should look will be
finished in late summer. The work-group
set up to coordinate introduction for the
foreign offices has still to get started. And
the only thing you probably know at this
point is what the new symbol looks like
and that you can't order new stationery.
Of course, there will be a flurry of organiz-
ation and a lot of hard work done to get
everything right on the night. And it will be
right because the new house-style has to
become an integral part of the bank's glo-
bal image. At all the offices I ever visited I
heard the same lament - we're not a name
here, we're not known, so it's uphill work
to get a foot in the door. Okay, once we're
in, and we show what we can do, then that
changes. But every new cliënt remains a
struggle.
If the experts are right, the new style should
prove a real tooi in improving name re-
cognition. That's why the manual must be
so detailed and will take so long to pre
pare. Each office has to be consistent -
right down to the last compliments slip.
This is the message this time. I only wish
it was in a bottle launched into some
azure sea from Avalon Beach, Copacabana,
the Cote d'Azur or even Zandvoort aan
Zee.
