Opposition candidate Mauricio Macri won the Argentina presidential runoff with a small margin over his competitor last month.
Following the election, the focus now is on what steps the new leader will take to boost the economy and how the measures might influence the commodities market on the supply side.
Macri won only 51.4 percent of the votes, about three points ahead of his rival Daniel Scioli of the Peronist Victory Front who was on 48.56 percent. In addition, Macri doesn’t have control over the congress. It is likely that the president-elect will have trouble implementing his policies.
During the campaign, Macri had vowed, among other things, to scrap currency controls and remove export tax and limits on corn and wheat.
Facing a downtrend in the economy and high inflation, the Argentine peso’s exchange rate has fallen sharply. To avoid capital outflow, the central bank imposed restrictions, leading to a wide gap between the official exchange rate and that on the black market.
Recently, the official rate was 9.58 peso per US dollar, while in the black market the unit was being exchanged at 15 pesos to the dollar.
Macri promised to cancel capital restrictions. It means the official exchange rate could further come down.
As a major agricultural company, exchange rate changes will have significant impact on Argentina’s farm production and exports.
As international prices of agricultural products are denominated in the US dollar, Argentine farmers will keep a close watch on the exchange rate.
Currency depreciation will boost export competitiveness as the costs for farmers will be in peso while the export revenue will be dollars. As long as farmers believe the peso will not depreciate too sharply, the exchange rate adjustment will promote agricultural commodities exports.
More importantly, Macri — who will take office on Dec. 10 — said he will cancel export limit and taxes on corn and wheat and reduce the export tax on beans.
The present export tax rate is 20 percent for corn, 23 percent for wheat, and 35 percent for beans. Lowering the tax rates will encourage farmers to grow more corn and wheat and improve the produce sustainability.
Macri’s team of agricultural experts expects that by 2019 the nation can increase its output of grains and oilseeds to 130 million tons from 100 million tons.
Analysts have estimated that by 2018-19, the corn export volume will increase by 44 percent to 23 million tons, making Argentina the biggest corn supplier after the US.
Wheat export is expected to reach 11 million tons, accounting for 6.8 percent of global wheat trade, while beans export is seen surging to 52 million tons from 45 million at present.
Of course, uncertainty still exists, in terms of output, the country’s debt issue with the US and whether the congress will support Macri on his policies.
In addition, logistics problem is sometimes a bottleneck for the country. More efforts are needed to improve the infrastructure before farm output can increase.
Macri’s policy plans appear to be in the right direction. But one needs to wait and see whether the plans can be implemented properly.
This article appeared in the Hong Kong Economic Journal on Dec. 1.
Translation by Myssie You
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