Argentina: Macroeconomic Prospects
An overview of developments in the host country of APLA’s 25th Logistics Meeting
The 25th Latin American Logistics Meeting organized by APLA took place in Buenos Aires on June 6th and 7th, 2023. Delegates and industry representatives from various petrochemicals and logistics companies gathered in the vibrant Argentinian capital to engage in insightful discussions and thorough analyses of the petrochemicals sector’s recent advancements, as well as their consequential effects in the realm of logistics. Topics that took center stage included regional GDP growth as well as regional opportunities, climate change and its impacts on logistics, the rise of automatization and artificial intelligence, and the new paradigms that have arisen in the workforce segment after Covid-19.
The meeting provided a platform for industry executives to exchange ideas, share best practices, and explore innovative solutions to address common challenges and opportunities within the petrochemicals and logistics sectors. As Eduardo Praselj, president of the Logistics Association of Venezuela, stated: “Collaboration can be beneficial in addition to competition in a world where different companies carry out similar activities.”
“Argentina has experienced 'stagflation' for the past 15 years, to the point that current Argentinian GDP is equivalent to the level recorded in 2011.”
Carlos Pérez, Economist, Fundación Capital
Argentina’s economy in the spotlight
Even though general attention was given to the overall regional industry, the initial discussion revolved around Argentina’s dollar-strapped economy. Carlos Pérez, economist from Fundación Capital, stated that Argentina has been characterized by a structure of public debt in its national currency. On the other hand, the Argentinian Government wants to avoid recession, achieve a sustainable exchange rate, and control inflation. However, the question remains if a jump in the exchange rate can be avoided, especially now that the first round of the presidential election is scheduled for October 22nd, and if needed, a runoff will be held on November 19th.
Significant levels of inflation have accompanied Argentina’s exchange rate policies. This has led to “stagflation”, where prolonged economic stagnation is coupled with high inflation. According to Pérez, Argentina has experienced this phenomenon for the past 15 years, to the point that current Argentinian GDP is equivalent to the level recorded in 2011.
On the other hand, the disparity between the official exchange rate and the unofficial “blue” market rate exceeds 100%, a substantial gap reflecting the challenges in maintaining exchange rate stability. One concerning aspect of the situation is the lack of US dollar reserves in Argentina’s Central Bank. Within just five months of 2023, the central bank reserves plummeted by US$ 11.5 billion, leaving US$32.9 billion. According to Pérez, the period from July to August 2023 is expected to be particularly difficult in terms of maintaining the official exchange rate. After the new government assumes office, inflation of between 130% and 150% is expected.
Argentina’s path to prosperity relies on securing a new agreement with the IMF and implementing a fiscal readjustment. However, comprehensive economic programs, solid political support, and a steady inflow of “fresh” US dollars are necessary to achieve these goals. In this context, Vaca Muerta might play a pivotal role.
“Argentina has a significant opportunity to develop its oil and gas industry: Vaca Muerta’s oil production could increase to 700,000 barrels of oil daily by 2025.”
Ariel Andreucci, Manager Strategic Planning, YPF QUÍMICA
Capitalizing on the shale potential
Vaca Muerta has been identified as an essential hub for Argentina’s oil and gas industry. Still, the challenge lies in developing effective methods for treating crude extracted from shale formations. Vaca Muerta, located in the Neuquén Basin in northern Patagonia, is a geological formation containing substantial shale oil and shale gas deposits.
According to Ariel Andreucci, manager of strategic planning for midstream oil at YPF, Argentina has a significant opportunity to develop its crude oil and gas industry by leveraging the vast natural gas reserves in Vaca Muerta, estimated to be around 300 trillion cubic feet (tcf). Vaca Muerta’s oil production could increase to around 700,000 barrels of oil daily by 2025.
These substantial reserves present a highly favorable opportunity for YPF and the Argentinian economy at large to engage in gas exports and generate much-desired revenue in the form of foreign currency. The inflow of foreign currency can significantly contribute to strengthening Argentina’s economy. In the words of Rina Quijada, VP industry executive advisory for Latin America at S&P Commodity Insights: “One of the critical challenges for the industry will be finding ways to monetize gas and transform it into a consumable product in both the domestic and foreign markets. For Argentina, achieving self-sufficiency in natural gas requirements will be a great opportunity.”
Article header courtesy of YPF QUÍMICA