02 Oct 2012 | Tony Leon | Original Publication: BDlive
The response of South Africa and Argentina to warnings by international financial institutions and ratings agencies is revealing, writes Tony Leon
MY WEEKEND return from three years away as SA’s ambassador to Argentina coincided with the two countries’ rugby teams competing again against Australia and New Zealand, respectively, in the near-final rounds of the Rugby Championship.
I was delighted to see the Springboks recover their mojo — and thump Australia at Loftus. Argentina this time put in a much less assured performance against the All Blacks in La Plata. These were tough matches with tight refereeing.
Away from the playing fields, another unforgiving referee was dishing out some yellow cards and SA and Argentina were at the receiving end. Moody’s downgraded SA’s bond rating, citing concerns for political stability, labour unrest and socioeconomic stresses. The same rating agency also downgraded 30 Argentinian banks from "stable" to "negative", citing "high amounts of official intervention in the economy".
Argentina’s eccentric economic policies also received the attention of the International Monetary Fund (IMF) last week. Its dubious national statistics (which famously underreport inflation by about 50%) received the threat of a red card.
The response of both sovereigns to these warnings was revealing. Argentinian president Cristina Fernandez de Kirchner used her appearance last week at the United Nations General Assembly to thunder back at the IMF and announce that — despite bequeathing to the world such football gods as Diego Maradona and Lionel Messi — "Argentina is not a soccer team. It is a sovereign nation that takes decisions in a sovereign way." Interestingly, from the same global podium last week, President Jacob Zuma chose not to address burning topics, such as the recent Marikana mine massacre, which clearly provided the trigger for the Moody’s downgrade. He stuck to safer matters, such as the universality of the rule of law. But to transpose Andy Warhol’s famous dictum, when you have "15 minutes of fame" on the world stage, you shouldn’t squander them.
Aside from defying or ignoring the red and yellow cards from these pesky (to the presidents) but hugely influential (to the markets) international arbiters, SA and Argentina have much in common. Our economies and populations are almost identical in size and we are both extractors of natural resources. In Argentina’s case, its rocket-like growth over the past decade, at about 9% a year, has now slowed due to unsustainable and ultraloose fiscal and monetary policies. Still, as Bill Clinton recently noted at a dinner in Buenos Aires, as one of the top three producers of soybeans in the world — the globe’s cheapest form of protein — you shouldn’t bet against Argentina. "We don’t know how consumption patterns in the world will change," opined the former US president, "but everyone in the world has still got to eat".
The Centre for Development and Enterprise published a study on Brazil and its lessons for SA last week. Indeed, one of my "takeaways" from South America is the huge significance of Brazil for the world. There are only three countries on the planet with a land mass of more than 8-million km², population of more than 200-million and an annual gross domestic product of more than $2-trillion: the US, China and Brazil.
But there are other nations breathing down the necks of both Argentina and SA and which prove that the hyperconnected and ultracompetitive world waits for no country, and complacent assumptions about the future flowing from the past are utterly unreliable. Two other South American countries enter the frame here.
While SA waits for striking miners, leaden managers and clueless policy makers to get their act together and salvage our mining sector, it is instructive to look at Peru. In 2000, SA was the largest gold producer in the world, producing 16.6% of global output. Far behind was Peru at 5.2%. Last year, SA’s production slumped to fifth place at 7%, while Peru’s increase to 5.6% of world output brought it within our range. Now South American mining mavens say Peru is well placed, with careful policies and significant reserves, to overtake us.
Colombia also offers no end of lessons for Argentina and the world. The received wisdom was always that Argentina would remain the largest Spanish-speaking economy in South America and the second-biggest after Brazil. But, hang on, what is the former narco-state of Colombia now doing? If you take the more reliable measure of purchasing power parity (rather than the dubious — in Argentina’s case at least — official rate of exchange), Colombia’s current economic size of $478bn now exceeds Argentina’s. Perhaps the clue here is that while Kirchner earlier this year seized control of the foreign ownership of Argentina’s oil giant, YPF, Colombia went about concluding a free-trade agreement, and investor protection codes, with the US.
On Saturday, Springbok coach Heyneke Meyer listened to his critics, carefully studied his competition and changed key players and his game plan. SA won in splendid style. It’s quite a good approach for the countries competing in the Rugby Championship to try out on their economies as well.
• Follow Tony Leon on Twitter: @TonyLeonSA.