Argentina: Overcoming Debt Challenges and Rebuilding with Infrastructure and Innovation

Of all the countries in the world, perhaps no country more embodies “debt trap” and then “default on sovereign debt” than Argentina. Argentina’s national banks defaulted on their first loan only a few years after independence from Spain in the 1820s when the Minister of Finance obtained loans to pay off war debts. The loans were considered usurious, and the ensuing crisis resulted in a 33 percent devaluation in 1827, and then 68 percent in 1829 (Argentina Country Risk Report, 2019). Unfortunately, these were not to be the only loans that quickly became unmanageable due to high interest rate and impossible terms, and which deeply damaged the Argentine economy.

Later, however, the time from 1850 to 1930 was very prosperous for Argentina, which, thanks to its prosperous agricultural sector, and the infusions of investment capital into infrastructure (railways) and industries. At one point, Argentina was the seventh largest economy in the world, and its inhabitants were the 10th wealthiest.  In addition, the country benefited from being perceived as a safe haven for money and resources fleeing war-torn and newly communist countries in the world.

However, there was a slowdown in the 1930s, inspiring in 1943 a coup d’etat by Juan Perón, whose goal was the empowerment of the poor and working class. Argentina was not invited to the 1944 Bretton Woods conference that established the International Monetary Fund and the World Bank because Argentina had not yet joined the Allies in World War II. In fact, Perón was against joining the group and considered the effort "imperialistic.” Perón was overthrown in a rival coup in 1945. In 1946, he was narrowly elected President. His government was accused of repression.

Argentina finally officially joined the International Monetary Fund in 1956. In the meantime, the Argentine government continued its idealistic utopian socialist transformation through modernization approach which so typified the first half of the century in rebuilding nations. There was an emphasis on large infrastructure projects and in state-owned industries that employed many thousands of people in the administration of the nationally owned utilities and social services.  The ensuing deficits led to a need for liquidity, and then the first waves of large loans. Waves of economic problems were accompanied by protests and activism, resulting in repressive governments.

Source: Wikipedia. https://en.wikipedia.org/wiki/Provinces_of_Argentina

Economic Decline: In such a situation, economic growth was difficult if not impossible. Between 1975 and 1990 real gross domestic product feel by almost 20 percent, which had a very negative effect on the entire country, but most pronouncedly on manufacturing, which entered into continuous decline in the 1970s. The government attempted to level the playing field by creating a wall of tariffs and by instituting protectionist policies. Instead of incubating the domestic companies, the result was a lack of investment, a loss of competitiveness, and finally a loss of markets.  Argentina, which was once known for the high quality of its manufactured goods, began to shutter factories as they could no longer stay open, even when heavily subsidized.

Almost every decade has been marked by a dramatic economic crisis, often marked by devaluation, hyperinflation, a default in national debt, with corresponding erosion of credit-worthiness.
As of September 2019, Argentina's external debt stood at around $101 billion (The Times, 2019). The currency has been devalued again, resulting in an exchange rate of $US 1 to 56 Argentine pesos, from 25 to one US dollar a little over a year before.

 

What is it like to try to have a business in Argentina during times of devaluation of the currency? What is the impact on the supply chain? 

Argentina has a history of high external debt, and it has been borrowing for infrastructure projects and also to service existing debt.  According to many analysts, Argentina "is almost certain to default on its $100 billion of debt again" (Aldrick, Sept 3, 2019, The Times). South America's second largest economy has been in trouble financially many times since it joined the IMF in 1956.

Specifically, Argentina has been bailed out an astonishing 22 times since 1958 and has defaulted on its  loans nine times since independence in 1816. Slow or reduced payments to investors have been “de rigor” since the 1960s until even September 2019 when the maturity on short-term government loans was extended without negotiation (Sanders 2019).

President Macri's initial strategy involved having Argentina reenter global markets, pay off "vulture funds," and ask the IMF to audit funds (with the idea of more loans).  He also tried to balance the budget by increasing the amount paid to the government for services (utilities, etc.), and to restrict the flow of capital out of the country. The resulting devaluations made Mr. Macri extremely unpopular, and his loss in the primary elections further weakened confidence in a challenged economy.  The goal in early September 2019 was to refinance the debt. However, the country remains deeply divided between Macri's reformist party and the socialist / populist party (Kirchner, etc.) which has been accused of corruption and mismanagement (Argentina Country Risk Report, 2019).

What happens when the IMF requires the country to service its debt?  Usually there is an austerity plan with the goal of a balanced budget (prioritizing paying off debt). However, IMF austerity plans in Argentina have an unhappy history.  What has happened in Argentina is a devaluation of the peso, lack of buying power, poverty, lack of capital investment, and labor insecurity.  The country falls to an even lower level of productivity, due to uncompetitive products, falling productive capacity, obsolete and inefficient factories, lower level of human capital (due to lower social and education services (Mariza, 2019)), falling levels of confidence, and widespread financial institutional instability. But, faced with few options, the country tends to accept "loans of last resort" in order to service debt and avoid wholesale seizure of assets (Koch & Perreault, 2019).

Infrastructure Leveraged for Economic Growth:  Investing in infrastructure and marketing support for innovative products offers an alternative.  First, productivity must improve in the short run. There are a few ways to do so, which include conducting bid rounds in order to develop mineral and petroleum resources.

While it can be argued that the country often receives insufficient proceeds for licensing multinational companies to develop mines and oil fields, this is often the best approach in the short run. Indeed, this is an approach that Argentina has used, with success.  They have attracted investment in the Vaca Muerta shales, and five separate provinces are currently seeking investment in order to develop their oil and gas. In a recent international oil and gas congress (AAPG's International Conference and Exposition), executives from ExxonMobil, Equinor, Shell, and others were unified in their message that they were increasing their investment in Argentina and would continue to do so if the government could assure positive conditions. They also suggested maintaining Argentina's policy of maintaining a posted minimum price of $75 per barrel of oil, which de-risks the investment a great deal.

Second, boosting agricultural production in order to increase exports and facilitate import substitution is a possible strategy. However, years of neglect in the infrastructure have made transportation, processing, and warehousing difficult (Berlinski, 2019). Supply chain coordination is lacking, and so the fail-safes and protections that could be implemented to help de-risk the enterprise and protect against extreme weather, harsh conditions, and the need to store and hedge, are not possible.

A third strategy has to do with creating a global platform for Argentine innovation. The "Silicon Pampas" can develop new products to license, including such innovations as new systems for intelligent oil and gas operations. In fact, Yacimientos Petroliferos Fiscales (YPF) has created a spin-off company, YPF Tecnología (https://y-tec.com.ar/Paginas/home.aspx), which invests in start-up and mid-development products. New technology and innovations include innovative pumps, control systems, smart operations systems, and more. Intellectual property has been protected by means of patents. In addition to technologies used in drilling, completing and producing oil and gas, Y-TEC has developed alternative energy solutions, new process for processing and purifying contaminated water, and new approaches for developing monitoring systems using satellite and remote sensing for better management of the arid, fragile environment where many of Argentina’s oil and minerals are found.

The strategy is not without its own difficulties. Devaluation and inflation, along with protectionist policies regarding imports (extremely high duties) make it difficult to import the raw materials and equipment needed for the startups, and it becomes necessary to obtain painfully complicated licenses and exceptions.

Loans for Infrastructure:  Many of Argentina's loans have been for infrastructure, and in fact the so-called "vulture loans" (ones where the loaning entity refused to renegotiate or restructure, thus requiring Argentina to repay the entire principle and interest, often at a high rate of interest), have been for infrastructure. 

Unfortunately, there has been a long history of problems with loans for infrastructure projects; first, the interest rates can be very high, and second, there can be cost over-runs and excesses; third, additional affiliated fees, permits, and licenses can slow development.  The World Bank currently has a number of infrastructure projects in Argentina on the books:

Selected Examples of 
World Bank Projects and 
Operations for Argentina   
                                                                 Total Cost           World Bank Commitment   Approved
Northwestern Road Development
Corridor Project                                       $US 311.00 million      US$ 300.00 million    2017

Metropolitan Buenos Aires Urban
Transformation                                        $US 125.00 million      $US 100.00 million    2019

Salado Integrated River Basin
 Management Support Project                 $US 375.00 million     $US 300.00 million    2017

Argentina Renewable Energy
for Rural Areas Project                             $US 240.09 million    $US 200.00 million    2015

Matanza-Riachuelo Basin Sustainable
Development Project (Sewers in BA)        $US 1000.00 million    $US 840.00 million    2009

Urban Transport in Metropolitan Areas     $US 187.60 million    $US 150.00 million    2009

Argentina First Inclusive Growth
Programmatic
Development Policy Financing                 $US 500.00 million    $US 500.00 million    2018
           
(The World Bank, 2019. http://projects.worldbank.org/)           

Challenges:  It is very difficult to keep politics out of economic development, and so some of the investments may be more politically expedient than truly productive in terms of economic development.

An often failed strategy has been privatization of the long-condemned as inefficient, state-run monopolies (utilities, etc.).  However, while privatization did have the effect of reducing the country's overhead, many of the state-run monopolies eventually can run the risk of becoming de facto private monopolies (or oligopolies).

Laws designed to protect workers are sometimes circumvented because they carry with them high taxes and severe penalties for letting a person from their job. As a result, an underground labor market has begun to supplant the formal labor supply. Much work is done off the books and consists of short-term employment. Not only do the employees not receive the benefits of a regular employee, they have no assurance of regular employment, and the pay tends to be much lower.

Conclusion
Recovery Plan: A recovery plan can leverage infrastructure projects and combine them with innovation (new technologies and communication), supply chain improvements, and productive linkages with local and international markets.

Now that there are certain sectors of the population that are facing food insecurity, and there are serious issues of hunger, an economic recovery plan will need to incorporate provision of nutrition and basic health coverage for the vulnerable (children and elderly), as well as nutritious meals for the workers.

A recovery plan should include the following items:
1.  Improved infrastructure, beginning with roads and sustainable electricity.
2.  Coordination between production (agriculture and extractive) and needed infrastructure.
3.  Targeted innovation and new technology developing in conjunction with infrastructure and production (agriculture, smart operations, mining, oil and gas, medicine, tourism, pharmaceuticals, marketing).
4.  Collaboration and partnering with global marketing networks for developing short-term and long-term markets for products and services.
5.  Private-Public Partnerships to help develop infrastructure, but in a way that protects workers and markets, and generates local employment (avoid importing all the workers, etc.).
6.  Restabilization of the financial sector, in order to attract investment as a "safe haven" investment, which may need development of cryptocurrencies.
7.  Innovation in supply chain operations, and the use of blockchain for assuring integrity, source, supply.
8.  Leverage the geographical position of the Tierra del Fuego, etc. to develop high-tech surveillance, monitoring, and strategic operations, in conjunction with allies.

Once the key elements of a recovery plan have been identified, steps can be taken to build out a critical path and a workflow. Using as many new techniques from supply chain management and risk management can be quite helpful.  In addition, it is useful to develop probabilistic models that can help one simulate the outcomes of different scenarios and then develop plans. 

References
£83 billion towering debt pile crippling Argentina’s economy. (2019, August 31). Daily Mail, p. 105. Retrieved from http://search.ebscohost.com.ezproxy.lib.ou.edu/login.aspx?direct=true&db=n5h&AN=138348395&site=ehost-live

Argentina Country Risk Report. (2019). Argentina Country Risk Report (pp. 1–59). Retrieved from http://search.ebscohost.com.dbproxy.tamut.edu/login.aspx?direct=true&db=bth&AN=137086139&site=eds-live

Berlinski, N. (March 19, 2019). Roads to prosperity. Fixing Argentina's crooked architecture. Prosper: Notes on the Future of Development from CSIS. https://csisprosper.com/2019/03/19/roads-to-prosperity-fixing-argentinas-crooked-infrastructure/

Country Reports - Argentina. (2019). Argentina Country Monitor (pp. 1–59). Retrieved from http://search.ebscohost.com.dbproxy.tamut.edu/login.aspx?direct=true&db=bth&AN=133895584&site=eds-live

Koch, N., & Perreault, T. (2019). Resource nationalism. Progress in Human Geography, 43(4), 611–631. https://doi-org.dbproxy.tamut.edu/10.1177/0309132518781497

Mariza, Nazla. (August 19, 2019). The future of low-skilled manufacturing labor in Industry 4.0. Prosper: Notes on the Future of Development from CSIS. https://csisprosper.com/2019/08/19/the-future-of-low-skilled-manufacturing-labor-in-industry-4-0/

Mexico Infrastructure Report. (2019). Mexico Infrastructure Report, (3), 1–60. Retrieved from http://search.ebscohost.com.dbproxy.tamut.edu/login.aspx?direct=true&db=bth&AN=137341628&site=eds-live

Sanders, P. (2019). Argentina Seeks to Extend Debt Maturities as Reserves Tumble. Bloomberg.Com, N.PAG. Retrieved from http://search.ebscohost.com.ezproxy.lib.ou.edu/login.aspx?direct=true&db=bsh&AN=138321238&site=ehost-live

The World Bank (2019) World Bank project. The World Bank, 2019. http://projects.worldbank.org/)

Interview with Veronica Inoue, Learning Review

Welcome to an interview with Veronica Inoue, managing editor and director of Learning Review, the first publication in Spanish dedicated to elearning. The interview appears here in both Spanish and English.

1. What is your name and what is your connection to e-learning?
Soy Verónica Inoue y me desempeño como Directora Editorial de Learning Review, una publicación que aborda los temas de capacitación y desarrollo con nuevas tecnologías, donde se incluye el e-Learning. Learning Review comenzó como una revista latinoamericana y ahora ya tiene una edición completamente exclusiva para España. Además, soy alumna de una Maestría por e-learning y realizo otras actividades a veces como tutora y otras como participante.

I am Verónica Inoue and I’m the Editorial Director of Learning Review, a publication that presents themes of training and development with new technologies, which incluyes e-learning. Learning Review began as a Latin American magazine, and now it has an edition that is completely exclusive for Spain (here). In addition, I have a master’s degree in elearning, and I am often involved in other activities; sometimes as instructor, and sometimes as participant.


2. How did you first become involved in the topic of e-learning?
Estudié Recursos Humanos en la Universidad y vimos este tema en la cátedra de Capacitación. Dado el interés que me causó este tema (allá por el año 2001), realicé mi tesis en este tema; investigué sobre las implementaciones que se estaban haciendo en distintos ámbitos en Argentina en ese momento.

I studied Human Resources at the university and we say this theme in the department of Training and Development. Given the interest that this topic inspired in me (back in 2001), I decided to do my thesis in this area. I investigated the way that elearning was being implemented in several different areas in Argentina at that moment in time.

3. What is the Learning Review LatinoAmerica, and how did it come into existence?
Learning Review Latinoamérica es una publicación sobre capacitación y desarrollo mediado por tecnologías (e-learning, m-learning, blended learning, educación en mundos virtuales 3D), así como sobre mejora del desempeño humano, gestión del conocimiento y capital intelectual. Produce una revista trimestral en papel para toda Latinoamérica, un newsletter mensual con noticias, eventos y adelantos de la edición en papel, y un sitio web que se actualiza diariamente. (www.learningreview.com).

Learning Review Latin America is a publication that covers technology-mediated training and development (elearning, mobile learning, blended learning, and education in 3D virtual worlds), with the goal of improving human performance, the development of knowledge and intellectual capital.


Learning Review Latinoamérica nació para cubrir la necesidad de información y actualización que demandaban los profesionales de capacitación y desarrollo de las empresas de esta región. Es la primera revista sobre esta temática específicamente, en habla hispana.

4. What is the magazine's primary mission? Who is your target audience? Why?
Our primary mission is to be the partner enables training and development professionals to demonstrate the commercial value of their skills and specialties. We would like to establish a space where training and development professionals find, in a single place, all the information they need to keep current. We also aim to share experiences, trends, research, opinions and news in the training and development sector, that boost one’s knowledge in a continuous and accessible way.

Nuestra misión principal es ser el socio que permita a los profesionales de capacitación y desarrollo rentabilizar las prácticas de su área, así como generar impacto en el negocio.
Establecer un espacio donde los profesionales de capacitación y desarrollo encuentren, en un solo lugar, toda la información para mantenerse actualizados.
Difundir las experiencias, tendencias, investigaciones, opiniones y novedades del sector de capacitación y desarrollo de personas, que permitan crear conocimiento en forma continua y accesible.

Our target audience consists of the following:

Directors of human resources
Training and development managers
Directors of consulting groups that specialize in e-learning, corporate training, continuing education
Leaders of e-learning projects
Instructional designers and instructional technologists who work in e-learning projects
Chairs and others responsable for human resources careers and those affiliated with universities that offer e-learning

El target de nuestra audiencia conforma:
· Directores de recursos humanos.
· Gerentes de capacitación y desarrollo.
· Directores de consultoras de e-learning, capacitación corporativa, educación continua.
· Lideres de proyectos de e-learning.
· Diseñadores instruccionales y tecnólogos que trabajen en proyectos de e-learning.
· Responsables de carreras de RRHH y afines de universidades con oferta presencial y por e-learning.

5. What do you see as the most exciting new directions in elearning in Latin America today?
Creo que finalmente está insertándose en la mayoría de las empresas medianas y grandes. Latinoamérica siempre se encuentra uno o dos pasos atrás de las tendencias mundiales que suelen darse inicialmente, en Estados Unidos, Europa, Japón. Entonces, si bien en las grandes empresas el e-learning es un hecho y ya están yendo en busca de integrar el m-learning o los mundos virtuales, en las empresas medianas está iniciándose el proceso de incorporación y de integración a la modalidad presencial de capacitación. Desde muchos gobiernos de países latinoamericanos, se está comenzando a incentivar estas prácticas de e-learning, principalmente desde la incorporación de esta modalidad de aprendizaje a instituciones públicas. De hecho ya hay interesantes casos de e-learning gubernamental en Latinoamérica.

I believe that elearning is finally being incorporated in the majority of mid-sized and large companies. Latin America always seems to find itself a step or two behind global trends that tend to be initiated in the U.S., Europe, and Japan. Then, in large companies, if e-learning is a given and they're already looking for ways to integrate mobile learning or virtual worlds, then we'll start seeing medium-sized companies initiating the process of incorporating those modes of training. Quite a few governments of Latin American countries are starting to provide incentives to incorporate elearning, mainly in public institutions. In fact, there are already interesting cases of government elearning in Latin America.

6. What are some of the main barriers?
Lamentablemente, la conectividad sigue siendo una de las barreras más difíciles de quebrar en esta región. El problema nunca está en las capitales de los países o las grandes urbes, sino en las pequeñas poblaciones más alejadas de los centros urbanos.
También falta mucho más incentivo, capacitación, iniciativas por parte de los distintos ministerios o dependencias del gobierno (los ministerios de educación, de trabajo, deberían generar políticas y ponerlas en práctica para hacer de esto una cuestión de interés nacional).
Y por supuesto, no puedo dejar de mencionar la barrera cultural que en muchos países aún se torna como principal dificultad. En este sentido será fundamental el rol y la posición que tomen las universidades y los colegios; integrar el e-learning en la educación (en todas las etapas) es fundamental para ir rompiendo esta barrera cultural.


Sadly, connectivity continues to be one of the most difficult barriers to overcome in this region. The problem never occurs in the capitals of countries, or in the large cities, but in the small population centers more distant from the urban centers. Also lacking are incentives, training, and initiatives on the part of different ministries or branches of the government (ministries of education and of labor should generate policies and put them in practice in order to make this a question of national interest.)

Of course, I must not fail to mention a cultural barrier that in many countries still presents itself as the principle difficulty. In this sense, the role and the position that the universities and high schools take is absolutely fundamental. It is important to integrate elearning into education (at all stages) because it is vital in order to go forth breaking down cultural barriers.

7. How can more people have access to elearning?
Esta es una pregunta que es sencilla de responder; el problema es poder poner en práctica aquello que decimos (que es lo más difícil en Latinoamérica). El e-learning puede hacerse accesible a más gente si se pueden concretar iniciativas desde distintos frentes: gobierno, empresas privadas, instituciones académicas. Todos estos actores tienen una responsabilidad social; en este caso, hablando sobre e-learning, su responsabilidad es hacer del e-learning algo accesible. ¿Cómo? A través de capacitación online en cibercafés (que están muy difundidos en toda Latinoamérica); integrando esta modalidad en todas las cátedras de las universidades; promoviendo la capacitación online en centros comunitarios (ya sea tengan o no Internet); integrando el e-learning en la escuela (primaria y secundaria) y sobre todo capacitando a los maestros y profesores.

This is a question that's easy to answer, but the problem is having the power to put into practice what we're talking about (which is most difficult in Latin America). E-Learning can be made more accessible to more people if it's possible to firm up initiatives on different fronts: government, private industry, academic institutions. All the parties have a social responsibility; in this case, speaking of e-learning, the responsibility is to make elearning something that is accessible. How? Through online training in cybercafes (which are widely available throughout Latin America); integrating elearning in all university departments; promoting online training in community centers (whether or not they already have Internet); integrating elearning in primary and secondary schools, and above all, training teachers and professors.

8. What would you like to see happen in the future?
Me gustaría ver que en Latinoamérica se aprovechen todas las oportunidades y ventajas que tiene el e-learning y el blended learning, no solo en las grandes empresas sino en todos los sectores.

I'd like to see all the opportunities and advantages that e-learning and blended learning have to offer come to be taken advantage of in Latin America -- not just in large enterprises, but in all sectors.

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