Alejandro Werner: “Argentina cannot sustain the size of the State it currently has”

Alejandro Werner was Director of the IMF’s Western Hemisphere Department, between 2013 and 2021, when the IMF granted an important loan to the government of Mauricio Macri. Despite being born in Buenos Aires, he grew up in Mexico and a good part of his career appeared there, where he was Undersecretary of Finance and Public Credit and Chief of Staff to the Secretary of the Treasury. Doctor in economics from the Massachusetts Institute of Technology (MIT) and currently a post at Georgetown’s Institute of the Americas, in this interview with Perfil he shares a global vision of the future of the region. “Argentina has a very important potential if it solves its macro problem”, he maintains. Why he believes that Latin America is facing an opportunity to accelerate development.

—The global economy changed after the pandemic. How to describe the actual scenario?

—Three factors are generating changes in the world economy: the pandemic, the war between Russia and Ukraine, and the tensions between China and the US. The pandemic ended, but it left scars. This is seen in lower per capita GDP growth in emerging countries and in the loss of human capital, both due to the higher mortality rate and the deterioration of education. On the other hand, commercial risks distorted international trade and led companies to think about having production chains closer together, which gave rise to nearshoring. The pandemic also had positive effects. Some analysts say that we advanced seven years in the adoption of technology due to the need to work remotely, which will be reflected in productivity. It also impacted on the need to reorganize production taking into account social distancing and lockdowns, as well as the emergence of ideas and innovations in multiple fields.

—What changed with the war in Ukraine?

—In addition to being a terrible humanitarian event, it reshaped the commodity market. Because of the dependence that Europe had on Russian gas. This incorporated into the commodity or high-tech market, such as chips, the possibility of my trading counterpart using that dependency for geopolitical purposes. Thus, it encouraged the search for supplies in allied countries, the so-called ally-shoring, which changes the purely economic conception of the raw materials market. We also saw a deeper use of economic sanctions by the US.

—And with the tensions between the US and China?

—The tensions between China and the US began with a commercial objective and the protection of intellectual property during the government of Donald Trump. The Biden administration maintained the tariffs and deepened the antagonism with China, which is not just commercial but geopolitical. It is a change in the conception of the relationship with China. Washington’s goal is no longer to accelerate the transition to a market economy and a democratic society, but instead sees the country as a threat to US supremacy in the world. For its part, China has adopted a more assertive position in its geopolitical role, deepening the antagonistic dynamics. A more antagonistic policy requires clear alignments between those who are one’s allies and those of the opponent. This causes global production chains to be relocated away from China. It is a permanent change, independent of the political party in power. One of the few issues that unite Republicans and Democrats in the United States Congress.

—What are the implications of nearshoring and ally-shoring for Latin America?

—The US sees Latin America as a region that is not aligned with the antagonistic players, such as Russia or China, although some may have sympathies. The US had somewhat forgotten about the region, which is not relevant from a geopolitical point of view, but now it is back because these countries can be a source of alliances in production chains. We are talking about lithium, copper and other rare metals, necessary for the energy transition. They are also well positioned to relocate part of the manufacturing processes, especially Mexico, Central America and the Caribbean. That is why the Biden government raised the America’s Partnership for Economic Prosperity. If it is not accompanied by resources and concrete proposals for integration, it is quite weak compared to the aggressiveness and vision with which China implements its foreign policy. On the other hand, nearshoring implies the return of an ideology that believes in industrial policy, something that has not been seen in the last decades.

What do you mean by the aggressiveness of China’s foreign policy?

—When Latin America needed vaccines against COVID, China’s response was much faster and more forceful than that of the US. The same goes for certain credits. When some countries in the region had urgent and needy situations, China provided answers. If the US does not change the way it operates international politics, it will have an important competitive advantage.

—How do you see the near future of the region?

—2022 surprised us positively, with a very dynamic Colombian economy, while Brazil and Mexico grew more than expected. Perhaps we economists underestimate the long-term negative effects of COVID. The high prices of raw materials also had an influence. In the case of Mexico, it affected the rapid growth of the US. In the Caribbean, the recovery of tourism. And the reopening of China at the end of the year also helped the entire region. But I share the vision of a significant slowdown in Latin America in 2023, with possible recessions in some countries like Chile. However, Latin America is well positioned for the future.


—Raw materials are expected to have historically high prices, it is a region that is very abundant in the resources necessary for the energy transition and can receive important links in global production chains. An example is the announcement of the construction of a Tesla mega plant in Nuevo León, Mexico. These processes are going to be important, but I don’t think they will be able to induce an inclusive growth process that leads to a convergence of per capita income levels with advanced countries. Rather we are talking about further growth in the next 10 or 15 years. In order to achieve a change in the levels of development, in addition to external factors, an acceleration in the processes of structural transformation would be needed.

—What do you think of the current situation in Argentina?

—As an economist one gets hooked on Argentina as if it were a bad soap opera. See the chapters and the same problems continue, which are not resolved. Now envision a new season of adjustment and reform. Argentina is overdiagnosed, the big question is how to achieve political consensus to carry out a process of deep reforms in a short term. Argentina cannot sustain the size of the State it has today. The level of taxes, including the inflationary tax, makes it an economy with low levels of investment and closed to the outside world. Because if it opens, the capital flight would be gigantic. No one has confidence that this model can be sustained. A macro and microeconomic revolution is needed. A labor and pension reform, opening up to mining, very important infrastructure projects such as the waterway and the gas pipeline plan, a clear framework to develop lithium. Argentina has a very important potential if it solves its macro problem. A political consensus is necessary to carry out the most aggressive transformation agenda the country has seen since the 1990s.

—Argentina going through the worst drought in decades and some speculate that the IMF will grant extraordinary help for this situation. It’s possible?

—The drought was a very important negative shock, but Argentina had a surplus in the previous two years due to additional exports and did not save a penny. If he had, he could handle the drought. That being said, it is likely that the IMF is willing to invest a small amount to close the deal and that the minister may return to the country to say that he has obtained additional funds. The IMF is buying time to avoid Argentina’s default in June. Thus, he would postpone the situation until after September and that would be close to the inauguration of the new government, with which he could negotiate a new program.

*Francisco Uranga contributed.

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