Key Takeaways
* Economist Ricardo Arriazu warns that the structural economic changes under President Javier Milei’s program are currently destroying more jobs than creating, particularly in the Greater Buenos Aires (GBA) region.
* The concentration of manufacturing, construction, and commerce in the GBA means that job losses in these sectors disproportionately affect the area, posing a significant political challenge for the government, especially with upcoming elections.
* While Argentina has vast potential in energy, mining, and agriculture for long-term export growth, immediate policy interventions are needed to mitigate job losses and support vulnerable middle-class workers.
Economist Ricardo Arriazu has cautioned that the ongoing structural transformation of Argentina’s economy under President Javier Milei is creating more job destruction than creation in the short term, identifying the Greater Buenos Aires (GBA) region as the primary political bottleneck. Arriazu’s concerns, voiced during a BlackToro Asset Management event, stem from the paradox that the sectors driving growth – energy, mining, and agriculture – are capital-intensive and not major employers, while those contracting – industry, construction, and commerce – are significant job providers concentrated in the GBA.
“Destruction is faster than creation,” Arriazu stated, highlighting how these shifts can generate “political noise” with direct electoral consequences. He pointed to the upcoming elections in the GBA as a critical test for Milei’s administration. Data supports his apprehension: while the national employment rate fell by 0.7 percentage points year-on-year, the decline in the AMBA (Metropolitan Area of Buenos Aires) was twice that, at 1.3 percentage points.
Arriazu detailed Argentina’s significant long-term export potential. By 2030, he projects energy exports to reach approximately $32 billion, driven by the Vaca Muerta shale formation and expanded infrastructure. Mining, particularly through projects like Vicuña, could generate $25 billion annually in copper exports by 2032. The agricultural sector, with the elimination of export taxes, could add nearly $20 billion in annual foreign currency earnings.
However, this potential coexists with a tense present. Arriazu noted that construction and commerce are the only sectors capable of creating enough jobs to offset industrial losses but are currently hampered by contractionary monetary policy and high interest rates. He explained that the irregular loan portfolio of banks has grown due to high rates and a cooling economy, which in turn inhibits credit. “The economy has stalled,” he remarked.
While aggregate consumption appears at historical highs, Arriazu clarified that this figure includes robust growth in tourism, vehicle sales, and travel, which absorbed a significant portion of spending. Mass consumption for the general populace is considerably lower. Furthermore, much of this spending was credit-financed, and the combination of rising interest rates and stagnant income has left many debtors unable to pay, leading banks to be more reticent to lend.
Arriazu offered a cautiously optimistic long-term outlook, estimating the success probability of Milei’s program at 50%, up from 30% last year. However, he reiterated that overcoming the “bottleneck of the next election in Greater Buenos Aires” is paramount for Argentina’s transformation. He suggested that active compensation policies, such as unemployment benefits and targeted public works, are necessary but currently not being implemented by the government.
Economist Fernando Marengo provided a more technical analysis, forecasting April inflation below 3% and an annualized rate around 25% in the second half of the year, once temporary price pressures subside. He agreed with Arriazu on the desirability of lowering nominal interest rates. Marengo also emphasized the heterogeneity of the economic recovery, noting that while overall activity is high, specific sectors like manufacturing remain significantly below their historical peaks. He warned that falling inflation is exposing the true productivity levels of Argentine companies now that they can no longer rely on currency differentials and high interest rates to mask inefficiencies.
Marengo identified the middle class as the most vulnerable sector during this transition. He noted that while the upper income third can absorb price increases and the lower third receives support through social programs, the middle segment – typically industrial workers with formal employment – is suffering from the adjustment in sectors that previously benefited from distorted incentives. The crucial question, Marengo posed, is how to support this group, suggesting public works and a monetary policy that facilitates credit expansion and job-intensive sector reactivation as potential solutions.
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