Will Improvements in Brazilian Infrastructure Marginalize Argentina?

Argentina is a country that is relatively poor due to policy rather than a lack of resources and easy access to global markets. Though the 2015 presidential election could bring an administration with more pro business policies to power it is important to note that such a shift will not necessarily result in a major influx of capital as issues related to the development of infrastructure could still hinder the country’s development. Infrastructure and investment go hand in hand as capital is less likely to flow into countries that lack adequate facilities. The 2001-2002 Argentine default and the seizure of Repsol’s majority stake in YPF (a settlement may have been reached but a precedent has also been set) will also make investors wary of financing construction. This is not to say that there will be no investment. After all there is some foreign investment aimed at developing the Vaca Muerta shale reserves and Argentina’s hydropower resources. The reality though is that risk increases the cost of capital so the projects that do get funded will likely be on terms that are less favorable to the Argentines than they otherwise would be thus reducing the total funds that can be put towards development.

Improved infrastructure in other parts of the Americas could make Argentine exports less competitive. Argentina is the third largest soy producer in the world after the Brazil and the United States. The expansion of the Panama Canal could make the later two exporters more competitive when shipping soybeans to Asian markets. In addition to this Brazil is attempting to invest $27 billion to improve its infrastructure with the goal of quadrupling Brazilian exports by 2030. Brazil became the largest exporter of soy in 2013 despite its poor infrastructure. Projects such as the development of the Amazonian port of Santarem would make the country even more competitive. Though Brazil has its own share of political and economic issues we have seen that auctions privatizing Brazilian highways, airports and ports are proving to be fairly effective in attracting capital to the country. If Brazil continues to develop and Argentina continues to stagnate it will be difficult for the later to develop infrastructure that is competitive with Brazil. The Argentines could find themselves in a position where they might have to ship some of their goods via Brazilian ports. This would eat into Argentina's profits resulting in less capital for the country to invest in itself.

To truly develop countries have to move beyond being exporters of raw commodities whose prices fluctuate dramatically. Such as shift requires investment and the development of infrastructure such as power plants, adequate port facilities, and internal transport network. Funding such projects is challenging given Argentina’s track record and economic policies. As we have seen competition and the need to rely on foreign ports could further weaken the country and limit the amounts of capital that it can bring to develop its infrastructure. This vicious cycle is a situation that will need to be monitored closely. The increasing demand for agricultural commodities and Argentina’s geographic location will allow it to profit from its resources. That said, a country profiting off of its resources and a country developing to its full potential is not the same thing.