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Friday, July 11, 2014

The Potential Impact of a BRICS Development Bank on Argentina

From July 14th to July16th Brazil will host the 6th Summit of Heads of State and of Government of BRICS. This meeting will likely see the emergence of a BRICS Development Bank that will serve as an alternative to the World Bank, which the BRICS see as too heavily oriented towards Western interests. Though the idea for such a bank has been discussed since 2012 the impact of the Federal Reserve’s tapering on countries such as India and South Africa, Chinese unease over the fluctuation of the US dollar, and the challenges that Russia is facing due to its actions in Ukraine have accelerated this project. One country that could benefit from a BRICS Development Bank is Argentina.

Russia has invited Argentina to the BRICS summit and is supporting the possibility of Argentina joining the organization. This can been seen as part of Moscow's effort to generate good will in order to increase trade and enhance its presence in Latin America. To achieve this end Russia has also canceled 90% of Cuba’s $35 million debt and backed Brazil for a permanent seat on the United Nations’ Security Council. If Argentina joined BRICS, or at least had access to capital from the BRICS Development Bank, it could greatly benefit the country. The reality is that due to the default of 2001 Argentina is a relatively risky place to invest and has struggled to attract capital since the default. Access to the BRICS Development Bank combined with Russia’s efforts to build good will in Latin America via trade and investment could help Argentina attract the capital it so desperately needs.

Argentina will likely seek funding to improve their ports from either the Russians or the BRICS Development Bank. As things stand now the expansion of the Panama Canal and the creation of the Nicaragua Canal will likely make Argentine exports such as soy less competitive as compared to comparable US and Brazilian exports. The latter countries are both closer to the canals and have or are developing their infrastructure to capitalize on this shift in global shipping. The Brazilians in particular have been very active in developing their ports and improving transport from the interior to the coast. Argentina does not want to be left behind. In a worse case scenario the Argentines could find themselves dependent on Brazilian ports thus reducing profits from their exports while enriching their regional rival.



If Argentina is able to attract the capital it needs to be competitive on the global market it could help the country rehabilitate itself economically. A shift to a leadership that is more business friendly could facilitate this process though it is important to note that any attempt for the country to become more economically sustainable would presumably result in cuts to social spending which would likely lead to social instability and a heightening of political risk. That said, Argentines are tired of the country's economic decline and are no doubt acutely aware of how neighboring Uruguay has been flourishing due to its relatively pro-business policies. Argentina has seen political instability in the past. If Buenos Aires can attract capital and survive whatever unrest results from potential economic reforms we could see the country return to the level of economic development that its geography and resource base should afford it.