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The (not) eternal relations between Brazil and Argentina
   
 
 
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The (not) eternal relations between Brazil and Argentina

 
Wednesday, 19 June 2013 09:50
 
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by Andrea Dammacco
EPOS Insights

 

Argentina and Brazil are two countries that have always had some alternating relationships. This time the bone of contention originates from the private sector. One of the greatest Brazilian investors in Argentina, in fact, has decided to suspend the development of a millionaire investment project: it is the Brazilian extraction company "Vale" and the project "Potasio RĂ­o Colorado" in the region of Mendoza.

Since 2007 this company has almost invested in Argentina the 50% of the present Brazilian assets in the territory, and the direct motivations of its decision must be founded in the increase of the wage costs, exchange market’s restrictions and distorsions, in which the impossibility to put again the utilities to the country of origin as the increasing tributary pressure of the national state.

Actually it is the loss of competitiveness that Argentina is experimenting in many sectors. Furthermore actual economy is in decrease. Growth rates, not at the 8% as the average of the last ten years, and the unpredictable political situation are the ingredients that imbrue the image of the country to international level, negatively influencing the foreign investment.

In the case of Brazil, fourth investor country in Argentina after Spain, United States and Holland, the decision of "Vale" could be the first step to a widen process of Brazilian disinvestment in Argentina.

In historical perspective, since 2007 they have been recorded around fifteen projects of investment with a value of 13 billion dollars. The mining investments correspond to around the 50% of the whole volume and "Vale" represents the 100% of the investment in this sector, considering that this enterprise maintained projects of investment in Argentina of the value of almost 6 billion dollars.

Even if from years the political and economic agenda of the two countries has lived an almost total harmony, since 2010 divergent affairs have emerged and the situation has seems to have met its point-break entering phase of afterthought. The Brazilian investment in Argentina is, in fact, decreased a 20% in 2012 comparing to 2011 and with the decision of  "Vale" the fall it could overcome 60% in 2013.

The origin of the disagreements comes from the protectionist decisions implemented by the argentinian government that have made to become impatient the brazilian public sector and few to few that private sector. Nevertheless, it does not need to forget that in the bilateral relationship Argentina-Brazil from 2003, Brazil has been the beneficiary partner from the regional integration, from the other side in this last decade the retreat of European investments from Argentina has been filled with Brazilian investments.

With the decision of "Vale", Argentina has a model of development protectionist that now international partners don't even like it. Perhaps the patience has reached a turn and more foreign enterprises are leaving the argentinian territory, on which an uncertain panorama reigns.

The problem is that the economic reality and politics in Argentina has reached a tall degree of risk and the international enterprises that operate in the country begin to compile their inversions in countries in this moment surer: Chile, Peru, Colombia, Uruguay. Now the ball pass to the politics, and this must promote the bilateral relationships with a renewed strategy and must satisfy the inside voices and the international partners.

Last modified on Thursday, 04 July 2013 10:06
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