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August 23, 2021

The Week at a Glance

Argentina: Pro-investment legislation? That’s new!

BY Alejandro Giacoia, Andrés Borenstein, Miguel A. Kiguel, Lorena Giorgio, Isaías Marini

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The government announced this week that it will soon send to the Congress the Law that encourages investments in oil and gas. It is not a Hail Mary play, nor will it be a breaking point, but it is a step forward in the recognition that investments are the only key to long-term growth.

Get Smart

We are 86 days away from the midterms and the government will use all the policy tools at its disposal to control the official exchange rate market until then, leading us to the most important RER overvaluation of the last five midterms. This strategy is not exempt of risks, although we are pretty sure that the government’s economic policy will make every effort, regardless of the costs in terms of the distortions it generates or the foreign exchange reserves it sacrifices along the way, in order for it to be fulfilled. However, at the end of this period of extreme resistance, we think that it will be follow a summer of exchange rate recalibration, a scenario that finds a foothold in both recent history and macroeconomic “fundamentals”. It would be something like putting “99” in command, the only one who had common sense in the duo of agents in the series.

Activity: a first semester with ups and downs, a second one more stable

Economic activity rebounded 2.5% monthly (without seasonality), in line with our projections. This offset the decrease in May, which had been 2%, meaning that June closed slightly above April, but below March or any other month in the first quarter. In this way, taking the EMAE as a proxy, in the first semester the GDP accumulated a rise of 9.7% against the same period of 2020, but in the comparison against 2019, it was still 3.9% down. The first half of the year was marked by ups and downs, but the second semester the activity will improve slightly with more stability, although the arrival of the Delta variant is a risk that could impact the recovery. Even considering this risk, we expect GDP to close the year with a 7.4% rise. If the activity remained at the current level it would still be 6.8% higher than last year, which means that we expect some more growth, but nothing spectacular.


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