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Payment Clears Way For Argentina's Ag Infrastructure Improvements

Cheaper farm loans, infrastructure funding

Buenos Aires, Argentina -- After paying up on a longtime international debt, the coast is clear for Argentina's government to get funding for building infrastructure to ship and export more corn and soybeans.

The South American country’s leaders have issued new bonds this week and finally deposited bonds totaling $15 billion, which will give an end to the selective default status, after an agreement with a group called the holdouts was accepted by the New York arbitration judge Tomas Griesa.

This will enable the country to get international loans at a lower cost through international agencies such as the International Monetary Fund, the World Bank, and the Inter-American Development Bank or foreign private banks in order to restructure debts of its federal government, provinces, companies, or individual investors. In terms of grains, the relevance of this is that Argentinean farmers may pay for investments at a lower interest rate and that the infrastructure in the country will improve.

For background, Argentina had defaulted on private funds in 2001, during its worst economic depression in history, regarding a loan of 1994. In 2005 and 2010, the South American country had offered an exchange payment that just 93% of the creditors accepted. In 2014, New York Judge Griesa issued a decision in favor of the 7% of the creditors that were not in favor of Argentina’s original payment offer.

The case is decided in a New York court because the private funds are owned by citizens of multiple nationalities, and the contracts sets New York as arbitrary sight.

 As of today, Argentina produces about 100 million metric tons of soybeans, corn, wheat, and related crops. But if the country improves infrastructure in Northern provinces, and over time cuts the remaining export taxes of 30% on soybeans as predicted curbing inflation, the total volume can jump to 160 million metric tons by 2025. For the next crop, on the other hand, the forecast of Agritrend, a Buenos Aires consultancy, is that the surface of those grains will jump 6% in the next crop.

“Most of this is due to the effect of cutting export taxes, unifying the currency exchange rate, and ending with limitations to export grain. More efficiency will come with more time with improved infrastructure,” Agritrend director Gustavo López told Agriculture.com.

Pablo Fraga, a market analyst based in Rosario, Northeastern Argentina, says that more “fluid” availability of credit for the overall economy will benefit Argentine agriculture, but more efficient logistics in Northern provinces will take time to facilitate a significant surface increase. “There are big projects that will take at least one decade,” said Fraga.

This week, the government has approved the projects such as improvements of roads, railways, waterways, bridges, ports, and airports in northern Argentina. These improvements will help prioritize trade with neighboring countries such as Chile, Brazil, Paraguay, and Bolivia, according to the government’s Belgrano Plan.

Guillermo Rossi, director of information and economic studies at the Rosario Board of Trade, says that more external investments will come to Argentina’s farms, and some important infrastructure investments will be done quicker. “Road improvements and the access to the Rosario port are very important,” adds Rossi.

HSBC senior economist for Argentina, Chile, and Uruguay, Jorge Mongestern, explains that the impact of this payment is greater for larger scale operations. “This will imply a boom in investments in key sectors of the Argentine economy, such as agriculture and farming, including improvements in productive processes, R&D in biotechnology areas, and infrastructure. Companies with scale will regain access to international credit markets with competitive rates and long- and medium-term facilities, while local banks will dispose of increasing credit facilities to finance small- and medium-scale companies,” says Mongerstern.

For Javier Amuschategui, an executive of Tecnocampo, a corporate farm with over 54,000 acres planted, this agreement will allow his group to consider taking international loans to make more investments, but he is skeptical of any short-term improvement in the North of Argentina.

“We could do investments at lower costs. Regarding the North, I don’t believe that the debt payment will lower the current freight costs anytime soon. With these better conditions for agriculture and the economy, considering the commodity prices, we will increase our corn surface and invest in specialties for export, such as kidney beans,” declared Amuschategui.

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Written By Luis Vieira, South American-based freelance writer for Agriculture.com/Successful Farming

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