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A Tale of Two Countries

November 17, 2010 Leave a comment Go to comments


By Mark Mobius, Executive Chairman, Templeton Emerging Markets Group

Argentina’s economy has been growing at a steady pace since the 2001-2002 economic crisis, typical of a recovery following a period of depression. The country has also benefited from a global environment that has allowed it to enjoy the best terms of trade in more than a century. Its level of recovery is made possible by its investments in infrastructure and the development of its agriculture sector in the 1990s, a period of strong capital inflows.

The country is now undergoing a political transition as the presidential elections will take place in October 2011. Following the recent passing of former President Nestor Kirchner, it is premature to say if Mrs. Cristina Kirchner’s administration will be able to cope with the death of her husband and mentor. Although Mrs. Kirchner had enjoyed good support in the polls and could well head her party’s ticket for the 2011 presidential elections, the government has, after all, suffered the loss of a key member articulating governmental policies. Mr. Kirchner’s departure is a significant, negative impact to the political spectrum that they represent and it increases the chances of other political ideologies taking power in the country in the coming elections. We think the current administration is unlikely to significantly change policies before next year’s elections, but political developments in Argentina can be very dynamic. With the high degree of uncertainty going forward, we will continue to watch developments closely.

While the external environment remains favorable, adjustments are needed to sustain Argentina’s economy in the long run. Actions that we believe are required include normalizing utility rates, liberalizing markets currently under government restrictions, or slowing the pace of growth of public spending to cool down a possibly overheated economy. It remains to be seen whether the current or new administration will make such bold but necessary moves.

In the economic sphere, although the country is experiencing good growth, Argentina has been experiencing high inflation for the past 4 years, moderated only by the global financial crisis in 2009. The origins of inflation in Argentina are a combination of several factors, such as the after-effects of devaluation in 2002 and subsequent loose fiscal and monetary policies that expanded domestic demand above GDP growth potential.

In spite of the uncertainties, I think there are a few Argentinean companies that can increase their market share and prosper due to their multi-national nature, and these are usually the companies we look at.


By Claus Born, Senior Executive Director, Templeton Emerging Markets Group

The recession in the U.S. hit neighboring Mexico hard due to the strong trade links between the two countries. In 2009, Mexico’s economy posted its worst contraction since the 1930s and the worst performance in the Latin American region, with GDP contracting by 6.5%.[1] Recovery in 2010 remains comparatively modest but exceeded expectations from the beginning of the year. GDP growth is projected at 5% for 2010 and forecasted by IMF to be moderate at 3.9% in 2011.[2]

In the medium to long term, the country’s young and growing population should continue to drive internal demand with increasing purchasing power, which should benefit sectors exposed to domestic consumption. While Mexico remains very dependent on the U.S. economy, where 80% of its total exports are headed, a high number of free trade agreements may enable it to diversify its export base going forward.[3] This is how I see the country progressing in terms of recovery and growth.

In the next post, the last part of this series on Latin America, we’ll talk about the upcoming integration of Chile, Colombia and Peru’s stock exchanges and the economic outlook for the region.

[1] Source: IMF, WEO, as of October 2010.

[2] Source: IMF, WEO, as of October 2010.

[3] Source: U.S. Department of State, May 2010.

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