09.23.24
The national austerity and deregulation campaign of Argentina’s new liberal President Javier Milei has slowed inflation, encouraged a business shift toward dollarization, and cut residential rent controls, among myriad other changes in the country since he took office in December.
At his inauguration, Milei warned, “There is no alternative to a shock adjustment... There is no money.” While the Argentine economy still has a long way to go to get out of the woods, self-titled “anarcho-capitalist” Milei has garnered praise from the International Monetary Fund and a host of free-market advocates for his efforts thus far.
Milei’s focal effort to decelerate inflation has been a difficult struggle, although he has brought it down from a recent peak of nearly 300% in April to an annual rate of close to 200% in August. But his administration’s stated policy is to reduce it to just over 100% by 2025. Argentina is no stranger to hyper-inflation: the rate hit a record 20,000% or so in 1990 and there has been an on-again, off-again effort to control it ever since, in part due to socialist government policies for spending.
In August, Milei threw out the 2020 Rental Law — instituted by the former leftist administration — that led many landlords to keep their units off the market in hope of higher returns at a not-too-distant date. Prior to the repeal, one in seven apartments in Buenos Aires were kept empty, according to an August report in Newsweek.
Refurbishing those apartments could prove a boost to architectural segment sales in the country. The Argentina architectural coatings market is estimated to reach a value of nearly $650 million by the end of 2027 after growing at a compound annual growth rate (CAGR) of around 4.5% during the five-year period between 2022 and 2027, according to a study by IndustryARC (see CW 04/26/23).
While a 2024 year-to-date retraction in the Argentinian paint and coatings market of some 4% as of July is not good news, the ten other key construction materials tracked by the Cámara Argentina de Pinturerías (CAPIN), the national paint sellers association, have fared worse, contracting between 4% and 45% CAPIN reported in September.
The construction industry overall shrank by over 20% as of August, according to statistics citing the state data agency Dirección Nacional de Estadísticas Económicas (INDEC), Dirección Nacional de Estadísticas Económicas and other agencies.
For one international paint and coatings manufacturer, the current austerity period represents an opportunity to lay the groundwork for future returned growth.
A year ago, Fernando Domingues, the general business director for AkzoNobel Decorative Paints South Cone countries, Latin America, said, “We at AkzoNobel see big opportunities to grow the category in Argentina, even in inflationary periods like these days.”
“The expectation is that the market will remain tough for the next few years in terms of macro-economic drivers, but with the plans that we have to grow the category and our brands, we expect to do better than GDP [gross domestic product] by 2% to 4% in terms of volume,” said Domingues (see CW 4/26/23).
Expenditures on paint for the architectural segment may surge on the new competition among property owners and on new tenant enhancements to properties. The new construction market for housing is growing at both the entry level and at the luxury ends.
Luxury housing in Argentina is being led by private investors like Consultatio SA, which is reported to be planning additional investments of up to $1.5 billion worth of gated communities in Buenos Aires, Patagonia and other provinces. The company has developed such portfolios in Miami, and has several planned for Uruguay and Paraguay. The company’s Nordelta community, north of Buenos Aires, now houses some 40,000 residents, along with shopping centers, health care infrastructure and schools.
Entry-level housing also is growing with federal programs and with multilateral bank loans. In April, The Inter-American Development Bank approved a $150 million loan for housing conditions Argentina, aiming to target over 8,000 vulnerable households in and around low-income neighborhoods.
Much of the entry-level assistance is directed to Buenos Aires, with some 15 million residents in the capital city and the 40 surrounding municipalities in the Province of Buenos Aires, which cumulatively is larger than Puerto Rico. On a national level, it is estimated that about 10% of the country’s population of more than 44 million live in sub-standard settlements.
While several long-standing government programs exist to financially assist with the acquisition of land and the construction of housing, the current austerity program is not expected contribute much investment over the near term.
Austerity Rewarded with Multilateral Loans
Still, the economy is now in recession, with the International Monetary Fund (IMF) forecasting a contraction of 3.5% this year. Still, Milei’s radical economic changes in Argentina have been met with praise from the IMF, which in June cleared a review of the country’s financial reform with an $800 loan commitment, part of billions already loaned or soon to be loaned.
“All quantitative [government economic] performance criteria through end-March 2024 met with margins,” IMF analysts reported in June.
“Since the last review, continued resolute actions to restore macroeconomic stability have put the program firmly on track. The stabilization plan — centered on a strong fiscal anchor with no new monetary financing — has delivered fiscal and external surpluses, a marked turnaround in reserves, a strengthening of the central bank’s balance sheet, and faster-than-expected disinflation, while upscaling social expenditures,” reported IMF’s Gita Gopinath, first deputy managing director and acting chair of the IMF Board, in June.
At his inauguration, Milei warned, “There is no alternative to a shock adjustment... There is no money.” While the Argentine economy still has a long way to go to get out of the woods, self-titled “anarcho-capitalist” Milei has garnered praise from the International Monetary Fund and a host of free-market advocates for his efforts thus far.
Milei’s focal effort to decelerate inflation has been a difficult struggle, although he has brought it down from a recent peak of nearly 300% in April to an annual rate of close to 200% in August. But his administration’s stated policy is to reduce it to just over 100% by 2025. Argentina is no stranger to hyper-inflation: the rate hit a record 20,000% or so in 1990 and there has been an on-again, off-again effort to control it ever since, in part due to socialist government policies for spending.
Paint and Coatings Demand to Rise
One key change in Argentina of interest to the international paint and coatings industry is the end of rent increase and lease term control for the residential real estate market.In August, Milei threw out the 2020 Rental Law — instituted by the former leftist administration — that led many landlords to keep their units off the market in hope of higher returns at a not-too-distant date. Prior to the repeal, one in seven apartments in Buenos Aires were kept empty, according to an August report in Newsweek.
Refurbishing those apartments could prove a boost to architectural segment sales in the country. The Argentina architectural coatings market is estimated to reach a value of nearly $650 million by the end of 2027 after growing at a compound annual growth rate (CAGR) of around 4.5% during the five-year period between 2022 and 2027, according to a study by IndustryARC (see CW 04/26/23).
While a 2024 year-to-date retraction in the Argentinian paint and coatings market of some 4% as of July is not good news, the ten other key construction materials tracked by the Cámara Argentina de Pinturerías (CAPIN), the national paint sellers association, have fared worse, contracting between 4% and 45% CAPIN reported in September.
The construction industry overall shrank by over 20% as of August, according to statistics citing the state data agency Dirección Nacional de Estadísticas Económicas (INDEC), Dirección Nacional de Estadísticas Económicas and other agencies.
For one international paint and coatings manufacturer, the current austerity period represents an opportunity to lay the groundwork for future returned growth.
A year ago, Fernando Domingues, the general business director for AkzoNobel Decorative Paints South Cone countries, Latin America, said, “We at AkzoNobel see big opportunities to grow the category in Argentina, even in inflationary periods like these days.”
“The expectation is that the market will remain tough for the next few years in terms of macro-economic drivers, but with the plans that we have to grow the category and our brands, we expect to do better than GDP [gross domestic product] by 2% to 4% in terms of volume,” said Domingues (see CW 4/26/23).
Residential Rental Market Supply Doubles
Since Milei changed the law, the capital city rental market supply doubled and rents have fallen, inspiring rediscovered competition in the market. "We've seen a significant increase in rental apartments, and in some cases, we had to lower prices in pesos because of fewer viewings," Soledad Balayan, head of the real-estate agency Maure Inmobiliaria, told Argentine newspaper La Nación, Newsweek reported.Expenditures on paint for the architectural segment may surge on the new competition among property owners and on new tenant enhancements to properties. The new construction market for housing is growing at both the entry level and at the luxury ends.
Luxury housing in Argentina is being led by private investors like Consultatio SA, which is reported to be planning additional investments of up to $1.5 billion worth of gated communities in Buenos Aires, Patagonia and other provinces. The company has developed such portfolios in Miami, and has several planned for Uruguay and Paraguay. The company’s Nordelta community, north of Buenos Aires, now houses some 40,000 residents, along with shopping centers, health care infrastructure and schools.
Entry-level housing also is growing with federal programs and with multilateral bank loans. In April, The Inter-American Development Bank approved a $150 million loan for housing conditions Argentina, aiming to target over 8,000 vulnerable households in and around low-income neighborhoods.
Much of the entry-level assistance is directed to Buenos Aires, with some 15 million residents in the capital city and the 40 surrounding municipalities in the Province of Buenos Aires, which cumulatively is larger than Puerto Rico. On a national level, it is estimated that about 10% of the country’s population of more than 44 million live in sub-standard settlements.
While several long-standing government programs exist to financially assist with the acquisition of land and the construction of housing, the current austerity program is not expected contribute much investment over the near term.
Austerity Rewarded with Multilateral Loans
In September, the Milei administration laid out economic goals for 2025, including a 5% gross domestic product (GDP) growth target, continued devaluation of the peso to an exchange rate of about 1,200 pesos to one U.S. dollar — compared to around 800- or 900-to-1 now — and monthly inflation of 18.3% inflation that would contribute to an annual rate of just over 100%.
A decade of economic failures is waiting for Milei to correct. He recently told the Congreso de la Nación Argentina (the national congress of Argentina) that a balanced budget has not been projected to the Congress since 2014 and that a fiscal surplus has not been recorded since 2010. Nonetheless, he projects his administration will record an initial surplus by 2025.
Still, the economy is now in recession, with the International Monetary Fund (IMF) forecasting a contraction of 3.5% this year. Still, Milei’s radical economic changes in Argentina have been met with praise from the IMF, which in June cleared a review of the country’s financial reform with an $800 loan commitment, part of billions already loaned or soon to be loaned.“All quantitative [government economic] performance criteria through end-March 2024 met with margins,” IMF analysts reported in June.
“Since the last review, continued resolute actions to restore macroeconomic stability have put the program firmly on track. The stabilization plan — centered on a strong fiscal anchor with no new monetary financing — has delivered fiscal and external surpluses, a marked turnaround in reserves, a strengthening of the central bank’s balance sheet, and faster-than-expected disinflation, while upscaling social expenditures,” reported IMF’s Gita Gopinath, first deputy managing director and acting chair of the IMF Board, in June.
