Why Argentina’s economic crisis could benefit Brazil
Investor must-know: Why Brazil faces challenges and opportunities (Part 6 of 11)
Brazil is facing two headwinds
Brazil’s two main headwinds are:
1. The immediate need for socioeconomic development in its economy
2. Competition from Argentina
Brazil is working to improve the socioeconomic progress in the country. With Argentina’s recent decline in power, there seems to be a geopolitical opportunity for Brazil.
Those invested in the Global X MSCI Argentina ETF (ARGT) may want to reevaluate their holdings. In contrast, investors in the iShares MSCI Brazil Capped ETF (EWZ)—which has stocks like Vale SA (VALE), Itau Unibanco Holding SA (ITUB), and Petroleo Brasileiro SA Petrobras (PBR) in its portfolio—might expect better days ahead.
Argentina’s decline
Argentina’s decline started when the country’s leadership lost the drive towards industrialization. Instead, it focused on maintaining its popularity. It spent on social programs by taking on more debt. In the past, Argentina had the potential to dominate the southern region of Latin America. It could become a world economic power. Now, it has persistent debt issues, political fragility, and a declining economy.
The country has little room left for the politically unpopular strict measures. The measures may be necessary to restore its economic health. Argentina has been consumed with internal issues and a steadily declining economy.
The more Argentina is involved internally, the less attention it can devote to maintaining authority in the fertile Rio de la Plata region. The less attention Argentina pays to the Rio de la Plata region, the better the odds are for Brazil to move southwards in a bid for continental dominance.
Brazil’s opportunity
Brazil has the opportunity to use Argentina’s preoccupation to root itself in the buffer states of Bolivia, Paraguay, and Uruguay before expanding its influence into the core of the Rio de la Plata Basin in Argentina. So far, Brazil used energy and population integration to develop economic, population, and political link with these countries.
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