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No Happy Ending for Kirchner’s Chinese Affair

By: Contributor - Feb 4, 2015, 3:07 pm

EspañolBy Alejandro Sala

In the first week of February, Argentinian President Christina Kirchner will take a break from her domestic troubles to travel to China. Her mission: to secure much needed capital for the South American nation. But Kirchner’s latest foreign flirtation comes with strings attached.

In exchange, the Kirchner administration is expected to give China exclusive authorization for various projects on Argentinean soil, some economic and others supposedly scientific.

Opposition lawmakers, including Alberto Emilio Asseff of the Renovation Front, have voiced suspicions that the agreements conceal military objectives. But the key issue is that Argentina is granting special privileges to the Chinese government to the exclusion of other markets. Is it in Argentina’s interests — and conducive to its citizens’ welfare — to sign such agreements?

Es imposible determinar si las inversiones que acordarán los Gobiernos chino y argentino tendrán un impacto positivo en la economía.
Questions remain over how much Chinese investment will benefit the Argentinean economy. (Wikimedia)

Let’s start with the assumption that foreign investments are always beneficial for the receiving country. Capital creates material wealth, increased employment, and a general economic jump-start, the theory goes. And China is indeed set to provide key infrastructural funding.

But by what process has Argentina chosen to pursue Chinese funding in particular? Were there any other offers on the table? Who made the relevant decisions? The government is yet to produce such information.

To determine how investment A compares with investment B, is necessary to evaluate the benefits and risks of both. From this comparative analysis (“economic calculation,” in the terminology of Ludwig von Mises), sensible business decisions are made. But no such public, or indeed private economic calculation, seems to have been made here.

Instead, the agreements that Kirchner is due to sign this month are based on arbitrary and autocratic decisions alone. There was no reasonable cost-benefit analysis, so there’s no reason to believe that China’s forthcoming investment in Argentina has a fundamentally economic rationale.

The Argentinean government, consistent with its usual aversion to the free market, has enjoyed key economic principles, such as efficiency and profitability arising out of consumer choice. It’s made commitments on behalf of the entire country, but without any proof of their value.

What would be a better path to greater choice and increased benefits for the Argentinean people? It’s simple: open the country to investment bids and capital from anywhere in world, regardless of origin or nationality. Then, try and avoid the temptation to tamper with regulations and investors’ profits.

The government will then benefit from an array of willing investors. When it comes to large-scale projects, it can then broker the most mutually beneficial partnerships through a transparent bidding process in a diverse market.

But the Argentinean government, financially isolated as a result of its own mistakes, has chosen the path of privilege, instead of the course of freedom. This way of seeking investment will neither promote progress nor security. Instead, it’s merely a makeshift plug for the gaping hole in public finances left by 12 years of financial waste.

Kirchner is signing Argentina up to a marriage contract with China, the only suitor left after all the others have been scared away. She doesn’t want to tell the bride, but the prenuptials likely contain many hidden clauses, and divorce will be difficult or even impossible to secure.

Alejandro Sala is a self-taught economist based between Cuba and Buenos Aires, and the author of The Spirit of the Market.

Translated by David Singhiser. Edited by Laurie Blair.