Lessons From Argentina

The editorial I wrote for the June edition of the Bowens Builders Bulletin left me with a sense of guilt. I took aim at a defenceless, extremely vulnerable target and the subject wasn’t provided an opportunity to respond.  Even so, if it had been given the right of reply I knew it was incapable of putting up a reasonable defence. The State of Victoria is responsible for its own mess and, sadly, I’m convinced its nadir has not yet been reached. It is a wounded victim, with little effort required to pick apart its scorecard or stamp on its reputation. So, I have come to decision: I am not going to participate in the pile-on anymore.

I’ve set a goal to find answers and create positivity by identifying suggestions for a path out of the mess. Victoria needs ideas, it needs our help. If it was lying in hospital, we’d be following signs to the Critical Ward with our offerings of chocolate and flowers. For a recovery to be achieved, collective participation is necessary.

My changed mindset initially gave me a shot of energy, when previous contemplations created misery. Thinking about a better way brightens the soul. Soon, however, a simple realisation was reached; solutions are hard to find. The task is immense. Beyond the spiralling economic conditions, we must recognise the over-priced infrastructure projects, extra taxes, the traffic, graffiti and too many lawless episodes. Again, I need to remind myself … I have resolved to be positive.

Initially I researched previous solutions, executed in response to challenges comparable with what we are facing today.   

In 1992 Jeff Kennett steamrolled Joan Kirner to become the state’s 43rd Premier. Through his first term Mr Kennett closed councils, schools and government agencies, eventually cutting more than 45,000 from the state’s bureaucracy. Net debt was brought under control, while at the same time heavy investments were made in a multitude of public projects, including The Melbourne Museum, Exhibition Centre and Federation Square, as well as significant infrastructure such as The Bolte Bridge, the Domain/Burnley Tunnels and Docklands precinct. He wrenched events from other cities, the Formula 1 and MotoGP were a couple of these, while moving the AFL from Waverley Park to inner Melbourne.

Ultimately, his initiatives reversed a substantial population outflow and restored state pride. Love him or hate him, he turned the fortunes of Victoria around. So, why don’t we follow the same script and do it all again? Well, Mr Kennett paid for his substantial program of change by auctioning the State’s assets. The most profound of these was his consequential program of privatisation, headlined by the break-up of power utilities and Melbourne’s public transport system. Once sold they disappeared from the State’s balance sheet, forever. Unfortunately, I need to widen the exploration.

“The most profound of these was his consequential program of privatisation, headlined by the break-up of power utilities and Melbourne’s public transport system.”

My search led me to an unexpected source of inspiration: Argentina. Since taking office in December 2023, President Javier Milei has made many hard choices in the hope of stabilising Argentina’s economy, perpetually beleaguered by high inflation and overspending. His “shock therapy” approach, deeply rooted in free market principles and fiscal restraint, could serve as a blueprint, or provide ideas for Victoria to at least consider.

According to Forbes Magazine (13 May, 2024), “Milei’s strategy hinges on two critical pillars: fiscal reform and monetary stabilization. By addressing the country’s chronic overspending, his administration achieved a noteworthy milestone — a budget surplus in the first quarter, the first since 2008.” Additionally, Argentina has seen a significant drop in the monthly inflation rate, from a staggering 25pc in December to 11pc in March and 9.8pc in May. Such outcomes not only bolster confidence among citizens and investors but also demonstrate the efficacy of disciplined economic policies.

In June 2024, Argentina passed the “Ley Bases” law, a sweeping set of reforms that would make even Jeff Kennett blush. It’s like they’ve taken Victoria’s 1990s playbook, put it on steroids and added a dash of Latin flair.

So, what can Victoria learn from our Argentinian amigos? Plenty, it seems.

First off, they’re taking a knife to red tape. Imagine a Victoria where starting a business doesn’t require a PhD in bureaucracy. And planning constraints – what could commercial and residential builders achieve if the multitude of planning impediments were substantially reduced? Milei has halved the number of ministries and eliminated 70,000 public sector jobs inside his first six months [Forbes]. He also suspended new public works contracts and removed various subsidies, further underscoring his commitment to reducing state intervention in the economy.

“Imagine a Victoria where starting a business doesn’t require a PhD in bureaucracy.”

Another measure, RIGI – an ‘Incentive Regime for Large Investments’, provides a system to guarantee against a return to burdensome regulations. It applies to investments in the forestry, industrial, tourism, infrastructure, mining, technology, steel, energy, oil, and gas sectors and provides tax, customs, foreign exchange and regulatory stability for 30 years. https://www.dlapiper.com/en/insights/publications/2024/07/argentina-enacts-its-bases-law-and-tax-measures-law

To qualify under RIGI, an investment project must be worth more than USD200 million and at least 40 percent of the investment is to be made within 2 years of the approval date. Additionally, for each project, RIGI requires at least 20 percent of the total investment be allocated to local suppliers, provided they are available and meet market conditions in terms of price and quality.

The Argentines are also rethinking infrastructure. Yes, like Kennett they are intending to sell significant public assets, yet they are also renegotiating public infrastructure service agreements. It’s like they’ve found a way to have their asado and eat it too. Could Victoria not take this lead, finding ways to attract private investment without losing control of vital assets? I believe some of our toll roads have contracts extending beyond 2045. These are roads in our state, our roads. From July this year, the cost of a daily pass on Citylink will rise to $22 – three times what it was when the road opened 24 years ago. For a light commercial vehicle the cost will rise to $49 a day. Let’s do something about it. Less tolls leads to a reduction in transport costs – a good thing for all Victorians.

As would be assumed, Argentina is modernising its power grid and promoting renewable energy. At the same time they are reducing impediments on the exploration and importation of LNG. What could we be doing in Victoria to better manage energy sources in the short term while maintaining an eye on longer term imperatives? It seems to be one way, at present.

Reading about Argentina’s belligerent push to expand exports by opening up new markets is inspiring. Can Victoria better engage in this regard? DFAT’s report card indicates we exported $62b of goods and services in FY23, at over $11b the education industry led the way. In the same year imports were more than double, at $146b. What more could be done with a government who scream, “exports are a priority”? Aggressively pushing, promoting and passing legislation to encourage the sales of Victorian goods and services around the world.

I’m not suggesting we copy Argentina’s playbook verbatim and god forbid anyone of influence blindly follows my ignorant version of what our South American friends have begun. I am proposing we take inspiration from their boldness and willingness to do something that moves the needle.

“I am proposing we take inspiration from their boldness and willingness to do something that moves the needle.”

Victoria doesn’t need to sell its soul to find prosperity. Rather, we should search the planet for better ways, adapting good ideas to our unique context. As long as we are honest about our current circumstances (Argentina has declared their situation a public emergency), our energy can be spent on finding and embracing solutions.