Argentina Infrastructure Report Q2 2009

Deteriorating economic conditions are seriously impacting the construction sector in Argentina, despite the implementation of a major fiscal stimulus programme by the government. BMI estimates that Argentina's construction industry grew 8.8% in real terms in 2008. We anticipate a further deceleration in real construction growth to 1.4% in 2009, while we expect the sector to contract by 2.39% in 2010.

The deep structural problems that Argentina's economy is facing are becoming increasingly clear. Slower economic growth will not help soaring inflation abate from the current estimated levels of 25% (although the government is calculating inflation at close to 9%, serious doubt exists as to the figure's reliability).

However, financing is unlikely to be an issue for the public works projects as the recent nationalisation of the private pension system added close to US$26bn in government coffers; money that some reports say will go towards the US$21bn infrastructure spending. However, this raises serious questions regarding the government's ability to navigate the economy out of the recession and safeguard long-term growth. In the long term, a severe deterioration of macroeconomic stability will be harmful for the infrastructure sector as well.

There has been some positive news in the transport sector. In March 2009, Argentina's infrastructure and construction major Corporacion America (CASA) signed two Memoranda of Understanding (MoU) for the construction of the Los Liberatores railway tunnel, which will help ease the transport link between Chile's port of Valparaiso and Argentinean capital Buenos Aires. The estimated cost for the 23km rail tunnel is US$3(can we find the proper amount, can't be $3?). Meanwhile, according to the Inter- American Development Bank (IDB), the city government of Buenos Aries is planning an ambitious expansion project for the city's metro, which will involve building 25km of new track. The estimated cost of the project is US$2.5bn. The first phase of the project will cost approximately US$750mn, with the IDB providing US$500mn of this funding.

Elsewhere, Argentine power company Geotermia Andina is considering constructing a 20MW geothermal power plant in the province of Jujuy in the north of the country. The area near the Tuzgle volcano has great potential for geothermal energy and the project will cost an estimated US$35mn. BMI believes that Argentina has good potential for geothermal energy with 25 areas in the country considered to have favourable characteristics for power plants.