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Source: Financial Times
By: John Paul Rathbone

On the world stage, Argentina is perhaps best known for three things, all beginning with the letter “M”: Lionel Messi, the world’s best footballer; mismanagement – Argentina is unique in its radical reversal from the advanced economic development it apparently achieved in the early 20th century; and Malbec, the Bordeaux grape that is celebrated as Argentina’s most distinctive wine varietal.

This report – the first in a series on Latin America’s regions – is about a fourth “M”: the region of Mendoza. Abutting the Andes, this desert state is a microcosm of Argentina’s potential, although in this case “potential” is an overused word: Mendoza has already realised much of its promise.

There is its wine, of course, because Mendoza forms the centre of Argentina’s centuries-long wine tradition that has been upgraded with Zen-like attention to oenological detail to earn its vineyards, such as Bodega Catena Zapata and Mendel Wines, a global profile. No self-respecting Argentine – or for that matter European or Californian – millionaire with more than a passing interest in wine does not also want to own at least a few hectares in the wine lands of the Uco valley.

But it is not only wine and its largest exporting companies, such as Peñaflor, the eighth largest wine company in the world, that gives Mendoza a certain cosmopolitan air.

There is Impsa, a turbine manufacturer that has the technology to take on global competitors. With deep roots in the state, the family-owned company, now in its fourth generation, has annual sales of more than $1bn and is a genuine “multilatina” – a Latin American company with a presence across the region.

There is also Roberto Zaldívar, one of the world’s leading ophthalmologists, who practises out of his Mendocino clinic; Grupo Uno, Argentina’s second biggest media company; and large mineral and energy deposits, from uranium, potash and copper, to gas and oil.

“Mendoza produces a fifth of Argentina’s oil,” says Miguel Galuccio, chief executive of YPF, the national oil company.

With the development of the vast Vaca Muerta shale gas formation set to push ahead over the next few years, it will soon account for even more.

Most distinctive of all, however, is the state’s work ethic – which Charles Darwin missed when he visited and wrote that “the happy doom of the Mendocinos is to eat, sleep and be idle”. But Darwin visited almost 180 years ago, and in the summer, when temperatures can top 40 degrees and a siesta is almost obligatory.

Mendoza’s celebrated work ethic derives partly from its proximity to Chile – Santiago, the capital, is only 360km away, while Buenos Aires is 1,200km distant. But most of it comes from the area’s desert roots – Mendoza’s original name, cuyo, means “sandy land”.

The area’s first known inhabitants, the Huarpes, cultivated corn, beans, squash and quinoa using a system of irrigation that carefully rationed run-off from Andean snow melt. This system was built on and expanded by the Incas, and then by the Spanish conquistadores.

Although the irrigation system, which remains today, allowed farmers to cultivate more land than they otherwise could, its most important and lasting contribution is cultural.

To function, it requires a degree of co-operation, responsibility and adherence to rules that Mendocinos boast are less present elsewhere in the country.

It is no accident that Mendoza is the only Argentine state never to default on its debt, or that local politics – a model of convivencia – lacks the malice and vitriol of Buenos Aires.

“Argentina is about bonanza, Chile is about effort. And Mendoza? It is about the desert,” says José Octavio Bordón, a former Mendoza governor and Argentine presidential candidate who was also ambassador to the US.

He adds: “Everything grown or produced in Mendoza is solely because of the effort of man. You can’t just throw seeds on to the soil and expect them to grow. Here, you must work.”

This attitude can be seen in Francisco Pérez, the state governor, a member of President Cristina Fernández’s ruling Victory Front party and a man with the energetic air of a workaholic executive.

“Look at this,” Mr Pérez says jumping out of his office chair. He strides past photographs of Evita Perón into a back room and flicks a switch; a detailed analysis of state finances, hospital beds and schools soon lights up a giant plasma screen.

“All this is in real time,” he adds. “No other state has comparable systems. It helps me formulate better public policy.”

Foreign companies that have set up here have noticed Mendoza’s business-friendly attitude and attractive macroeconomic conditions. Its annual economic output is $16bn, it has low unemployment, a shrinking budget deficit and less dependence on national revenues to fund state expenses than many peers.

Incomers include Danone, the French food and drink group, to bottle spring water; Saint-Gobain to make glass; Knauf, the German building company, to quarry stone and gypsum; and Globe Speciality Metals of the US, which makes speciality wire.

Companies are also drawn to the state’s eight universities and its strategic location, next to the switchback Cristo Redentor road, the busiest mountain pass between Argentina and Chile. There is also the prospect of a 120km train tunnel being built to link the two countries.

If that project gets built, rail-borne Chilean trade to the Atlantic, and Brazilian and Argentine cargo to the Pacific, would soar and make Mendoza a hub for the wider region.

“Mendoza is going to be one of the geopolitical centres of the world,” enthuses Mr Pérez – which might seem unlikely until you visit the area, hear the accents of visiting Brazilian and Chilean tourists, and imagine the nearby world streaming through.

Although it could prove a pipe dream, Mr Pérez plans to travel to Qatar to solicit investment for the rail tunnel project.

In the meantime, the state cannot escape Argentina’s broader problems. That became painfully clear in March after Vale, the Brazilian mining company, cancelled a planned $6bn potash project in the state because Argentine currency controls and high inflation had made the project commercially unviable.

Sofia Pescarmona, a member of Impsa’s founding family and a manager of the turbine maker, echoes those concerns. She says that Impsa is proud of its Mendoza roots but they come at a cost – especially when allied with the near-pariah status that Argentina, as a sovereign state, suffers in international markets.

Standing by a huge precision-engineered propeller that will soon be mounted on a wind turbine in Asia, she says: “Financing is one of the main things that makes us less competitive that our peers ... Staying in Mendoza is, for us, as much an emotional decision as a rational one.”

Wine exporters, similarly, bemoan the loss of competitiveness that has come from the country’s high inflation. But such disadvantages could disappear quickly, should Argentina start to move into recovery – a possibility that may increase as Ms Fernández heads into the last two years of her presidency.

The prospect of that change is already piquing greater international business interest. “I’ve had more enquiries in the past few months than I have had in years,” says a regional consultant and financier. “People are seeking to get in now, or at least thinking about it.”

Still, there is no assurance that change will come, or that the wait will be an easy one, as the country grapples with falling foreign reserves, currency restrictions, high inflation and a legal battle with holdout creditors that keeps it all but shut out of international markets.

In the meantime, there is always Malbec, which can ease, if not cure, wider Argentine ills. Watching the sun set behind the snow-capped Andes with a glass of wine in hand, there are certainly worse ways to wait and contemplate more prosperous times that may not be so far away.

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