Transcript: Wealthy Argentines flock to Uruguay

This is an audio transcript of the FT News Briefing podcast episode: ‘Wealthy Argentines flock to Uruguay’

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Sonja Hutson
Good morning from the Financial Times. Today is Monday, December 4th. And this is your FT News Briefing. Israel has ordered Palestinians to evacuate a large section of southern Gaza, and South Korea has become a major player in the defence industry. Plus, the FT’s Michael Scott explains why wealthy Argentines are flocking to Uruguay.

Michael Stott
It’s known as the Switzerland of Latin America because it’s all the things that many Latin American countries are not.

Sonja Hutson
I’m Sonja Hutson, in for Marc Filippino, and here’s the news you need to start your day.

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It looks like Israel is planning to launch a new ground offensive on the biggest city in southern Gaza. The country has ordered Palestinians to evacuate a large area in that part of the strip. It’s also ramped up aerial bombings that have killed hundreds of people since a truce with Hamas fell apart on Friday. But the UN says the evacuation orders are not practical because almost the entire population of 2.3mn people is already packed into the southern part of Gaza. Most living in the north evacuated once Israeli forces started a ground invasion there several weeks ago. Israel has suggested a safe zone in southern Gaza for civilians to evacuate to. It would be 14 sq km, which is roughly the size of London’s Heathrow airport.

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South Korea has become one of the world’s top 10 defence exporters. It’s been producing arms for years, but Russia’s war in Ukraine has supercharged the industry. There’s more demand for weapons and a lot of countries are more hesitant to buy arms from Russia now. Christian Davies is the FT’s correspondent in Seoul and he joins me now. So Christian, can you tell me a little more about how South Korea became such a major arms exporter?

Christian Davies
So there’s a long history to South Korea’s defence industry. South Korea has been in a state of war with North Korea since the armistice was signed in the 1950s. And that means that both countries have been preparing for a land war for a very long time, producing tanks and armoured cars and things like that. And this means that South Korea has always had a very large capacity to produce weapons for land confrontations.

Sonja Hutson
OK, so South Korea has been ramping up defence production for decades now, but it hasn’t had to actually use these weapons very much. How has that benefited the country?

Christian Davies
So recently when Russia began its full-scale invasion of Ukraine, there was suddenly a surge in demand in Europe and specifically eastern Europe, because many eastern European countries and of course the largest country in central eastern Europe, Poland, have been selling and donating huge numbers of their weapons to Ukraine, and they’ve had to replace them from somewhere. And the timing seemed to work out that Korea was able to offer very good value weapons at a time when European, and especially eastern European countries, had this surge in demand.

Sonja Hutson
And what kind of weapons deals are we talking about here? You mentioned Poland, for example. What has it been purchasing from South Korea?

Christian Davies
So Poland last year signed deals worth $13bn, just over $13bn for South Korean tanks, armoured cars, so-called howitzers and fighter jets. Now, these are not the most expensive or high-end equipment, but because of South Korea’s alliance with the United States, they are compatible with US and Nato systems, which is obviously crucial for European countries.

Sonja Hutson
So how are European defence manufacturers thinking about this latest surge in exports and contracts? Are they worried about South Korea kind of creeping in on their territory?

Christian Davies
So European companies that produce similar products to the Koreans are slightly worried because the Korean defence industry is able to offer, not only very high value because of the scale they produce, but the Korean government is also being pretty aggressive in offering generous financing terms. And Korean companies are also more relaxed than a lot of their competitors about tech transfer and producing weapons in the buying country. So it makes them very, very competitive. So some European defence companies are worried about that in the long term that it could undermine the competitiveness of the European industry. But western government officials right now are less worried about the short and medium term of their industries, and they’re more worried about securing capacity, not only for Ukraine, but also, of course, for arming the rest of Nato.

Sonja Hutson
Yeah, and it seems like that’s something that South Korea is definitely taking advantage of. How has this recent defence boom impacted the country’s economy?

Christian Davies
So South Korean defence exports in the short term have been helpful to the South Korean economy because the main driver of Korean exports, which is its semiconductor industry, has been going through a downturn over last year or so. So these defence exports have to a large extent help to compensate for that. If there is a fall in demand, for example, with the end of the Ukraine war, if that were to happen any time soon, there would still be a demand in other places like south-east Asia. The other really important geopolitical aspect is that a lot of countries, since Russia invaded Ukraine last year, have decided that it’s too risky to rely on Russia as their principal defence supplier. And so even if the geopolitical situation changed and became a lot more benign, which no one is really predicting at least in the short term, they’re still almost certainly going to be a large scale diversification away from Russia in particular as a defence exporter. And so Korea is very well positioned to take advantage of that.

Sonja Hutson
Christian Davies is the FT’s Seoul correspondent.

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It was a good weekend for India’s Prime Minister Narendra Modi. His Bharatiya Janata party won overwhelmingly in a handful of state elections yesterday. The victories are a good sign for BJP as it gears up for national elections next April. Modi will try to secure a third term as prime minister then. Sunday’s contests also highlighted weaknesses within India’s main opposition party, the Indian National Congress. It lost two politically influential northern states to BJP. Before Modi took over in 2014, Congress dominated Indian politics for decades.

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Things in Argentina have been, well, not great for a while now. As you might have heard us talk about on the show before, there has been mind-blowing inflation, high taxes, even higher poverty, and recently, an unpredictable presidential election. All this has forced many Argentines with means to consider moving. But those who end up making the jump aren’t really going that far. They’re heading across the border to Uruguay. Here to talk to me about this is our Latin America editor Michael Stott. Hey, Michael.

Michael Stott
Hello.

Sonja Hutson
So tell me a little bit about Uruguay itself. What makes the country so attractive to Argentines?

Michael Stott
Well, it’s known as the Switzerland of Latin America because it’s all the things that many Latin American countries are not. It’s stable. It has rule of law. It has quite good health and education systems. Security is pretty good. And it’s sort of fairly predictable. The quality of life is very nice. So it ticks an awful lot of boxes.

Sonja Hutson
All right. So those are all really compelling reasons to move somewhere. But are there any other incentives that are bringing people there?

Michael Stott
Yeah. So the current president, Lacalle Pou, is a pro-business president, and he set out at the beginning of his term, just over three years ago, to attract more investors, not just Argentines, but investors all over the world, to Uruguay. And so he granted special tax breaks for people who wanted to come and settle in Uruguay. And they have an exemption from tax for more than 10 years on their assets. They don’t have to pay tax on their assets outside Uruguay. It’s a very favourable regime. And that’s proved very popular with Argentines in particular, but also some other nationalities.

Sonja Hutson
What does this look like on the ground then, Michael?

Michael Stott
Well, one of the things the Argentines love about Uruguay is the cultures are similar. It’s just across the river. They’re big beef eaters. They’re big football fans. Even the way they speak Spanish is fairly similar. So there’s lots of things in common between Argentina and Uruguay. They can feel very at home. And there’s, you know, a few areas in Uruguay where Argentines have formed these sort of Argentine colonies there. One of the more interesting projects is one from this property developer called Eduardo Bastitta. And his idea is to create a huge development called MásColonia in this pretty old town called Colonia that would double the population of Colonia by attracting Argentines who want to commute, essentially, who want to have the convenience of dipping over to Buenos Aires for a meal or to go to the opera or to look after their businesses.

Sonja Hutson
So ultimately, what might this exodus mean for Argentina?

Michael Stott
It’s not good news for Argentina. I mean, it’s clearly not a vote of confidence in the country. It’s losing money. It’s losing brains. Some of the best and most creative members of the business community have moved over to Uruguay. For example, Marcos Galperín, the founder of MercadoLibre — Latin America’s answer to Amazon, most valuable company in Latin America for many years — but also a lot of tech entrepreneurs and software programmers have moved to Uruguay. It’s developed a successful software industry. So the question is whether the new government in Argentina, which takes over later this month, will be able to implement economic policies that restore confidence and stop the brain drain and the money drain to Uruguay.

Sonja Hutson
Michael Stott is the FT’s Latin America editor. Thanks, Michael.

Michael Stott
Thank you.

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Sonja Hutson
You can read more on all these stories at FT.com for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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