Foreign investment prospects in Argentina

July 2016 | SPOTLIGHT | FINANCE & INVESTMENT

Financier Worldwide Magazine

During the 2003-2015 period, Argentina was under the administration of Nestor Kirchner, followed by his wife, Cristina Fernandez de Kirchner, both of whom belonged to the same political party. During those years, several of the measures that were adopted by their respective governments created obstacles to accessing external financing. In this regard, the transfer of foreign currency into and out of the country was drastically limited. These policies and the leadership style of the Kirchner couple generated mistrust and slowed down the rate of economic growth, which damaged not only the local economy but also Argentina’s relations with a number of other countries.

In the most recent presidential election, for the first time in Argentinian history, a second round of voting (ballotage) was required and Mauricio Macri, leader of the opposition party and former major of the city of Buenos Aires, was elected with 51.34 percent of the votes in November 2015. Mr Macri assumed the presidency in December 2015. Since then, the new government has put several measures into action in an attempt to stabilise Argentina’s economy, generate growth and open the country to international investors, as well as minimising the impact of measures previously put into place by the previous administration.

The first action taken by the new administration concerned efforts to modify existing foreign exchange restrictions. The Argentine Central Bank, through Communiqué 5850 and 5963, established different modifications to the foreign exchange regime. The communiqué set out, among other things, that residents are allowed to purchase foreign currency up to the equivalent of US$5m per month. This US$5m threshold will not apply to purchases made with funds entering into Argentina through the Argentine Foreign Exchange Market. In addition, residents will also be allowed to purchase foreign currency for the payment of services rendered by non-residents regardless of the amount involved. Finally, importers may purchase foreign currency for the payment of goods regardless of the amount involved.

The second measure concerned the removal of import and export restrictions. The national executive branch eliminated the export rights applicable to most industrial exports, including those of the pharmaceutical, chemical and textile industries, cars, machinery, oil, ships and aircraft, by reducing the relevant rate to zero percent. There were also changes to withholdings to grain exports, in order to overcome the agricultural crisis.

The Macri administration has also promoted the use of renewable sources of energy destined for electric power generation. The Argentine Congress established a national programme which promotes the implementation of new investments in electricity production. Congress also set the objective of achieving a contribution from renewable energy sources, extending up to 8 percent of energy use by 31 December 2017, and a gradual increase of up to 20 percent of energy use by 31 December 2025. It also creates the Fund for the Development of Renewable Energies (FODER), which takes the form of a financial and administrative trust and will be responsible for saving on imported fossil fuels through the use of alternative energies.

The president recently unveiled the ‘RenovAr’ programme, aimed at attracting investments for the installation of new renewable energy plants. The building block of the programme is the call for public tenders for the purchase of a total of 1000 MW, divided into 600 MW of wind energy, 300 MW of solar energy, 65 of MW of biomass, 20 MW of small hydroelectric plants and 15 MW of biogas.

The fourth action taken by the new government relates to payments to holdout bondholders. Congress passed Law 27.249, by which it repealed the Lock Law and the Sovereign Payment Law and ratified the agreements in principle reached by Argentina with holdout bondholders. For the purpose of fulfilling its obligations under the agreements reached, Argentina issued new bonds on the national and international markets. This will allow Argentina to return to the international capital markets.

The new government has taken steps to further promote transparent government. Mr Macri sent a draft law to Congress regarding ‘access to online information’ with the aim of guaranteeing public access to a variety of government related information, documents and records to make his administration more open and transparent. All government officials will be required to provide information and refusing to do so will result in sanctions. The objective behind this initiative is to bring Argentina into the top 10 countries in terms of transparency.

From the early stages of his campaign, president Macri stated that one of his more important goals was the fight against corruption. The anticorruption office has required the president to provide information regarding his situation with offshore companies from the Panama Papers. In an attempt to differentiate from the previous administrations’ communication style, president Macri has fully cooperated with the authorities.

Amendments have also been made to the Audiovisual Communication Services and Digital Argentina laws. These two laws, which were passed under the previous administration, were two of the biggest achievements of the Kirchner administrations given that they created two agencies – AFSCA and AFTIC. The AFSCA was the authority supervising compliance with the Audiovisual Communication Services law, and the AFTIC monitored the Digital Argentina law. Both laws were amended in January 2016, a move which saw the dissolution of AFSCA and AFTIC and the creation of ENACOM as the new and only national communications authority, responsible for supervising compliance with both laws. The main amendments are more flexible regarding an increase of the number of licences per carrier, disinvestment requirements and the timing for extensions.

Finally, the government moved to create a stimulus programme for new gas projects which was available to companies not covered by prior stimulus packages, the objective of the package was to promote the short-term production of natural gas, reducing imports and increasing investments in exploration and exploitation. The programme sets a price of US$7.50 per million BTU, more than three times higher than international prices. The Argentine government has committed to provide any compensation that may be required if a beneficiary company selling gas to the domestic market receives a lower price than the programme price.

All these measures are expected to have a positive impact on the international market moving forward, attracting international groups to invest in Argentina, which will result in important growth for our economy and renewed activity in the M&A sector.

Laura Lavia Haidempergher is a partner at M. & M. Bomchil. She can be contacted on +54 11 4321 7500 or by email: laura.lavia@bomchil.com.

Laura Lavia Haidempergher

M. & M. Bomchil