Investment-Starved Argentina Asks CEOs to Take Another LookBy
Macri inviting world’s businessmen to see country’s changes
Despite plenty of pledges only $1.3b FDI entered in first half
President Mauricio Macri sees foreign investment as key to Argentina’s economic prosperity. This week, he will try to convince the world’s businessmen that they too should share that vision.
The president has invited the CEOs of Siemens AG, Coca-Cola Co., Dow Chemical Co. and 2,000 other investors to join his entire cabinet in a three-day forum in Buenos Aires starting on Tuesday to once again spread the word that Argentina has turned a new leaf after 12 years of protectionism and belligerence under his predecessors, the Kirchners.
It’s a tough sell. The economy has been in recession since mid-2015, job losses have pushed the unemployment rate to 9.3 percent and inflation is running at an annualized 44 percent. After a brief honeymoon, Macri is sparring with unions over pay rises and efforts to increase gas tariffs -- after 14 years of subsidies -- were blocked by the Supreme Court.
Above all, economists and investors say that while Macri has made strides in reversing the Kirchners’ populist policies, the country still lacks a legal framework that establishes a safe environment for doing business.
“We have a long history of very populist governments and to change that is like changing the genetic code of a couple of generations,” Luis Secco, cabinet chief at state-run Banco de la Nacion, said in an interview in Buenos Aires. “Until now, the government has been very focused on macro issues. The next step should be the regulatory and institutional framework.”
What Macri can do for now is dazzle investors who have not been fully welcomed in Argentina for more than a decade. He chose to do this in one of Buenos Aires’ architectural marvels, an icon of early 20th century prosperity, which ironically the Kirchners renamed after themselves.
The Kirchner Cultural Center, the former main post office, “was probably picked on purpose to show people that the current administration is trying to overwrite past policies,” said Alejo Czerwonko, an emerging-market investment strategist at UBS Wealth Management. “What a better place to show the contrast between new and old than this particular venue.”
Since Macri took over in December after a tight election, he’s lifted currency controls and resolved a decade-long dispute with holdouts from the 2001 default, bringing a flood of dollars into the country. He’s also close to persuading the International Monetary Fund that the country’s economic statistics are once again credible.
Inflation is already slowing and there are signs that the end of the recession is at hand, Macri wrote in a column Sunday in Clarin.
“The forum is another signal of the confidence the world has that Argentina is in a new stage,” Macri wrote. “A stage of common sense, of clear rules of play and more integration with the world.”
Macri received a boon on Monday after the Buenos Aires statistics agency said consumer prices fell in August from a month earlier for the first time since it began measuring inflation. Annual inflation also fell to 43.5 percent from 47.2 percent in July, the first deceleration this year.
But the government acknowledges that it still has some way to go in molding a business culture that will satisfy investors and foster sustainable growth.
“It was not obvious in December, but the easiest part was to bring Argentina back to financial markets and to make it fashionable -- and I think we did it,” Cabinet Secretary Mario Quintana said in an interview at the presidential palace in Buenos Aires. “The tough part is going to be doing all the structural changes that will allow us to leave behind
But the real money from foreign direct investment has been harder to come by as the memories of seven defaults in 200 years linger and deeply ingrained regulatory risks persist. A ticker on the Finance Ministry website has tallied $32.5 billion in investment pledges since December, but central bank data show only $1.3 billion has actually arrived in the first six months of 2016.
Business delegations from Qatar and France are scheduled to visit Argentina in the next few weeks, Cabinet Chief Marcos Pena told reporters in Buenos Aires on Monday. While these companies may not announce investments on the spot, they are looking to Argentina as a place to do business for 20 to 30 years, not a short-term project, he said.
There are signs that some investors are showing faith in Macri’s ability to transform the country.
- A renewable energies tender scheduled for October attracted 6 gigawatts of bids, more than six times the amount the government plans to sell.
- Bombardier Inc. says jet sales in Argentina are offsetting weakness in Brazil and Venezuela, with five used jets purchased since Macri took office.
- Axion Energy will invest $1.5 billion in the expansion of its plant in Buenos Aires province
- Coca-Cola pledged $1 billion in investment to Macri in January and in June announced plans to buy Unilever’s AdeS soy-based drink brand, founded in Argentina, for about $545 million
Whether other companies will turn curiosity into concrete investments may depend on whether Macri can satisfactorily answer the questions they still have about the business environment in Argentina, said Daniel Marx, a former finance secretary and director of Buenos Aires-based consultancy Quantum Finanzas. Will they be able to freely import and export goods and materials or will they be forced to produce 100 percent of their products inside the country? What commercial advantages does Argentina offer over other emerging markets?
Marx recounted a recent conversation with a client, undecided whether to invest more than $100 million in Argentina. The negative aspects of Argentina -- restrictions and a government hostile to business -- have gone, the client said. But he was still unsure what Argentina had to offer over its rivals, Marx said.
“The why you shouldn’t go to Argentina has disappeared,” Marx said the client told him. “But the thing is that no one has explained to us the reasons why you should invest in Argentina.”
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