Democracy the Delivers #406 – Reforming the Investment Landscape: Opportunities and Challenges in Argentina

Episode Description

This Democracy that Delivers episode delves into the complexities of the investment landscape in Argentina. Lesly Rubio, Senior Program Manager of CIPE’s Latin American Programs, is joined by the Center for the Implementation of Public Policies Promoting Equity and Growth (CIPPEC) Senior Program Manager, Demian Gonzalez Chmielewski, and the American Chamber (AmCham) in Argentina Public Affairs Director, Marina Senestro to discuss Argentina’s recent and ongoing economic transformations.

The podcast examines Argentina’s decades of political and economic fluctuations, and its current volatile financial crisis. As we speak, Argentina is now striving to attract foreign investment through a new set of reforms. There is no question that the arrival of a new national administration has represented a breaking point in Argentina since President Javier Milei has expressed his commitment to market-oriented solutions to tackle economic challenges.

Drawing upon CIPPEC’s experience in Argentina, Mr. Gonzalez explains the importance of transparency, partnerships, and regulations to maximize the investment in critical economic sectors, ultimately promoting national development and safeguarding investments. Based on AmCham’s expertise on investment in Argentina, Ms. Senestro shares that the Omnibus legislation (or “Ley de Bases”) highlights Argentina’s great potential for greater economic growth through foreign direct investment (FDI) and increased international trade.


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Announcer (00:00):

Democracy That Delivers is brought to you by the Center for International Private Enterprise. Now to your host.

Lesly Rubio (00:08):

Hello, and welcome to today’s podcast, Democracy That Delivers, where we delve into the complexities of the investment landscape in Argentina, recently undergoing some economic transformations.

(00:22):

I am Lesly Rubio, senior program manager for Latin America and the Caribbean at CIPE. And joining me today are Demian González Chmielewski, senior program manager of the public management program at the Center for the Implementation of Public Policies, Promoting Equity and Growth, CIPPEC, a think tank in Argentina that advocates for a more democratic and equitable country.

(00:46):

And Marina Senestro, public affairs director at the American Chamber in Argentina, a season advisor with a wealth of experience in emerging markets. So welcome, Demián and Marina.

Demian González Chmielewski (00:58):

Thank you for having me.

Marina Senestro (00:58):

Likewise. Glad to join the discussion.

Lesly Rubio (01:04):

So today we’re examining a nation marked by decades of political and economic fluctuations and currently experiencing a volatile financial crisis. As we speak. Argentina is now striving to attract foreign investment through a new set of reforms.

(01:23):

There is no question that the arrival of a new national administration has also represented a breakpoint in Argentina, since President Javier Millet has expressed his commitment to market-oriented solutions to tackle economic challenges.

(01:40):

So to start off, Marina, could you paint us a picture of Argentina’s recent economic history, and the reforms they’re now implementing to attract direct investment?

Marina Senestro (01:52):

Yes, of course. Argentina’s economic journey has been quite turbulent over the past few decades, marked by challenges like high inflation, debt crisis and currency fluctuations. For instance, the early two-thousands were a difficult time with a severe economic crisis leading to a default on the national debt, and a deep recession.

(02:16):

The mid-2000s brought some relief with commodities boom, which temporarily stabilized economy and fueled growth. However, the following years saw the return of high inflation and economic imbalances, which damped investor confidence. In response, the Argentine government has been actively working to turn things around.

(02:41):

Recent reforms have focused on stabilizing the economy and creating more inviting environments for investments. This had included efforts to ring the inflation, reduce fiscal deficits, and strengthen their regulatory frameworks.

(02:58):

The government has taken steps to address fiscal imbalances by cutting public spending and enhancing tax collection. At the same time, monetary policies have been adjusted to control inflation and stabilize the currency.

(03:16):

On the regulatory front, there had been significant, changes aimed at increasing transparency and efficiency. This includes simplifying bureaucratic processes, improving the ease of doing business, and introducing incentives for foreign investors.

(03:35):

The government has also made strides in opening trade, negotiating trade agreements, and reducing barriers.

Lesly Rubio (03:42):

Great, that’s good to know.

(03:45):

Marina, from your perspective, and based on all this history, how do you assess the attractiveness of investing in a country with these background and context? More specifically, what are investors typically looking for, in terms of regulatory frameworks and transparency?

Marina Senestro (04:06):

Even with its history of economic ups and downs, Argentina remains a country full of promising investment opportunities, in particular in key sectors like energy, agriculture, mining, technology, the nation’s rich natural resources, large and diverse consumer markets and a strategic position within Latin America make it an appealing option for investors who are prepared to navigate its unique challenges.

(04:37):

Recent reforms aimed at bringing stability to the economy and improving the overall business climate have been encouraging steps in the right direction.

(04:48):

Investors are closely monitoring how these changes might lead to lasting improvements in macroeconomic stability, which is essential, of course, for any long-term investment strategy. The approval of the new tax package at the Omnibus Law or Ley de Bases, here in Argentina, represents a significant achievement clearing an important harbor.

(05:13):

This progress gives the executive branch crucial political support, enabling it to push forward with efforts to transform Argentina into a more sustainable and attractive destination for investment.

(05:27):

However, while ensuring sustainable macroeconomic condition is important, it’s not the whole story. It’s also critical to establish clear and effective regulations for initiatives like the large investment Incentive Regime here known as RIGI. To be truly impactful. These laws needs the support of key stakeholders across the country, including congress, academics, labor unions, media, the citizenship in general, and of course the business community.

(06:01):

And I think that is the big challenge, the biggest challenge.

Lesly Rubio (06:06):

Of course. I think stakeholder engagement and acceptance and support is key in order to provide a more legitimate framework for investment in the country.

(06:20):

So, Demian, we would like to learn more about what CIPPEC has done in Argentina and your take on the new investment law. And more specifically, what are some of the advantages and some of the challenges that you can identify?

Demian González Chmielewski  (06:37):

Yes, the public management program and the economic development program at CIPPEC has a lot of studies on this, and we have an established position on the new investments law. On the one hand, we think it’s on a good track to open Argentina’s markets and on a good track to take us on more exports, more growth, which is what Argentina needs, at least in CIPPEC’s view.

(07:02):

But at the same time, it has two or three challenges.

(07:05):

Number one, it gives a short period of investment. It contemplates four years for investments starting at $200 million, which maybe for the United States it’s a low amount. For Argentina, it’s a big amount of money to invest in certain industries.

(07:24):

And the main challenge is the sectorial approach of the law because it focuses on the sectors of extractive industries like oil and gas, like minerals, but it also benefits infrastructure. Now, last year we produced a document analyzing investment in public infrastructure. And I think this law benefited that.

(07:49):

We’ve seen for the last eight months, a reduction in public funds, investing in infrastructure, which is key for Argentina’s development. So, we’re seeing a path forward more dependent on foreign money, and private sector money is investing in this infrastructure sector.

Lesly Rubio (08:09):

As we consider Argentina’s evolving investment landscape. It’s crucial to highlight that openness to investments must come coupled with screening mechanisms to ensure accountability and transparency. And this brings me to mention the case of Chile, where CIPE’s work along with our local partner, Chile Transparente, have drawn the attention and support of the Chilean president and his cabinet to create an ultimate beneficial ownership law.

(08:41):

CIPE and Chile Transparente collaborated to draft an ultimate beneficial ownership legislation that will require foreign and domestic corporations operating within Chile to disclose their final beneficiaries, including investments coming from authoritarian regimes that may damage democratic institutions.

(09:06):

So, in this case, we see that the unique beneficial ownership basically becomes or makes clear that who really owns and controls a company helping to stop illegal activities, but it also ensures that the people behind any company can be held accountable for their actions.

(09:28):

Plus it builds trust with investors by showing exactly who’s in charge, making them more likely to invest.

(09:37):

So in terms of investment screenings, there are different examples and opinions about the impact and the benefits.

(09:46):

Demian, could you explain how Argentina can implement any type of screening mechanisms in the current context of new reforms and openness to foreign direct investment? And how would they play in a role… How they will play a role in protecting Argentina’s interests?

Demian González Chmielewski (10:07):

Oh yes, and thank you. Let me go back to one of the things you mentioned at Chile, I think CIPE fosters great work in the region and that allows us to have a lot of case studies to compare. And I think in Latin America, we have a very diverse landscape of legal frameworks, of investments, of different economic scenarios. And I think Argentina has a very strong standpoint regarding its legal framework.

(10:35):

We have a transparency law, we have public procurement mechanisms, and I think we’re good there. Now we have to implement it. And I think that goes straight to the core of the law. We are in a good track to open our economy. Now, we have to take care of how we open it, and I think channeling those new investments, it’s key. And I think monitoring investments, it’s important for that because otherwise we were just going for extractive industries, and we want to have a productive approach to leave some value in Argentina to elaborate our goods and our services.

(11:14):

And I think one of the ways to do that is to plan, at least our infrastructure, in Argentina. We have, for example, if you take a look at the census of 2020, we have a lot of good services in water, but poor services in sanitation and the same can be seen in housing, in gas grids and all of that. And I think we have to tackle that If we want development in our provinces in our communities, we have to tackle key infrastructure and we can take the new regime for big investments and tackle on those infrastructure gaps.

(11:59):

So I think one of the keys, besides monitoring and have proper screenings regarding the environment and good investments, we have to also plan and adjust our objectives to the investments we get from abroad and from the private sector here at Argentina.

Lesly Rubio (12:17):

That’s great to know, knowing that there are mechanisms and there are frameworks already in place and it’s just a matter of having the will and having the plans in place so that actually those frameworks can work and be beneficial to Argentina’s interests.

(12:34):

Marina, how may these screenings influence investors’ decisions? Especially in key sectors such as the ones we have mentioned so far as critical minerals?

Marina Senestro (12:45):

Investment evaluations play a key role in guiding investor decision, particularly in a strategic sector that rely on advancing technologies. They offer crucial clarity on regulatory requirements, environmental standards, and legal frameworks in areas like strategic minerals, where sticking to environmental and safety regulations is vital. This detailed assessments help investors to identify potential risk and ensure they are in line with local regulations.

(13:18):

Given the recent changes under the new administration, and the laws passed in the last six months, these evaluations also highlight opportunities for collaboration with local businesses, universities, and research institutions essential for successful and innovative technology transfer.

(13:39):

Moreover, they provide valuable insight into the level of government support and commitment to fostering investment in strategic sectors, reflecting a more favorable and predictable environment for foreign investors.

Lesly Rubio (13:57):

Great. And Demian, considering also the geopolitical context in the world, particularly in sectors such as critical minerals as we mentioned, and also even the supply chain for different foods and agribusiness is an important industry in Argentina, how should the country balance debt to attract foreign investment, while also safeguarding its strategic resources?

Demian González Chmielewski (14:25):

Well, I think that’s the easiest part because up to now we’ve been talking about Argentina’s local and state capabilities, and I think that’s a challenge and I think we have to work on that and CIPPEC has a lot of recommendations and studies to tackle that.

(14:39):

But going to international issues, I think we have a lot of standards to uphold. One of them is ATV, Extractive Industries Transparency Initiative, which CIPPEC was part of for three or four years, since 2019.

(14:56):

And I think that provides a standard to see if we are having fair investments, if money is being well spent and taxed by the state also. And I think that’s a good mechanism.

(15:08):

We have lots of others and transparency loss in Argentina helped to that. So I think again, that the challenge is how we can plan for Argentina’s development taking in those investments because we have the mechanism to receive the investments.

(15:23):

It’s right there on the Ley de Bases or Omnibus Law or the regime for biggest investments, whatever you might call it. We have that mechanism and it’s great. It receives a lot of money for Argentina, has a lot of incentives regarding the fiscal policy, regarding exchange rates and all of that.

(15:45):

But I think we ought to plan properly to fill our infrastructure gaps, and to also get on the international trade arena vigorously. What do I mean? Not just extract minerals or cereals or different products, but to elaborate them and produce some policy for us to develop and to use that money to tackle infrastructure gaps, as I mentioned.

Lesly Rubio (16:13):

Great. And Marina, from your experience, what are some of the best practices countries, and in this case, Argentina can consider managing foreign direct investment in critical industries?

Marina Senestro (16:28):

Indeed, managing foreign investment in critical sectors requires a strategic approach that prioritizes transparency, clear processes, and the cultivation of productive partnerships. Countries should ensure that their regulatory framework are straightforward and enforced, which helps build investors confidence and facilitates smoother investment flows.

(16:54):

Encouraging partnerships between foreign investors and local entities is also key as these collaborations can drive technology transfer and strengthen local capacity through targeted training and education programs.

(17:11):

Investment policies should be designed with incentives that align with national development goals, while also providing robust protections and dispute resolution mechanisms to safeguard investments.

(17:30):

Additionally, leveraging international partnerships and cooperation in particular with major investors like the United States can bring valuable expertise and resources to the table.

(17:43):

Monitoring and evaluating the impact of FDI is crucial to ensure that these investments, in effect, contribute to local growth and technological advancement. By adapting these practices, countries can create an environment that maximizes the benefits of FDI, while addressing potential risk and challenges.

Lesly Rubio (18:10):

Well, as we start to wrap up our discussion, Demian, I would like to know what are your thoughts on the future for Argentina in terms of attracting direct investment and also navigating all these global economic shifts that we have mentioned?

Demian González Chmielewski (18:28):

Oh, our future is bright for sure. I think we have a lot of potential and the Ley de Bases tackles that and I think that’s important. As I mentioned, CIPPEC has produced a lot of research on this topic from the economic development program, and our public management program. And we’re seeing that the Ley de Bases is on a good track, that it also anticipates much of the new normal that the new government is seeking for the next five to 10 years.

(19:00):

And I think that’s a pretty good laboratory of what we will see in the future because it has a lot of tax exemptions, a lot of flexibility on exchange rate, and I think we’re at a point right now in August, 2024 in which we will have to wait and see, and see what comes to Argentina to invest, how it comes. And I think we have to be ready. And at CIPPEC we focus on how can we tackle infrastructure gaps, how we can plan better to receive those investments and how we can get into the international trade arena better.

Lesly Rubio (19:40):

Yeah, definitely. I think that you said it very well. It’s clear that while challenges still lie ahead, there are significant opportunities for Argentina to capitalize on its potential, and there is a lot of openness and receptiveness to foreign investment.

(19:59):

The new reforms really position Argentina as a more attractive, and also a more predictable environment for investments, by having a more stabilized environment, for foreign investors. However, it is also important not to lose sight, that regulatory frameworks must also withstand democratic scrutiny, and also need to have the priority of benefiting Argentinian society as a whole.

(20:30):

So, thank you very much Demian and Marina for your valuable insights today.

Demian González Chmielewski (20:35):

Thank you.

Marina Senestro (20:36):

Thank you.

Lesly Rubio (20:37):

That concludes our podcast on how direct investment is transforming Argentina’s economic landscape. We hope you found this insightful and thought-provoking. Join us next time as we explore more topics shaping our global economic future.

(20:56):

Until then, goodbye, and thank you for listening.

Announcer (21:01):

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Published Date: August 28, 2024