Argentina seems to have it all: abundant natural resources and legions of well-trained workers, but it has difficulty attracting investors because its politicians They have the habit of changing the rules as they please, favoring the State over private enterprise.
President Javier Milei is on a crusade to resolve this persistent grievance by offering large companies a way to shield their capital commitments. There are signs that it could work.
The energy and mining companies with the potential to drive growth in the South American nation, which has suffered six recessions in the last decade alonethey are beginning to present requests to be granted extensive tax, exchange and customs benefits enshrined in law for 30 years.
Milei, a libertarian who came to power a year ago, says companies will commit to contributing more than $50 billion under the incentive package, known by its Spanish acronym Rigi. So far, six proposals have been submitted for about 15% of that amount.
For the trickle to become a deluge, foreign investors are desperate for Milei to eliminate Argentina’s notorious exchange controls, which would unify dual exchange rates. This is because the Rigi largely requires them to convert dollar capital into pesos at an exchange rate controlled by the government, which is stronger than what they can obtain in the financial markets and therefore provides them with less local funds.
Therefore, much of the stage has been left in the hands of national companies. “Extinguishing the exchange rate gap is a prerequisite for the Rigi to gain strength,” said Sergio Caveggia, partner in the Buenos Aires offices of the international tax consultancy Ernst & Young LLP, which is working on Rigi applications.
The incentive package was implemented in late August, after emerging as a prominent section of Milei’s flagship legislation to deregulate the Argentine economy. And by extending his terms far into the future, the president is trying to ensure that his free market vision for business resists any attempt by voters to reintroduce statist policies.
It is, at least in theory, a ticket to the consistent “rules of the game” that corporate executives so often demand. However, critics warn that Rigi risks writing a new chapter in Latin America’s so-called resource curse. where nations have allowed their natural wealth to be exploited by corporations, only to see very few of the profits reach their destinations.
“Not even astronomical returns can combat the perception of risk in Argentina; RIGI has arrived on the scene to solve that,” said Juan Procaccini, a senior consultant at the local branch of PriceWaterhouseCoopers LLP, who spearheaded Argentina’s last major attempt to attract foreign investment nearly a decade ago under then-president Mauricio Macri.
Procaccini spoke at a recent meeting of lawyers and consultants in downtown Buenos Aires to discuss Rigi, as they rush to gather documentation for clients seeking inclusion in the program. “The level of interest has surprised us,” said Andrea Oteiza, director of transaction advisory at KPMG Argentina, during a panel at the event.
Under the framework rules, companies have until August 2026 to submit their application and must disburse at least 40% of the capital expenditure (the minimum limit for any project is US$200 million) within two years of receiving light. green.
That would mean a lot of new money in Argentina, where investments in recent times have barely been enough to amortize existing assets, according to Fausto Spotorno. director of economic research at the Buenos Aires consulting firm Orlando J. Ferreres y Asociados. But he advised caution with Milei’s $50 billion headline figure: “Those promises and the result of actual investments can be like comparing apples to oranges,” Spotorno said.
Milei has named Daniel González, a former Merrill Lynch investment banking veteran, as its Rigi czar, responsible for deciding with a committee of advisors whether a project passes muster. Gonzalez He has a lot of experience in the energy sector, which is on the front line, since he worked for years as an executive in Argentina’s largest oil producer, the state-owned YPF SA.
Several energy and mining companies have already submitted applications, and a handful of other industries (technology, forestry, steel and tourism) are eligible.
YPF led a proposal by drillers to build a $2.5 billion pipeline and port to export shale oil. Pan American Energy Group and a global partner, Golar, have also sought RIGI benefits for an even more expensive operation to liquefy and transport natural gas. Meanwhile, TGS SA and Pampa Energia SA are weighing projects to pipeline Argentina’s vast transitional fuel deposits and process them into other commodities.
In the mining sector, the promise of foreign investment without the help of local partners is clearer: South Korea’s Posco Holdings Inc. and an Australian junior company have submitted proposals to develop lithium. Canada’s McEwen Copper Inc. is also preparing a proposal.
The advantages of the incentive program are unmistakable in a jurisdiction with problems for investors like Argentina. “Rigi is an attempt to create a bubble of normality in a context in which there are still obstacles,” said Marcelo García, Americas director at New York-based consulting firm Horizon Engage.
The clauses to circumvent many of Argentina’s foreign exchange regulations are perhaps the biggest attraction. After a few years, companies can use the proceeds in hard currency from exports as they want, instead of having to exchange them for pesos at the central bank.
Another advantage is the reduction of taxes. Tariffs will be eliminated on materials that companies import to build plants and, to solve a major problem in the Argentine business world, they will be allowed to export without tariffs. There is also a loophole for value added tax that will dramatically reduce costs.
Finally, Rigi establishes rights so that companies can bypass the Argentine legal system and go directly to international arbitration courts. if any future government breaches the contracts.
Without a doubt, Argentina has been through this before. Long-standing tax breaks for miners have had mixed success. And previous governments bombarded the oil industry with incentives, but drilling companies found it difficult to collect them.
The Rohatyn Group, a New York-based asset management company that is planning a new Argentine infrastructure fund, He said it all boils down to a general removal of currency controls.
“I hope they get up sooner rather than later,” Roberto Chute, who heads Rohatyn’s private equity investments in Latin America, said on a panel. “It is a difficult bet to bring US$200 million to Argentina when there are still doubts about the macroeconomic situation.”
