Argentina

Executive Summary

Argentina presents investment and trade opportunities, particularly in agriculture, energy, health, infrastructure, information technology, and mining. However, economic uncertainty, interventionist policies, high inflation, and persistent economic stagnation have prevented the country from maximizing its potential. Argentina fell into recession in 2018, the same year then-President Mauricio Macri signed a three-year $57 billion Stand-By Arrangement (SBA) with the International Monetary Fund (IMF). Efforts to rationalize spending contributed to Macri’s defeat by the Peronist ticket of Alberto Fernandez and former president Cristina Fernandez de Kirchner (CFK) in 2019. The new administration took office on December 10, 2019 and reversed fiscal austerity measures, suspended the IMF program, and declared public debt levels unsustainable. The COVID-19 pandemic deepened the country´s multi-year economic recession. This led the government to intensify price, capital, and foreign trade controls, rolling back some of the market driven polices of the previous administration. After recording its ninth sovereign default in May 2020, the government of Argentina restructured international law bonds for $65 billion and domestic law bonds for $42 billion. The debt restructuring provides financial relief of $37.7 billion during the period 2020-2030, lowering average interest payments from 7 percent to 3 percent. In August 2020, the government formally notified the International Monetary Fund (IMF) of its intent to renegotiate $45 billion due to the Fund from the 2018 Stand-by Arrangement. In 2020, the Argentine peso (official rate) depreciated 29 percent, inflation reached 36 percent, the poverty rate reached 42 percent, and the economy contracted 10 percent.

The Fernandez administration’s economic agenda during 2020 focused on restructuring the country’s sovereign debt and addressing the impact of the COVID-19 pandemic. The government increased taxes on foreign trade, further tightened capital controls, and initiated or renewed price control programs. The administration also expanded fiscal expenditures, which were primarily directed at mitigating the economic impact of the COVID-19 pandemic. Citing a need to preserve Argentina’s diminishing foreign exchange reserves and raise government revenues for social programs, the Fernandez administration passed a sweeping “economic emergency” law in December 2019, that included a 35 percent advance income tax plus a 30 percent tax on purchases of foreign currency and all individual expenses incurred abroad, whether in person or online.

After the first COVID-19 case was confirmed in Argentina on March 3, 2020, the country imposed a strict nationwide quarantine on March 20, which became one of the longest in the world. The confinement measures were relaxed starting in the second semester of 2020, although multiple restrictions remained in place. Hotel and lodging, travel and tourism, and entertainment activities were deeply affected and were still not fully operational as of March 2021. According to estimates from the Argentine Small and Medium-Sized Confederation´s (CAME), 90,700 retail stores and 41,200 businesses permanently closed in Argentina during 2020, accounting for more than 185,300 jobs losses. As a result of the confinement measures, economic activity dropped 10 percent during 2020 compared to 2019, reaching levels similar to the 2002 economic crisis.

The Argentine government issued a series of economic relief measures, primarily focusing on the informal workers that account for 40 percent of the labor force as well as small and medium size enterprises (SMEs). The government prohibited employers from terminating employment until April 2021 and mandated a double severance payment until December 31, 2021. The government also prohibited the suspension of utility services (water, natural gas, electricity, mobile and land line services, and internet and cable TV) for failure to pay. The government’s ninth sovereign default and self-declared insolvency has limited its access to international credit, obligating it to finance pandemic-related stimulus measures and COVID-19 vaccine purchases via money printing, which may hamper its efforts to restrain inflation and maintain a stable exchange rate in the near term. The government is expected to further expand fiscal expenditures ahead of mid-term elections in October 2021.

Both domestic and foreign companies frequently point to a high and unpredictable tax burden and rigid labor laws, which make responding to changing macroeconomic conditions more difficult, as obstacles to further investment in Argentina. In July 2020, the government passed a teleworking law which imposed restrictive regulations on remote work. The law discourages companies from granting workplace flexibility and lowering labor costs via telework. In 2019, Argentina ranked 36 out of 41 countries evaluated in the Competitiveness Ranking of the World Economic Forum (WEF), which measures how productively a country uses its available resources.

As a MERCOSUR member, Argentina signed a free trade and investment agreement with the European Union (EU) in June 2019. Argentina has not ratified the agreement yet. In May 2020, Argentina proposed slowing the pace and adjusting the negotiating parameters of MERCOSUR’s ongoing trade liberalization talks with South Korea, Canada, and other partners to help protect vulnerable populations and account for the impact of the COVID-19 pandemic.  Argentina previously ratified the WTO Trade Facilitation Agreement on January 22, 2018. Argentina and the United States continue to expand bilateral commercial and economic cooperation, specifically through the Trade and Investment Framework Agreement (TIFA), the Commercial Dialogue, and under the Growth in the Americas initiative, in order to improve and facilitate public-private ties and communication on trade, investment, energy, and infrastructure issues, including market access and intellectual property rights. More than 300 U.S. companies operate in Argentina, and the United States continues to be the top investor in Argentina with more than USD $10.7 billion (stock) of foreign direct investment as of 2019.

Colombia

Executive Summary

With improving security conditions in metropolitan areas, a market of 50 million people, an abundance of natural resources, and an educated and growing middle-class, Colombia continues to be an attractive destination for foreign investment in Latin America. Colombia ranked 67 out of 190 countries in the “Ease of Doing Business” index of the World Bank’s 2020 Doing Business Report.

The Colombian economy contracted for the first time in more than two decades in 2020, with the effects of COVID-19 and lower oil prices resulting in a 6.8 percent decline in GDP. Measures to alleviate the pandemic’s effects led to a temporary suspension of Colombia’s fiscal rule and the deficit surpassing eight percent of GDP for 2020, with a similar deficit expected in 2021.

Colombia’s legal and regulatory systems are generally transparent and consistent with international norms. The country has a comprehensive legal framework for business and foreign direct investment (FDI). The 2012 U.S.-Colombia Trade Promotion Agreement (CTPA) has strengthened bilateral trade and investment. Colombia’s dispute settlement mechanisms have improved through the CTPA and several international conventions and treaties. Weaknesses include protection of intellectual property rights (IPR), as Colombia has yet to implement certain IPR-related provisions of the CTPA. Colombia became the 37th member of the Organization for Economic Cooperation and Development (OECD) in 2020, bringing the obligation to adhere to OECD norms and standards in economic operations.

The Colombian government has made a concerted effort to develop efficient capital markets, attract investment, and create jobs. Restrictions on foreign ownership in specific sectors still exist. FDI inflows increased 25.6 percent from 2018 to 2019, with a third of the 2019 inflow dedicated to the extractives sector and another 21 percent to professional services and finance. Roughly half of the Colombian workforce in metropolitan areas is employed in the informal economy, a share that increases to four-fifths in rural areas. Unemployment ended 2020 at 17.3 percent, a 4.3 percentage point increase from a year prior.

Since the 2016 peace agreement between the government and the Revolutionary Armed Forces of Colombia (FARC), Colombia has experienced a significant decrease in terrorist activity. Several powerful narco-criminal operations still pose threats to commercial activity and investment, especially in rural zones outside of government control.

Corruption remains a significant challenge. The Colombian government continues to work on improving its business climate, but U.S. and other foreign investors have voiced complaints about non-tariff, regulatory, and bureaucratic barriers to trade, investment, and market access at the national, regional, and municipal levels. Investors also note concern at a heavy reliance by the national competition and regulatory authority (SIC) on decrees to remedy perceived problems.

Mexico

Executive Summary

In 2020, Mexico became the United States’ third largest trading partner in goods and services and second largest in goods only.  It remains one of our most important investment partners.  Bilateral trade grew 482.2 percent from 1993-2020, and Mexico is the United States’ second largest export market.  The United States is Mexico’s top source of foreign direct investment (FDI) with USD 100.9 billion (2019 total per the U.S. Bureau of Economic Analysis), or 39.1 percent of all inflows (stock) to Mexico, according to Mexico’s Secretariat of Economy.

The Mexican economy averaged 2 percent GDP growth from 1994-2020, but contracted 8.5 percent in 2020.  The economic downturn due to the world-wide COVID-19 pandemic was the major reason behind the contraction, with FDI decreasing 11.7 percent.  The austere fiscal policy in Mexico resulted in primary surplus of 0.1 percent in 2020.  The government has upheld the central bank’s (Bank of Mexico) independence.  Inflation remained at 3.4 percent in 2020, within the Bank of Mexico’s target of 3 percent ± 1 percent.  The administration maintained its commitment to reducing bureaucratic spending in order to fund an ambitious social spending agenda and priority infrastructure projects, including the Dos Bocas Refinery and Maya Train.  President Lopez Obrador leaned on these initiatives as it devised a government response to the economic crisis caused by COVID-19.

Mexico approved the amended United States-Mexico-Canada Agreement (USMCA) protocol in December 2019, the United States in December 2019, and Canada in March 2020, providing a boost in confidence to investors hoping for continued and deepening regional economic integration.  The USMCA entered into force July 1, 2020.  President Lopez Obrador has expressed optimism it will buoy the Mexican economy.

Still, investors report sudden regulatory changes and policy reversals, the shaky financial health of the state oil company Pemex, and a perceived weak fiscal response to the COVID-19 economic crisis have contributed to ongoing uncertainties.  In the first and second quarters of 2020, the three major ratings agencies (Fitch, Moody’s, and Standard and Poor’s) downgraded both Mexico’s sovereign credit rating (by one notch to BBB-, Baa1, and BBB, respectively) and Pemex’s credit rating (to junk status).  The Bank of Mexico revised upward Mexico’s GDP growth expectations for 2021, from 3.3 to 4.8 percent, as did the International Monetary Fund (IMF) to 5 percent from the previous 4.3 percent estimate in January.  Still, IMF analysts anticipate an economic recovery to pre-pandemic levels could take five years.  Moreover, uncertainty about contract enforcement, insecurity, informality, and corruption continue to hinder sustained Mexican economic growth.  Recent efforts to reverse the 2014 energy reforms, including the March 2021 electricity reform law prioritizing generation from the state-owned electric utility CFE, further increase uncertainty.  These factors raise the cost of doing business in Mexico.