Argentina

Executive Summary

Argentina presents investment and trade opportunities, particularly in infrastructure, health, agriculture, information technology, energy, and mining; however, soaring debt and a failure to implement critical structural reforms have prevented the country from maximizing its  economic potential, though the country has taken steps to diminish bureaucratic procedures. Market reactions to the 2019 Argentine presidential elections deepened the country’s economic crisis, stalling reform efforts and leading to a rollback of some market-driven growth policies and the imposition of capital and export controls.  In late 2019, the government reprofiled some of the country’s local law debt payments. Argentina’s economy contracted for the second year in a row in 2019, as unemployment and poverty grew and annual inflation rose to 53.8 percent.

Following a victory in the October 2019 general election, President Alberto Fernandez took office on December 10, 2019. His economic agenda at the beginning of 2020 focused on restructuring the country’s sovereign debt and providing support to vulnerable sectors. The Fernandez administration increased taxes on foreign trade, further tightened capital controls, and pulled back from former President Mauricio Macri’s fiscal austerity measures, expanding fiscal expenditures. 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 that included a 30 percent tax on purchases of foreign currency and all individual expenses incurred abroad, whether in person or online.

The country began a nationwide quarantine on March 20 to combat the COVID-19 pandemic, shortly after the first case was confirmed on March 3. As of early May, the government anticipated a 6.5 percent drop in real Gross Domestic Product (GDP) growth for 2020, though the full economic  impact will largely depend on how long quarantine restrictions last and whether the government reaches agreement with its private bondholders to avoid a sovereign default. The Argentine government issued a series of economic relief measures to mitigate the economic impact of the quarantine, primarily focusing on informal workers that account for approximately 40 percent of the labor force. The government’s self-declared insolvency has sharply limited its access to credit, obligating it to finance the pandemic-related stimulus measures by monetary issuance, which may hamper its efforts to restrain inflation and maintain a stable exchange rate. As a result of the crisis, industry and unions are analyzing changes to labor agreements and requesting government tax reforms.  U.S. 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 April, the government reprofiled foreign currency local law debt.  In early May, the Minister of Economy announced the government has sought to restructure its debt to private creditors by May 22 and to reschedule its Paris Club debt.  The Minister also stated the government intends to seek a new program with the International Monetary Fund (IMF), to which it owes $44 billion from a Standby arrangement the government signed in 2018.

In 2019, Argentina fell two places in the Competitiveness Ranking of the World Economic Forum (WEF), which measures how productively a country uses its available resources, to 83 out of 141 countries, and 12 out of the 20 countries in the Latin American and Caribbean region.  As a MERCOSUR member, Argentina signed a free trade and investment agreement with the EU in June 2019. Argentina has not ratified the agreement yet. In May, 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 ongoing COVID-19 pandemic.  Argentina 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 $15 billion (stock) of foreign direct investment as of 2018.