Nearshore Americas

Argentina’s Elections Spell New Hope For Investment and Global Openness

Increasingly unfriendly government policies have rendered Argentina a bit of a no-man’s land for business and investment in recent years. But with presidential elections on the horizon and a change of the political guard inevitable, that is about to change.

“The candidates with the best chances, as a general reflection, are people who imagine an Argentina that is inserted in the world. Neither their words nor their actions indicate that they envision a closed Argentina,” said Alejandro Estrada, an Argentine entrepreneur and investor whose previous ventures include Banco Privado and DineroMail. “Whoever wins, there is a great possibility for Argentina to reinitiate a path of openness to the world – to remove currency exchange controls, welcome investments from abroad, modernize the country and think of a country of services.”

Alejandro Bianchi, Certified Financial Analyst and Investments Manager at, echoed Estrada’s optimism in anticipating a much more “market friendly” leader in Argentina than what is currently in place.

The Election Cycle

Argentina will hold general elections on October 25, 2015, and, if required, a second round on November 24. Congressional seats will be up for grabs, but all eyes will be on the presidential election and the impending exit of current President Cristina Fernández de Kirchner.

Kirchner, the wife of former President Néstor Kirchner, was first elected in 2007 and again in 2011. Because Argentine law prohibits presidents from serving more than two consecutive terms, Kirchner is unable to run for a third time. Her party, Frente para la Victoria (FPV), proposed a constitutional amendment to allow unlimited reelections, which was ultimately shot down by Congress.

Cristina Kirchner will likely be replaced by one of three candidates who currently lead opinion polls: Daniel Scioli, governor of the Buenos Aires province, Sergio Massa, Chamber of Deputies representative of the Buenos Aires province, and Mauricio Macri, mayor of Buenos Aires city.

Scioli is a member of Kirchner’s Frente para la Victoria, though his political views are considered to differ significantly from Kirchner’s.

Current Environment

Throughout her tenure, Cristina Kirchner has fostered an increasingly hostile environment for business and investment, in effect closing off Argentina from much of the world.

Inflation in the country has skyrocketed. In 2013, Argentina became the first country to be censured by the International Monetary Fund for not providing accurate data on inflation and economic growth.

The country’s clampdown on currency has resulted in parallel markets for the Argentine peso and made getting funds in and out of Argentina extremely difficult. While the official exchange rate to the dollar is about eight to one, the black market rate is about 12 to 13.

Foreign direct investment in Argentina has declined as well. In the first semester of 2014, FDI dropped 101% from the same period the year prior, due in large part to the exit of Spanish oil company Repsol from the country in the wake of the renationalization of YPF.

Kirchner has engaged in a high-profile battle against a group of holdout creditors of Argentine bonds that has grabbed headlines globally. Companies and investors have abandoned the country in droves, ranging from printing companies to luxury brands.

Turnaround Inevitable

There is no denying that Argentina’s business landscape has become increasingly difficult to maneuver in recent years; however, a new political guard means change is on the horizon. What’s more, most expect the scenario to improve regardless of which presidential candidate – or political party – comes out on top.

“I don’t see this anti-business vision in any of the three candidates,” said Estrada.

“Whatever candidate wins is expected to introduce similar policies. Change will be more profound with Macri than with Scioli or Massa,” said Ariel Arrieta, co-founder and managing partner of seed fund and accelerator NXPT Labs. “The current model has been exhausted, it’s clear to everyone.”

First Steps

One of the first issues Argentina’s next president will have to address is that of its currency – both its exchange rate and its transfer. “Today, the situation for companies is that they cannot receive assets abroad, nor can they transfer them easily abroad,” he said. “For companies in Argentina that have to transfer funds or pay dividends to headquarters, it’s a problem.”

Once Argentina’s currency is stabilized (Bianchi estimates its true exchange rate is somewhere between 14-15 pesos to the dollar) and pipelines are opened to get funds in and out of the country more easily, doors will start to open back up for business.

Globant and MercadoLibre – two Argentine companies that trade on the U.S. stock market – will benefit significantly from the country’s opening in terms of capital movement. However, the strengthening of the peso will also mean a potential increase in talent costs – something true for all firms with operations in Argentina.

Bianchi acknowledged that this will be a bit of a trade-off for companies. Transferring funds in and out of Argentina will be easier, but paying the workforce may become more expensive as well. However, he also emphasized that the country’s human capital is very good and worth the extra penny. “The cost-benefit relationship is optimal,” he said.

Change Will Come Fast

There seems to be little doubt that the Argentine landscape is about to become a much more interesting place for businesses, and when change comes, it will come quickly. “Processes of trust aren’t much slower than those of distrust,” Estrada said. “In 12 months, things can be very different.”

Not only is foreign investment in the country likely to return, but local investment should increase as well. Estrada pointed to estimates that Argentines – including companies – have placed billions of dollars in savings abroad. “All of this cash is ready to jump into the market if conditions are favorable,” he said.

Arrieta also affirmed that it may very well be local players who are key in making Argentina more interesting. Many companies in the country are modeled to have a principal market abroad – what will change is that the Argentine market will become more attractive as well.

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“Argentina will become a more interesting internal market,” Arrieta said. “The best mix is to have most of your clients and income abroad, that gives you stability. But the big opportunity will be the internal market.”

The Time to Act is Now

For those looking to invest in Argentina, whether funding companies, setting up businesses or buying real estate, it may be wise to start sooner rather than later.

“The time to enter isn’t after the elections,” Arrieta said. “It’s establishing ahead of time. The time to enter is now.”

Prices are depressed at the moment, but it won’t be long before they start to rise. Arrieta anticipates two to three years of solid growth and prosperity as Argentina makes up for lost time. After that, however, the horizon becomes a bit murkier. “The next two to three years will be good, after that, we don’t know what will happen, whether the same story of previous cycles will be repeated,” he said.

Bianchi pointed to Chevron’s agreements with Argentine oil company YPF to invest $1.24 billion to develop shale and gas resources from the Vaca Muerta formation in the Argentine province of Neuquén. “What some companies have done is sign a contract, pay the first part to enter, take advantage, perhaps, of a moment of weakness in the government in this recent period and wait,” he said. “They negotiate now to come in later with new conditions and a new government.”

Emily Stewart

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