1. ARGENTINA IMPOSES MORE CONTROLS ON PURCHASE OF US DOLLARS FOR TRAVEL ABROAD (The Washington Post)
2. ARGENTINA’S RESOURCE-RICH PROVINCE TRIES TO DEVELOP GAS FIELDS (The Washington Post)
3. 2 BEING TREATED FOLLOWING DEADLY SHOOTING OUTSIDE BUENOS AIRES SOCCER STADIUM (The Washington Post)
4. ARGENTINA’S ECONOMY HAS BEEN ON FIRE BUT ‘STORM CLOUDS’ APPEAR (Washington Times)
5. TRANSGENDER ADVOCATES HAIL LAW EASING RULES IN ARGENTINA (The New York Times)
6. EUROPE TO CHALLENGE ARGENTINA’S TRADE RULES (The New York Times)
7. EU STEPS UP CHALLENGE TO ARGENTINA’S POLICIES (The Wall Street Journal Online)
8. ARGENTINA SEIZED YPF TO AVOID AN ENERGY CRISIS (Financial Times)
9. ARGENTINE LEADERS GUILTY OF ‘STEALING’ FROM SHAREHOLDERS (Financial Times)
10. EU ESCALATES DISPUTE WITH ARGENTINA (Financial Times)
11. REPSOL CUTS DIVIDEND, RAISES PRODUCTION GOAL AFTER YPF SEIZURE (Bloomberg News)
12. EUROPEAN UNION CHALLENGES ARGENTINA’S IMPORT CURBS AT WTO (Bloomberg News)
13. ARGENTINA DROPS TRAIN OPERATOR AFTER DEADLY CRASH (Business Week)
14. ARGENTINA’S YPF MULLS DEBT SALE TO FINANCE INVESTMENTS: REPORTBUENOS AIRES (Platts Commodity News)
15. ARGENTINA’S PRESIDENT KIRCHNER URGES COUNTRYMEN NOT TO BET AGAINST PESO (Dow Jones Business News)
16. ARGENTINA PRESIDENT CRITICIZES EU TRADE POLICIES AS DISPUTE RISES (Platts Commodity News)
17. ARGENTINA TO VET MINING COMPANIES’ IMPORTS, REQUIRE MORE LOCAL BUYING (Dow Jones International News)
18. ARGENTINE IMPORT CONTROLS SPARK WTO SUIT BY EU (Oxford Analytica)
19. ARGENTINE RAIL RESCISSION WILL NOT IMPROVE SAFETY (Oxford Analytica)
20. BOLIVIA ROLLS BACK ON PAN AMERICAN STAKE TAKEOVER (Reuters News)
21. ARGENTINA TARGETS MINING FIRMS IN IMPORT CRACKDOWN (Reuters News)
22. CENTER OF GRAVITY IN OIL WORLD SHIFTS TO AMERICAS; FROM CANADA TO COLOMBIA TO BRAZIL, OIL AND GAS PRODUCTION IN THE WESTERN HEMISPHERE IS BOOMING (Washington Post.com)
23. CHILD OF ‘DIRTY WAR’ LEARNS PARENTS PART OF REGIME THAT KILLED REAL PARENTS (CNN Wire)
24. ARGENTINA: COUNTRY RISK SUMMARY (Economist Intelligence Unit – ViewsWire)
25. ARGENTINA ECONOMY: MARKET OPPORTUNITIES (Economist Intelligence Unit – ViewsWire)
26. ARGENTINA ECONOMY: TEN-YEAR GROWTH OUTLOOK (Economist Intelligence Unit – ViewsWire)
1. ARGENTINA IMPOSES MORE CONTROLS ON PURCHASE OF US DOLLARS FOR TRAVEL ABROAD (The Washington Post)
May 28, 2012
BUENOS AIRES, Argentina — Argentina is making it harder for people to buy U.S. dollars to pay for travel abroad.
A new rule published Monday says anyone wanting to buy dollars for travel must first prove their money was obtained legally, and provide the tax agency with trip details including why, when and where they are traveling.
Many Argentines only declare part of their wealth and income to evade taxes, and use black-market currency exchanges to convert their inflationary pesos into dollars. Travel agencies are the latest target since they manage multiple currencies and offer customers black-market rates for their money.
President Cristina Fernandez is cracking down to keep hard currency from flowing out of Argentina, which needs the dollars to maintain its central bank reserves and pay debts.
2. ARGENTINA’S RESOURCE-RICH PROVINCE TRIES TO DEVELOP GAS FIELDS (The Washington Post)
By Juan Forero
May 25, 2012
NEUQUEN, Argentina – For wildcatters here, it was a major affirmation when the U.S. government, in a 365-page report issued last year, signaled that Argentina might just have the third-largest shale gas and oil deposits in the world.
Then the Spanish energy giant Repsol, busy drilling wells in this rocky patch in Patagonia, reported that a source rock known as Dead Cow could hold nearly 23 billion barrels of oil and gas. The oil majors, among them ExxonMobil and Royal Dutch Shell, acquired stakes.
“All this has generated big expectations in the oil industry,” said Luis Pedro Stinco, a geologist and vice president for exploration for the Argentine arm of the Chinese company Sinopec. “Those who want to be in Dead Cow are now paying a fortune in acreage for a concession.”
Even so, bringing Dead Cow — so named by prospectors who apparently came upon a dead cow amid gullies and dry rolling hills — to life will be full of geological hurdles and political obstacles.
Energy officials here in Neuquen province who manage the oil and gas industry are scrambling to assure oil companies from Brazil to Canada that their investments will pay off, just weeks after Argentine President Cristina Fernandez de Kirchner shook oil markets by abruptly expropriating a Spanish-owned oil company, YPF.
The hostile takeover of a company that had been drilling in a remote corner called Loma La Lata only added to the challenges and uncertainties faced by companies here, which include price controls on gas and oil and burdensome financial regulations.
In a modest office building in this small city that houses the offices of Neuquen’s energy ministry and the local provincial oil company, executives talk about the importance of finding a middle ground between state control of the energy sector and creating a climate in which deep-pocketed private partners provide the gargantuan investments needed to develop Dead Cow.
“Everyone is convinced that the only way to advance is with foreign investments,” said Guillermo Coco, the energy minister of Neuquen province. “What companies ask is, what will be the conditions? What price will I receive for gas and oil? Will I be able to buy currency? Will I be able to take earnings out of the country once I am making money?”
Stringent regulations
American and foreign companies such as Petrobras, Chevron, Total and Apache have been discreet about their position on Argentina’s management of the energy sector. But state regulations, particularly governing what companies can charge for the oil and gas they produce, has been a central concern.
ExxonMobil, which has interests in several potentially lucrative junctures in this province, said it is prepared to make the necessary investments to develop its concessions. But the company noted in a statement that “our investment must be supported with fiscal terms and product pricing that provides a return commensurate with the risk we are undertaking.”
Argentina, which is heavily dependent on natural gas to power everything from factories to homes to cars, has some of the world’s most stringent pricing restrictions.
That has meant cheap natural gas prices for consumers. But it led companies, among them YPF, to hold off on exploring new fields. As a result, production has plunged nationwide over the past decade, forcing Argentina to import $10 billion worth of fuel last year, which was secured at market prices and then sold cheap inside the country.
“We are increasingly importing from more places, like Bolivia,” said Daniel Montamat, an energy analyst and former president of YPF. “That is where our energy problem comes from, those imports.”
Ruben Etcheverry, chief executive of Gas and Oil of Neuquen, a provincial energy producer, said he believes that the government’s pricing structure needs to be reviewed. He noted that some companies have been able to negotiate supply deals at prices above those set by the government, a policy that could be revised and expanded to lure more companies.
Etcheverry also said that Argentina, with a history of shifting policies that unnerve investors, needs to ensure that clear rules are established and not changed.
“Companies are accustomed to risk – business, geological, commercial risk,” Etcheverry said. “But what investors and foreign companies worry about is the uncertainty, not the risk. Risk is accepted and is part of doing business – not uncertainty and unforeseen changes.”
Though the provincial government is an ally of President Fernandez, the position taken by officials here is at odds with the nationalistic approach favored by some of the energy officials in the central government in Buenos Aires.
Planning Minister Julio De Vido has suggested the government would not end subsidies that keep natural gas prices low. And Axel Kiciloff, vice minister of economy and an architect of the YPF takeover, has signaled that the government would pay far less for the expropriation of YPF than its former owner, Madrid-based Repsol, is demanding.
Carlos Pagni, a columnist for the Buenos Aires newspaper La Nacion who is critical of Fernandez’s policies, said that the YPF takeover has taken away the leverage the Neuquen provincial government had on running the energy sector.
“Because of their culture there, they understand better than anyone the energy issue,” said Pagni, noting that Neuquen has long been an energy stronghold. “They talk the language they talk in the rest of the world. They are very pragmatic centrists.”
Now, instead of the province directly negotiating with a privately run YPF, it will be the central government controlling nearly all facets of energy policy. And Fernandez’s government, Pagni said, can use its hold over YPF and the control it exercises over the country’s purse-strings to ensure loyalty from provincial officials.
“It’s the worst partner you can have,” Pagni said of the state.
Trying to compete
Still, in the aftermath of the April 16 expropriation in which YPF executives were forced from their executive offices in Buenos Aires, Fernandez’s government has shown signs of softening its populist approach.
Earlier this month, the government appointed Miguel Galuccio, a well-respected engineer who had been a high executive at the oil services giant Schlumberger, to head YPF. The company’s shares spiked on the New York Stock Exchange as word filtered out that Galuccio would be named.
“The idea is essentially to create a YPF that is absolutely modern, competitive, with professional people,” the president said at the ceremony where Galuccio was presented to the Argentine public.
Just the logistic hurdles to developing Dead Cow will be a huge challenge for Galuccio, as well as for the oil majors that Argentina hopes will work alongside YPF. Shale oil and gas requires hydraulic fracturing – blasting water, chemical and sand to make “tight” rock formations porous for oil and gas to flow – and that means technical know-how and substantial investments.
Montamat, the former YPF president, estimates that for Argentina to take advantage of the riches under the ground here will require 2,000 wells a year for the foreseeable future, which will cost tens of billions of dollars.
Still, for Coco, the provincial energy minister here, the lure of what’s underground will trump the regulatory obstacles.
“The oil market is special,” he said. “And we have always said, if the world invests in countries at war, as in the Middle East, or Asia or other places, then why wouldn’t they do so in Argentina?”
3. 2 BEING TREATED FOLLOWING DEADLY SHOOTING OUTSIDE BUENOS AIRES SOCCER STADIUM (The Washington Post)
By Stephen Wade
May 27, 2012
BUENOS AIRES, Argentina — Two people were being treated Sunday for bullet wounds after a shooting that claimed the life of a 21-year-old member of a gang of Argentine soccer hooligans.
The shooting occurred Saturday in Buenos Aires outside a stadium before a first division match between Lanus and All Boys.
Officials identified the dead man as Daniel Sosa, who was shot in the chest as three motorcycles passed by and gunmen opened fire.
Violence inside and outside stadiums has intensified in Argentina with at least five people dying this year in soccer-related violence, according to nonprofit group Let’s Save Football.
Juan Moretti, director of the Hospital Zonal General de Agudos Narciso Lopez de Lanus, said neither of the other two men hit during the shooting had suffered life-threatening injuries.
Moretti also said that two other people were taken to the hospital with minor injuries after the attack, but fled before being treated. He said they got away “amid the confusion.”
The incident is the latest of the unrelenting violence that haunts the game in Argentina.
“It’s sad what’s happening with football in Argentina,” Lanus coach Gabriel Schurrer told reporters. “If one really wanted to get rid of the violence, it could be done. English football was more violent, and they did it. If England and other countries can get rid of it, I don’t understand why it can’t be done here.”
The Argentine Football Association and its president, Julio Grondona, have been widely criticized for doing little to stem the violence. AFA has said it’s a social problem and a matter for the police.
Hooligan gangs in Argentina — known as “barrasbravas” — have connections with Argentina’s top clubs. They run food concessions, black-market tickets and car parking, and receive other favors. In exchange, club officials — some of whom are high-profile politicians or union leaders — count on the hooligans for support at political rallies or labor-union protests.
They also have a history of intimidating players.
On Tuesday, Racing Club midfielder Giovanni Moreno was held at gunpoint by hooligans, who stuck a pistol into his knee and promised to “blow off” his leg unless he played better for struggling first-division team, regarded as one of the “big five” in the local game.
The vice president of Independiente — another of Argentina’s most important clubs — received death threats attributed to a hooligan gang with connections to the club. He resigned earlier in the week, and then recanted and said he was taking a 30-day break away from club business.
In January, a dozen soccer hooligans invaded the delivery room of a Buenos Aires hospital and threatened staff with guns and knives as they tried to avenge the death of a gang member killed in a fight with a rival faction.
4. ARGENTINA’S ECONOMY HAS BEEN ON FIRE BUT ‘STORM CLOUDS’ APPEAR (Washington Times)
By Almudena Calatrava
May 28, 2012
* Some economists predict recession
BUENOS AIRES — Argentina’s nine-year economic expansion is slowing sharply, according to analysts, who predict growth of 2.5 percent to 3 percent this year, half the 5.1 percent projected by the government’s 2012 budget and far below last year’s 8.9 percent rise.
Some economists are even predicting recession before year’s end, saying recently imposed currency and trade restrictions, high inflation, price controls and capital flight are making it tougher to protect Argentina from the global slowdown.
“The tail wind has ended and there are storm clouds gathering. Argentina is more exposed,” said Ramiro Castineira, an economist with the Econometrica consultancy.
He estimates 2.5 percent growth this year and worries the government’s economic interventions have left it too weak to respond to global pressures.
Argentina’s GDP averaged annual growth of 7.1 percent from 2003 to 2011 as President Cristina Fernandez and her late husband and predecessor, Nestor Kirchner, guided the country out of an economic abyss created by its world-record loan default and currency devaluation in 2002.
Key to the comeback was Mr. Kirchner’s refusal to pay back international lenders in full. The move made Argentina a pariah among many investors, but enabled the government to spend billions on rebuilding the domestic economy.
The government has poured money into industrial subsidies, public works projects, generous welfare payments and other popular stimulus programs collectively known as the Kirchners’ model for growing a more inclusive society.
The year-after-year growth has been a point of pride for Mrs. Fernandez, who insists the U.S. and Europe should learn from Argentina’s example rather than impose austerity measures that so far have failed to turn around failing economies.
Changing times
Now, however, even Mrs. Fernandez is acknowledging that the good times are running out, although she blames the problems on the global crisis, not her own policies.
“We’ve never fallen from the world; we have the problem that the world is falling on top of us,” the president said this month, as she announced a new round of government-backed credits to Argentine businesses worth $1.8 billion.
“Today we have to focus on investment; that’s the key to surviving what’s coming,” she said, warning that business leaders who want her government’s support will be expected to make long-term bets on Argentina.
A wide range of factors is involved in the slowdown. Agricultural production dropped sharply due to low rains this past growing season.
Industrial production also dropped despite high internal demand because trade protections make it more difficult to get parts for everything from smartphones to refrigerators to automobiles.
Brazil, meanwhile, has been devaluing its currency as its economy slows, making Argentine exports to its main trading partner less competitive.
Construction is usually a main economic driver, and Argentines habitually turn to real estate as a way to shelter their wealth against inflation.
But new projects have slowed sharply as sales plunged 15 percent this year, due in large part to currency controls imposed by the government to stem capital flight.
Nearly all Argentine real estate transactions are done in dollars, which are now scarce as people try to dump their pesos and move their wealth out of the country.
Rising budget deficit
For three months now, Maria del Carmen Fernandez hasn’t been able to sell a dead relative’s two-bedroom apartment in Buenos Aires.
“Nobody even comes to see it,” the attorney complained. “It’s a property that would have sold rapidly before this, without problems. Now I’m facing bills that my budget doesn’t have room for.”
Jorge Safar, sales chief at one of the city’s OPPEL real estate franchises, agreed the market has changed. “We’re hopeful that something will clear up the doubts generated by the currency controls, but the political news hasn’t been ideal.”
The smart money is rapidly flowing out of Argentina, said former Economy Minister Roberto Lavagna, who presided over the first years of the current expansion.
“If $23 billion that should have been invested in Argentina fled the country [in 2011], it was for a reason,” he told reporters.
Mr. Castineira said Argentina no longer has the macroeconomic strength to withstand a global crisis like that of 2008, when it had positive balances in trade and revenues and a more competitive exchange rate to encourage exports.
For the first time in years, Argentina is now spending more than it takes in, closing 2011 with a budget deficit of 1.6 percent, according to official data.
Argentina has vast untapped oil and natural gas resources, but production hasn’t kept pace with the country’s economic growth.
The government has only recently begun removing some of the price controls imposed nearly a decade ago.
‘Critical mass’
Cheap energy gave Argentine businesses a huge advantage, but dissuaded Repsol and other leading oil companies from digging hard for oil and gas that they would have to sell at a loss.
The government’s seizure of Repsol SA’s controlling stake in Argentina’s YPF energy company creates the possibility of more domestic production, but that will require major investment, so it could take years before significant oil and gas starts flowing.
As a result, the government may have to spend $5 billion for fuel imports this year, up from $3 billion last year, Mr. Castineira said.
“These problems are beginning to reach critical mass,” said Fausto Spotorno, an economist with the Orlando J. Ferreres y Asociados consultancy. “The energy crisis, which holds back much of the productive capacity, is generating budgetary problems, which in turn create the need for currency controls and problems with the money supply.”
Meanwhile, annual inflation could reach 25 percent this year, nearly three times the official rate, private analysts say.
Unions, once the government’s reliable allies, are pushing for even larger pay increases to keep pace, despite evidence of a slowdown.
Mrs. Fernandez has urged both business and union leaders to avoid ruining an increasingly delicate economic balancing act.
“A very difficult world is coming,” she warned, urging unions in particular to act responsibly. “They kick up a storm and everybody shouts to see who can get more [but] when everything turns rotten, the leaders split, and those who are left without a job are the workers.”
5. TRANSGENDER ADVOCATES HAIL LAW EASING RULES IN ARGENTINA (The New York Times)
By Emily Schmall
May 24, 2012
BUENOS AIRES — Under the glare of rainbow-colored strobe lights, a disc jockey spun Grace Jones’s disco version of “La Vie en Rose” one night last week as couples clinked beer bottles to celebrate passage of a new law that Argentina’s transgender community describes as groundbreaking.
Argentina has put in place some of the most liberal rules on changing gender in the world, allowing people to alter their gender on official documents without first having to receive a psychiatric diagnosis or surgery.
The measure, which won unanimous support in the Senate this month, would also require public and private medical practitioners to provide free hormone therapy or gender reassignment surgery for those who want it — including those under the age of 18.
Argentina’s law goes well beyond those passed in Britain in 2004 and in Spain in 2007 that allow individuals to change their name and sex after receiving diagnoses of persistent gender dysphoria, a condition in which individuals feel trapped in the body of the wrong sex.
“There have been a lot of changes to the laws on gender all over the world, but Argentina is cutting edge,” said Harper Jean Tobin, the policy counsel for the National Center for Transgender Equality in Washington. “All the other laws have burdensome requirements with unwanted medical procedures forced on people or denied when they’re needed.”
The move comes two years after Argentina became the first country in Latin America to legalize gay marriage. It is the latest in a spate of liberal rulings on civil rights issues, including a law that decriminalizes abortion in rape cases and gives the terminally ill the right to die.
The measure, which was first introduced in 2007 by Silvia Augsburger, a deputy in Argentina’s lower chamber, defines gender identity as “the inner and individual gender experience as each person feels it.” President Cristina Fernández de Kirchner is expected to sign it into law this month.
Leaders of Argentina’s transgender community consider the identity law an important step toward self-determination.
“I couldn’t use public services because the name on the documents, the name my parents gave me, wasn’t me, and a person who doesn’t have an identity doesn’t have rights,” said Marcela Romero, the president of Attta, an activist group that promotes the rights of people who are transgender, transsexual or transvestites in Argentina.
Ashamed to be called by a name out of sync with the gender they present, transgender people in Argentina frequently drop out of school early, avoid hospitals and struggle to find gainful employment, activists say.
Such people are often the target of violent crime, according a January report by Inadi, Argentina’s antidiscrimination agency, which also documents that most of those surveyed had not completed primary school and had become prostitutes. With about a third of the country’s transgender people having contracted AIDS, Argentina’s Health Ministry puts their average life expectancy at 35 years.
The gender identity law offers another path to Argentina’s roughly 22,000 transgender people, said Silvana Sosa, 35.
“We can be more than beauticians or whores,” she said. “We don’t have to spend our lives standing on street corners in high heels and bright lipstick, in the rain and cold. Enough of that.”
Born a biological male, Ms. Sosa started taking female hormones, with her parents’ permission, at age 13, and later injected her chest and thighs with inexpensive silicon from which she said she almost lost a leg to infection. She said she started a 20-year career as a sex worker that year to support her parents and siblings.
After her father lost his job at a factory, the family moved to a homeless encampment under a bridge, surviving on food scraps salvaged from a municipal landfill.
Ms. Sosa began working two years ago as a sex counselor in the emergency wing of a Buenos Aires hospital that specializes in infectious diseases. She is among the thousands of people expected to take advantage of health coverage under the law to pursue gender reassignment surgery.
“When the day comes, I will cry out with happiness,” said Ms. Sosa, whose name had been Miguel Ángel Sosa. “I am Silvana Daniela Sosa. I’m no longer the person I was.”
Under current law, Argentines who feel the names on their national identification cards do not reflect their true gender have to receive a medical diagnosis of gender dysphoria and bring a case before the courts — standard protocol in many countries, including the United States.
“It’s unusual and deeply progressive,” Katrina Karkazis, a bioethics expert at Stanford University, said of Argentina’s new law.
“The law is saying, ‘Not only will we give you the right to self-identify, but for those who want medical intervention, we’ll require public and private providers to cover procedures for self-actualization.’ ”
Nevertheless, some transgender activists said the law would not solve all their woes.
In a darkened corner of Casa Brandon, the gay club founded 12 years ago and named for Brandon Teena, the transgender teenager from Nebraska raped and murdered in 1993, Mia Benítez, a 29-year-old security guard, said the law was not a panacea for homophobia.
“People’s perceptions don’t change overnight,” she said.
“It’s a bit deceptive,” said Melisa Ingelozzi, 25, a philosophy student at the University of Buenos Aires, who described her sense of gender as fluid. “It only lets me change from a man to a woman, but what if I don’t identify with either? It makes invisible the trans identity.”
Sexual repression is still widespread in Argentina, where 80 percent of the population is Roman Catholic and homosexuals were regarded as subversives during the dictatorship, said Graciela Balestra, a psychologist and the co-founder of Open Door, a therapy center for gay men, lesbians and transgender people.
“There is still a great deal of discrimination,” she said. “Very few people are totally out of the closet, in part because of internal homophobia.”
A week after the congressional vote, the Catholic Church condemned the law in a statement signed by four of the country’s monsignors.
“Sexual diversity doesn’t depend only on a cultural decision or construction, but rather has its roots in a fact of human nature which presents its own language and meaning,” the May 16 statement said.
6. EUROPE TO CHALLENGE ARGENTINA’S TRADE RULES (The New York Times)
By Paul Geitner
26 May 2012
BRUSSELS — Firing back after Argentina nationalized assets belonging to a Spanish oil company, the European Union said on Friday that it would go to the World Trade Organization to challenge what it called the South American country’s ”protectionist” import restrictions.
Although the rules — called nonautomatic import licenses — have been in effect since 2005, the European trade commissioner, Karel De Gucht, said Argentina ”tightened the screws” in February by extending the restrictions to cover all imports instead of just some product categories, prompting an outcry not only in Europe and the United States and elsewhere.
The Argentine government’s decision in April to seize the YPF unit of the Spanish company Repsol only poisoned relations further.
”The trade and investment climate in Argentina has steadily become worse over the years, and the recent expropriation of Repsol by the Argentinian state is clear proof of that,” Mr. De Gucht said. ”But dig a little bit deeper and what you find is that Argentina’s trade policy has become rooted in unfair trade practices.”
Mr. De Gucht stressed that Europe was not alone in its frustration with Argentina and said the door was open for others to join the legal challenge. At a W.T.O. meeting in Geneva on March 30, several countries including the United States, Mexico, Israel and Japan joined the European Union in a statement expressing concern over ”trade-restrictive measures taken by Argentina.”
Mr. De Gucht said the rules obliged ”all companies to go through a complex and bureaucratic registration process on not just some but all products,” including cars, car parts, food products and mobile phones.
Last year — before the import licenses were expanded — the rules affected about 500 million euros of European exports, Mr. De Gucht said, adding that the figure probably underestimated the impact because it did not include trade flows that were blocked.
Under W.T.O. rules, a consultation process will begin in which the two sides can try to avoid litigation. If no agreement is found in 60 days, a W.T.O. panel will be established to rule on the case, a process that could take years.
The Repsol seizure will not be included or affected, since such investments are not covered by W.T.O. rules. European Union officials also have few tools at their disposal in that dispute, since the investment is covered by a bilateral treaty between Spain and Argentina.
Spain has said that it will seek to restrict imports of biodiesel fuel from Argentina in retaliation for the seizure. Repsol is pursuing legal action in United States courts.
The Argentine mission in Brussels was closed Friday for a national holiday, and a diplomat said no statement was planned.
Nkenge Harmon, a spokeswoman for the United States trade representative, said the United States had expressed ”serious concerns” several times about Argentine measures ”that appear to restrict imports.” She said the United States would review the European Union’s challenge but declined to comment on whether it would join in.
7. EU STEPS UP CHALLENGE TO ARGENTINA’S POLICIES (The Wall Street Journal Online)
By Matthew Dalton
25 May 2012
BRUSSELS—The European Union on Friday filed a complaint at the World Trade Organization challenging Argentina’s import regulations, part of a plan to pressure President Cristina Kirchner on a range of policies that are angering the world’s largest economies.
EU officials say Argentina’s decision last month to nationalize oil and gas producer YPF SA, a unit of Spanish oil company Repsol YPF SA, was only the most recent in a series of moves by Mrs. Kirchner’s government that have harmed foreign investors and manufacturers. Friday’s complaint at the WTO, the Geneva-based arbiter of trade disputes, won’t mention the nationalization of YPF, which doesn’t violate WTO rules, two of the EU officials said. But the nationalization has convinced European officials that more forceful action is needed to fix the deteriorating economic relationship between Europe and Argentina.
“Repsol is the straw that broke the camel’s back,” said one EU official familiar with the complaint. “It reflects more broadly a deepening protectionist agenda by Argentina.”
The complaint, filed by the European Commission, the EU’s executive arm, starts a lengthy process at the WTO. The first step calls for discussions between the EU and Argentina. If after 60 days the two sides can’t reach agreement, the WTO puts together a panel of judges to hear their arguments. A ruling from the panel could take years; after that, both sides would have the chance to appeal.
If the EU ultimately wins, international trade rules would allow the bloc to impose tariffs on Argentine goods. That could be a powerful incentive for Buenos Aires: The 27 nations of the EU are Argentina’s second-largest export market after Brazil. Argentine soybeans and other agricultural products make up the main component of this trade.
The complaint will challenge regulations and policies that the EU says close off the Argentine market to merchandise imports, the EU official said. Argentina requires importers to obtain licenses from the government that aren’t automatically renewed, for products ranging from cars to electronics, a complicated process that the EU contends discourages companies from buying foreign-made products. Importers also must preregister with the Argentine government.
Argentina uses these procedures to scrutinize the foreign trading activities of importers and possibly pressure them not to import more than they export, the EU claims, according to the official familiar with the complaint. The process is arbitrary and opaque, and appears to violate WTO rules, the official said.
The commission said that in February that Argentina’s import-licensing system cost European companies $147 million from January to September of last year. Roughly 12% of European exports to Argentina are covered under the country’s nonautomatic licensing program, the commission said.
Mrs. Kirchner’s government says that firms voluntarily agree to limit their imports under the licensing program.
More broadly, Argentina says the international trade rules policed by the WTO, negotiated among its now-155 members over decades, are stacked against developing countries.
Argentine Foreign Minister Héctor Timerman, following a meeting on Thursday with WTO Director-General Pascal Lamy, said in a statement that more-highly-developed countries maintain protectionist practices in agriculture that “seriously damage the developing world,” even as tariffs on industrial goods fall, to the benefit of wealthier nations.
Developing countries currently are facing “excessive pressure” to absorb goods produced by wealthier countries whose domestic markets are mired in slowdowns, the statement said.
In March, the EU—along with the U.S., Japan, Australia, Canada and 10 other nations—delivered a sharply worded statement to the WTO criticizing Argentina’s import-control policies.
“The import-restrictive measures and practices that Argentina has put in place are unbefitting any WTO Member, particularly a member of the G-20 who has committed to refrain from raising new barriers to trade and investment,” that statement said.
Though the dispute over the YPF nationalization won’t be addressed in the complaint, the EU hopes it will raise pressure on Argentina to revisit the nationalization, according to EU officials. Spain, Repsol and Argentina are hashing out their dispute under terms of a separate investment agreement between the two countries.
Spain and Repsol want more money from the Argentine government for the 51% stake it took in YPF.
Repsol last week sued Argentina in U.S. District Court for the Southern District of New York in Manhattan, a federal court, seeking to recover $10.5 billion from the Argentine government based on a total estimated value for YPF of about $18 billion.
8. ARGENTINA SEIZED YPF TO AVOID AN ENERGY CRISIS (Financial Times)
May 25, 2012
Letters to the Editor
From Mr Jorge Argüello. [ Arg Amb to US - a point man for Arg Foreign Policy]
Sir, On May 3 the Congress of the Argentine Republic passed, with unprecedented majorities, a law for the recovery of our sovereign oil company Yacimientos Petrolíferos Fiscales (“National seizure”, editorial, May 3), which in 1999 was privatised and acquired by the Spanish energy firm Repsol.
We took these steps to avoid a national energy crisis: soaring dependency on costly imported energy due to Repsol’s failure to invest in new exploration in Argentina. Failing to take action would have been a betrayal of our promise to the Argentine people to do everything in the government’s reach to maintain energy self-sufficiency, critical to our economic growth and competitiveness.
Since 2003 our economy has boomed, growing at a pace alongside India and China, leading the hemisphere with Brazil. Poverty has declined and employment has grown. But our growth was threatened by fuel shortages and rising prices. Since Repsol bought YPF, crude oil production has dropped 54 per cent. Argentines have seen their standard of living rising, but we were facing the threat of economic damages.
A major point of contention was a conflict of interest between YPF’s majority shareholder (Repsol) and Argentina’s development goals. While YPF’s net profit in 1997-2011 was $16.6bn, $14.2bn went to investors as dividends and, during the same period, new proven petroleum reserves in Argentina went virtually unexploited. As a result, last year was the first time in more than two decades that Argentina registered a trade deficit in fuel. In response, President Cristina Fernández de Kirchner appropriately said: “We don’t have a problem with a company making profits, but we do want them to reinvest in the country.”
Most of the world’s oil and gas producers, from Mexico to Norway, own or strictly control hydrocarbon resources. Argentina was the only country in Latin America that had no control over this strategic resource, which plays a vital role in our economic development. YPF’s obligation now is to refocus its objectives to serve the interests of our country and its citizens, not just its private shareholders.
YPF will continue to be a company with private participation. Argentina is open to new foreign investment in YPF – as long as that investment leads to expanding petroleum and gas production and not solely to the transfer of profits to pay dividends.
Argentina’s economy is growing in spite of the dire worldwide financial situation, opening profitable investment opportunities. We will do everything we can to reverse the unsatisfactory performance of YPF because it impacts our independence, future growth and the wellbeing of our citizens.
Jorge Argüello, Ambassador of the Argentine Republic to the US
9. ARGENTINE LEADERS GUILTY OF ‘STEALING’ FROM SHAREHOLDERS (Financial Times)
May 29, 2012
Letters to the Editor
From Mr Louis K. Adler.
Sir, Argentina’s ambassador Jorge Arguello’s defence of his country’s seizure of a 51 per cent interest in YPF is flawed. The Argentine government has seized 51 per cent and is forcing the company to sell its production of gas and oil at below market prices to further the government’s political programmes. Ambassador Arguello ignores the fact that there is another 49 per cent of YPF not owned by the government and that his government is, in essence, “stealing” from the other 49 per cent owners by not allowing YPF to receive market prices for its products.
Argentina is a country without a “rule of law” and a country that has refused to honour the rulings of international courts. Most certainly, if Ambassador Arguello was one of the other 49 per cent owners, he would have a different opinion.
If Argentina wants to control YPF and its assets, then Argentina should properly purchase 100 per cent of the shares of YPF at a price determined by impartial parties. Then Argentina could do whatever it wants with the YPF assets. Until that time the Argentine government is acting like a “thief”.
10. EU ESCALATES DISPUTE WITH ARGENTINA (Financial Times)
By Peter Spiegel and Joshua Chaffin in Brussels
May 25, 2012
The EU has escalated its fight with Buenos Aires over its seizure of a Spanish company’s stake in Argentina’s national oil group YPF, filing a complaint with the World Trade Organisation accusing it of restricting imports.
The Argentine measures that Brussels has challenged include a regime of import licensing and pre-approval requirements that the EU believes are illegal and blames for backing up a wide array of foreign goods at the country’s border, from toys to cars.
The case does not directly challenge Argentina’s nationalisation last month of the Spanish energy group Repsol’s 51 per cent stake in YPF; as a bilateral investment deal, the EU has no legal standing to intervene in the Repsol case.
But senior EU officials have warned that the YPF nationalisation “adds to a growing list” of controversial trade and investment decisions, adding it was likely to lead Brussels to take WTO actions on other trade issues to punish Buenos Aires.
“The trade and investment climate in Argentina is clearly getting worse,” said Karel De Gucht, the EU’s trade commissioner. “This leaves me no choice but to challenge Argentina’s protectionist import regime and ensure that the rules for free and fair trade are upheld.”
Specifically, the EU is challenging Argentina’s requirement that companies secure import licences before they can bring goods across the border – an obligation that Brussels says can lead to delays of six months or more.
Although that policy has been in place since 2005, the EU has accused Argentina of vastly expanding the number of goods subjected to the measure in recent years. A new regulation that came into effect in February forces companies to seek prior approval for all imports into Argentina.
In its complaint, the EU also charges Argentina with imposing an unwritten policy to “balance imports with exports” and to “increase the local content” of products produced by foreign firms in Argentina.
“Argentina’s import restrictions violate international trade rules and must be removed,” said Mr De Gucht. “These measures are causing very real damage to EU companies.”
Under WTO rules, Argentina has 60 days to respond to the EU’s complaint. The EU exported €8.3bn in goods to Argentina in 2011.
Brussels has come under pressure from some diplomats and trade lawyers to deliver a tough response to demonstrate that the bloc’s companies cannot be pushed around in foreign markets without consequences.
Some of the ideas they have advocated include a freeze on negotiations with Mercosur, the regional trade group that includes Argentina, or removing Argentina from an EU programme that reduces tariffs for developing nations.
But Mr De Gucht said he was not ready to pursue those actions “at this moment in time”.
11. REPSOL CUTS DIVIDEND, RAISES PRODUCTION GOAL AFTER YPF SEIZURE (Bloomberg News)
By Ben Sills and Todd White
May 29, 2012
Repsol YPF SA (REP) will cut its dividend payout ratio, the highest among major oil producers, and increase production outside Argentina after the seizure of its YPF SA (YPFD) unit.
Spain’s biggest oil company will pay 40 percent to 55 percent of this year’s profit in dividends, the company said today in a regulatory filing. That implies cutting the dividend as much as 40 percent, based on analyst estimates for profit. Repsol plans to increase the production of crude and natural gas from its remaining assets by 7 percent a year through 2016 and add new reserves covering 120 percent of the oil pumped.
Chairman Antonio Brufau is meeting investors today and explain his plans to reshape the Madrid-based company after Argentine President Cristina Fernandez de Kirchner in April nationalized its YPF unit, her country’s largest oil company. Analysts’ concerns have focused on how Repsol will finance its expansion after the loss. Standard & Poor’s last month reduced the credit rating to BBB-, saying it may cut the company’s debt one more step to junk unless borrowings are lowered.
“They’ve partially sated the ratings agencies but at a big cost,” said Stuart Joyner, an analyst at Investec Securities in London who has a “sell” rating on the stock. “Repairing the damage done by YPF was always going to take years and not months.”
YPF contributed 26 percent of 2011 operating profit and had 45 percent of Repsol’s 2.2 billion barrels of proven reserves.
Share Performance
Repsol dropped as much as 49 cents, or 3.5 percent, to 13.33 euros in Madrid trading. The stock traded at 13.34 at 11:19 a.m. London time. That solidified its ranking as the worst performer on the 23-member Bloomberg Integrated Oils Index (BRNGINTO) this year.
The company paid 64 percent of profit last year. The new payout range implies cutting the dividend 17 percent to 40 percent, based on Repsol earning 1.741 euros a share in 2012, the average of 25 analyst estimates compiled by Bloomberg.
The company said its expansion will be self-financing. The group will generate more than 8 billion euros ($10 billion) of free cash flow over the next four years for paying investors and reducing its debt. Measures that may be considered to lower debt by 7 billion euros to 9 billion euros include converting preferred shares and selling its 5 percent of treasury stock, it said in the presentation.
The company intends to pump additional oil and gas from deposits in Brazil, the U.S., Spain, Peru, Bolivia and Venezuela during the next three years. Benchmark Brent crude has averaged about $118 a barrel in London this year.
“When a company comes out and says it will grow at 7 percent a year there are risks around that,” Joyner added. “What they have presented today is a little bit of a rosy picture.”
Repsol’s payout ratio of about 64 percent of profit was the highest among the 23 members of the Bloomberg Industries Integrated Oil Producers Index. Eni SpA (ENI) ranked second with 53 percent while Exxon Mobil Corp. (XOM), the world’s biggest oil producer, paid out 23 percent.
12. EUROPEAN UNION CHALLENGES ARGENTINA’S IMPORT CURBS AT WTO (Bloomberg News)
By Jennifer M. Freedman
May 25, 2012
The European Union challenged Argentine import restrictions at the World Trade Organization, highlighting EU anger over Argentina’s takeover of a unit of Spanish oil company Repsol YPF SA. (REP)
The legal challenge against Argentine curbs on foreign goods ranging from glassware and irons to food processors and kitty litter reflect growing EU concerns about protectionist policies enacted President Cristina Fernandez de Kirchner. Those worries came to a head in April when Argentina seized Repsol’s YPF unit. That act can’t be challenged under WTO rules.
The curbs are among what EU Trade Commissioner Karel De Gucht today called “unfair and protectionist trade practices that are simply there to prop up the Argentine economy at the expense of Europe and other economies.” De Gucht has also censured Argentina for seizing the YPF unit.
“While the EU’s WTO action on import measures is separate from and independent to Argentina’s Repsol case, the EU is responding to Argentina’s broader and systematic economic restrictions,” the EU said in a statement. “The Repsol case, like the trade restrictive import measures the EU challenges today, is rather to be seen as an expression of the same worrying policy pursued by Argentina.”
Today is an Argentine national holiday and no one was available at the country’s mission to the WTO in Geneva to comment on the EU complaint.
Exports, Jobs
Argentina has subjected an increasing number of imports to licensing regulations since 2008. Some governments and businesses say the import-substitution rules, which require foreign companies to produce goods in Argentina or lose market access, are protectionist.
“Argentina’s trade policy has become rooted in unfair trade practices,” De Gucht told journalists in Brussels. “These restrictive measures by Argentina are illegal under WTO rules. They harm our exports, they hurt our exporters and they cost us jobs.”
Fernandez’s April 16 expropriation of YPF, Argentina’s biggest crude producer, is emboldening the EU to act over the separate question of the country’s import curbs. Together, the issues highlight growing concerns about protectionism in Argentina, whose $448 billion economy is South America’s second largest after Brazil.
Pre-Approval Regime
The 27-nation EU is Argentina’s No. 2 export market and its top foreign investor, accounting for more than half of foreign direct investment in the country. The EU shipped 8.3 billion euros ($10.5 billion) of goods such as machinery, chemicals and transport equipment to Argentina last year and bought 10.7 billion euros of Argentine products, mainly agricultural goods and raw materials.
The EU is challenging Argentina’s decision to subject all imported goods to a pre-registration and pre-approval regime and its requirement that all importers balance imports with exports, increase the local content of the products they manufacture domestically or not transfer revenue abroad. The bloc also says hundreds of goods need import licenses, resulting in systematic delays or rejection.
Argentina “tightened the screws again” in February by requiring pre-approval to cover all imports, making it “urgent” for the EU to turn to the WTO, said De Gucht, who held out the possibility that other governments will make similar challenges. At least 19 WTO members including the U.S., Australia, South Korea, Switzerland and Taiwan have endorsed a statement urging Argentina to remove the curbs.
Today’s request for consultations is the first step in WTO dispute proceedings and means the two governments must now hold talks for at least two months in a bid to resolve the dispute. If the talks fail, the EU can ask WTO judges to rule.
13. ARGENTINA DROPS TRAIN OPERATOR AFTER DEADLY CRASH (Business Week)
May 24, 2012
Argentina’s government on Thursday revoked the commuter railway concession for a company whose train crashed in February, killing 51 people and injuring 703.
The Trains of Buenos Aires company, which operated some commuter rail lines in the capital region since the operations were privatized in 1995, failed to adequately maintain equipment, ignored multiple sanctions and fines, and allowed quality to seriously deteriorate, Planning Minister Julio de Vido said.
The company’s Sarmiento and Mitre lines, which carry hundreds of thousands of people into Buenos Aires each day, will be operated on a temporary basis by executives from two other regional train systems, de Vido said.
A criminal investigation continues into the cause of the Feb. 22 crash. The motorman testified that the brakes failed before the train smashed into the Once station, but investigators found trace amounts of alcohol in his blood and were trying to determine whether he fell asleep.
Union and government officials blamed the company’s executives for the disaster.
De Vido said the company had at least 250 fines pending for “irregularities” in its train service, and he blamed privatization policies of previous governments for ruining the system.
He said that despite $4.5 billion in train investments by the current left-of-center government, Argentina’s rail system has failed to recover from “a gigantic process of emptying since 1955, which led to the loss of nearly 10,000 kilometers (6,200 miles) of track, about 30,000 jobs and the closing of stations.”
But Paolo Menghini, whose son died in the crash, told the Argentine website Infobae.com that “the state is part of what happened,” saying evidence produced by the criminal investigation shows that many officials failed to do their jobs.
“It’s become clear that so many deaths have had a purpose — although these deaths could have been avoided,” Menghini said.
14. ARGENTINA’S YPF MULLS DEBT SALE TO FINANCE INVESTMENTS: REPORT BUENOS AIRES (Platts Commodity News)
28 May, 2012
Argentina’s state-run oil company YPF is studying plans to sell debt to finance investments to boost oil and natural gas production as stubbornly high inflation limits spending out of its operating profit, El Cronista newspaper reported Monday.
One possibility is to borrow from banks and another is to tap the Argentine national welfare department Anses, the paper reported without saying where it got the information.
YPF could not be reached for comment.
Argentina this month completed the seizure of YPF, the country’s biggest energy company, from Spain’s Repsol with plans to turn around a decline in oil and gas production that has cost the country its energy self-sufficiency.
Energy imports surged 110% in 2011 on the year, government data shows.
Repsol meanwhile May 15 launched a class action lawsuit in the US seeking damages over the loss of its market value due to the expropriation.
The need to boost output and reduce imports has taken on greater necessity this year as the government tries to keep the trade accounts in surplus and curb capital flight.
Argentina relies heavily on currency inflows from exports for its financing given that it has not returned to global capital markets since a 2001 default on $100 billion in debt, which has not fully been settled.
YPF general manager Miguel Galuccio has said he plans to present a five-year investment program in June.
The program will have two prongs. The first will be to focus on developing mature fields for short-term gains in production. The second will be on developing the large shale resources in the country, thought the third largest in the world, to guarantee energy supplies in the longer term.
A complication is high inflation, in the double digits since 2007 and now at 25% annual since 2010, according to private estimates.
This pushed up its costs to 74% of sales in 2011 from 67% in 2010 even as diesel and gasoline prices rose over the same period, El Cronista reported.
This year labor costs are expected to rise as workers demand salary hikes of 30% to keep on top of inflation, the paper said.
YPF produces a third of the country’s 570,000 b/d of crude and close to a quarter of its 120 million cu m/d of
15. ARGENTINA’S PRESIDENT KIRCHNER URGES COUNTRYMEN NOT TO BET AGAINST PESO (Dow Jones Business News)
By Ken Parks
25 May 2012
BUENOS AIRES -(Dow Jones)- Argentina’s President Cristina Kirchner on Friday called on her countrymen to keep their faith in the Argentine peso as doubts about her economic policies spur rising demand for the perceived safe haven of the U.S. dollar.
In a televised speech to commemorate one of Argentina’s most important independence holidays, Kirchner told viewers how a close family friend made a bad bet against the peso in 2002 amid a deep economic crisis.
“What surprises me the most is those who repeat this behavior aren’t people that you might think would make mistakes because they lack…education or information. They are people very much like my family friend who have legal and economic knowledge,” she said.
Kirchner’s anecdotal comments about the peso come amid a rush to the dollar by some Argentines who fear a violent devaluation might be in the works or that the government will move against dollar-denominated savings deposited at banks.
The banking system is once again bleeding foreign currency deposits, with just over $500 million leaving banks in the week ending May 18.
Indeed, savers have withdrawn about $3.5 billion in foreign currency deposits, mainly dollars, from banks after Kirchner imposed exchange controls in late October to limit capital flight that was slowly draining the central bank’s international reserves.
Those restrictions spooked Argentines, many of whom still remember the forced conversion of dollar deposits into pesos in 2002 during a severe economic crisis.
The federal tax authority, Afip, now vets all requests by businesses and individuals to buy foreign currencies. Local media have reported in recent weeks that Afip has severely limited dollar purchases as the government struggles to build reserves it plans to use to pay creditors.
Dollar scarcity has created a vibrant black market where Argentines can obtain greenbacks at a steep premium.
Black-market operators charge about ARS6.00 to the dollar, compared with Thursday’s official closing exchange rate of ARS4.4700 on the local wholesale foreign-exchange market.
Only time will tell if Argentines who are paying that price for greenbacks fare better than Kirchner’s friend did 10 years ago. According to the president, he paid ARS4.80 per dollar, only to watch the peso recover along with the Argentine economy.
The deposit outflows don’t represent a threat to banks given foreign-currency deposits are a small percentage of their total funding base. Nor does the black market represent a significant share of the overall foreign exchange market, yet.
But together, they signal that some segments of Argentine society have serious doubts about Kirchner’s polices that have fostered rapid economic growth, at the expense of high inflation.
Argentines and foreigners are fleeing to the dollar as they fear the government will be forced to weaken the peso at a significantly faster pace than has been the case so far as annual inflation of around 20% hurts exporters and leads to even greater wage increases across most industries.
Changes to the central bank’s charter earlier this year–which critics say is a greenlight for the monetary authority to print money to fund the government–have done little to bolster faith in the peso. But for now, the central bank has a tight grip on the official exchange market, where it has been actively buying dollars, while allowing the peso to gradually depreciate against the greenback.
Foreign exchange controls have staunched the bleeding of reserves, with capital flight falling to just $1.61 billion in the first quarter from $3.26 billion in the fourth quarter of 2011.
Trade barriers that have trimmed Argentina’s import bill this year at the expense of angering many of its top trade partners have also helped to bolster reserves.
On Friday, the European Union filed a complaint at the World Trade Organization challenging Argentina’s import regulations.
In her speech, Kirchner named a long list of Argentine goods that are blocked from entering the U.S. and Europe.
“When you see these things, it’s almost as if developed countries have ‘legal protectionism’ and developing nations ‘populist protectionism.’ That isn’t the case,” she said in a jab at critics of her trade policies.
16. ARGENTINA PRESIDENT CRITICIZES EU TRADE POLICIES AS DISPUTE RISES (Platts Commodity News)
By Charles Newbery
25 May 2012
Buenos Aires (Platts)–25May2012/541 pm EDT/2141 GMT Argentine President Cristina Fernandez de Kirchner Friday criticized the EU for trade protectionism, the latest episode in an escalating trade dispute between the 27-member EU and Argentina.
Fernandez de Kirchner too said the EU was carrying out its own brand of protectionism, while at the same time challenging developing countries like Argentina for defending their own interests.
“They should understand what it is that we are defending, it is the homeland,” she said in a televised speech in the southern city of San Carlos de Bariloche.
“It appears that there is a legal protectionism of the developed countries, and a populist protectionism of the emerging countries,” she said.
Fernandez de Kirchner said made the comments after the European Commission said Friday that the EU had launched a challenge against import restrictions imposed by Argentina at the World Trade Organization.
Argentina started imposing selective import restrictions in 2005 that were extended to all products in February 2012.
“These restrictive measures by Argentina are illegal under WTO rules,” EU trade commissioner Karel de Gucht said during a webcast press conference in Brussels. “They harm European exports, they hurt our companies and they harm jobs.”
Argentina had been engaged in a broad policy of protective trade measures, culminating in the expropriation by the Argentine state of oil and gas company YPF, which had been part owned by Spanish energy group Repsol.
“The recent appropriation of Repsol [assets] by the Argentinian state was proof of that,” said de Gucht. “And in my view it was wrong. It was the most visible protective measure, but dig beneath the surface and it is clear that Argentina’s trade policy has become rooted in unfair trade practices.”
‘NOT A LONE VOICE’
The restrictions include an obligation on any company importing goods or services into Argentina — including oil, gas, plus all other raw materials and finished goods — to obtain an import license. They also require companies to balance imports with exports, meaning they must source local content for export equivalent in value to the products they import.
De Gucht said the EU was not alone in challenging Argentina’s practices and 19 other countries had indicated support — but he was not able to list them.
“This is not a spat between Europe and a trade partner,” he said. “Europe is not a lone voice. Europe has tried to engage with Argentina but sadly to no avail. I strongly urge Argentina to see sense and use this opportunity to sit down with us and find an acceptable solution. Failing that the WTO will rule on this.”
The EU is requesting consultation with Argentina as the first stage in the WTO dispute settlement process. If no solution is found within 60 days, then the EU can request a WTO panel to be established to rule on the legality of Argentina’s actions.
On Repsol, de Gucht said the EC had no legal status in dealing with Argentina since the dispute concerned a bilateral investment decision between a Spanish company and the Argentine government.
“We have no direct legal relations with Argentina,” he said. “But whether we sit still, that’s a very different question.”
17. ARGENTINA TO VET MINING COMPANIES’ IMPORTS, REQUIRE MORE LOCAL BUYING (Dow Jones International News)
By Shane Romig
28 May 2012
BUENOS AIRES (Dow Jones)–Mining companies with operations in Argentina will be required to submit requests to the government 120 days before importing goods and set up an “import substitution” department to boost buying of locally made goods, the planning ministry said in a statement Monday.
The mining companies will have to submit quarterly estimates of their purchasing needs, which will be vetted by a special working group at the Mining Ministry, according to the statement.
The new measures come amid a host of formal and informal barriers to imports thrown up by the government so far this year. The barriers are designed to safeguard the country’s international reserves by limiting imports of goods and services and to protect local manufacturers from competition from cheaper imports.
Since February, companies have had to receive approval from a myriad of government agencies before they can import goods or buy services offshore, causing imports to plunge.
The country posted a trade surplus of $1.83 billion in April, up from $1.08 billion in March, according to the national statistics agency, Indec. Imports fell 14% on the year to $4.86 billion, while exports were down 6% at $6.69 billion.
Those barriers, however, have stoked intense trade friction.
On Friday, the European Union filed a complaint at the World Trade Organization challenging Argentina’s import regulations
“The trade and investment climate in Argentina is clearly getting worse,” EU trade commissioner Karel De Gucht said in a statement Friday. “This leaves me no choice but to challenge Argentina’s protectionist import regime.”
European officials are also up in arms over Argentina’s decision last month to nationalize oil and gas producer YPF SA (YPF), a unit of Spanish oil company Repsol YPF SA (REP.MC).
The nationalization sent a chill through the local mining industry.
Brazilian mining company Vale SA (VALE, VALE5.BR) is currently reconsidering its plans to develop the $6 billion Rio Colorado fertilizer project in Argentina following the YPF nationalization and skyrocketing inflation of about 30% a year, the company’s chief executive Murilo Ferreira said recently.
While the mining industry enjoys broad support from authorities in provinces such as San Juan and Santa Cruz, projects frequently face stiff resistance from environmentalists.
About eight provinces have banned open-pit mining and the use of chemicals common in the industry such as cyanide, effectively putting them off limits to large-scale mining projects.
At the same time, a strict federal glacier-protection law threatens to stall a number of projects by limiting economic activity in areas near glaciers.
18. ARGENTINE IMPORT CONTROLS SPARK WTO SUIT BY EU (Oxford Analytica)
May 25, 2012
Argentine import controls and the YPF takeover confirm the government’s bias towards greater interventionism. Although the measure seeks to stem the deterioration of the trade surplus, it could backfire by damaging access to both foreign trade and investment.
The EU today filed a suit before the WTO against Argentina over a series of recent import restrictions that EU Trade Commissioner Karel De Gucht said “violate international trade rules and must be removed”. Referring also to the recent expropriation of oil company YPF (which is explicitly not included in the WTO suit), De Gucht noted that “the trade and investment climate in Argentina is clearly getting worse”. The move follows two recent protests before WTO bodies signed by some 40 countries, including the EU, over Argentine trade restrictions. The EU is seeking negotiations on the issue, and will likely ask the WTO to set up an arbitration panel if a resolution is not reached within 60 days. Buenos Aires, which says it has not yet received formal notification of the EU move, rejects international criticism of recent trade policy measures.
19. ARGENTINE RAIL RESCISSION WILL NOT IMPROVE SAFETY (Oxford Analytica)
May 25, 2012
While the rescission of the rail concession will provide some short-term political relief for the government, it will do nothing to improve the parlous state of transport infrastructure in a context of increasing revenue constraints. Declining industrial output — down 0.5% year-on-year in April — and increasing exchange controls (which as of yesterday place further curbs on dollar purchases for overseas travel) point to greater difficulties to come.
The government yesterday rescinded the concession held by Trenes de Buenos Aires (TBA) to operate the Sarmiento and Mitre commuter railway lines following the February crash that killed 51 people and injured over 700. Sixteen members of TBA’s management, including its owners, are currently facing criminal charges. Planning Minister Julio de Vido attributed the decision to TBA’s failure to make the investments needed to guarantee passenger safety. However, according to TBA, government subsidies are inadequate to meet costs; ticket sales are said to cover less than half the company’s salary obligations. The rail services will be taken over by operators Metrovias and Ferrovias, themselves under similar financial constraints.
20. BOLIVIA ROLLS BACK ON PAN AMERICAN STAKE TAKEOVER (Reuters News)
28 May 2012
* Energy minister says takeover decree never took effect
* Argentina’s Pan American Energy stays in Caipipendi field
LA PAZ, May 28 (Reuters) – Bolivia’s leftist government said on Monday it had never enforced a decree nationalizing Pan American Energy’s stake in a huge natural gas project and was in talks with the company over future investment plans.
Energy Minister Juan Jose Sosa said in January that the gas-rich country’s state energy firm YPFB would take control of the Argentine company’s 25 percent stake in the Caipipendi field because of inadequate investment.
However, Sosa said the decree was not published, meaning it had never taken effect.
“It wasn’t promulgated because conversations are being held with the company,” he told Reuters, adding that discussions were focused on general investment plans. “PAE continues to work in Caipipendi with the 25 percent set out in its contract.”
Buenos Aires-based PAE, in which BP Plc holds a 60 percent stake, said in early May it had never been informed about the takeover.
Leftist president Evo Morales has tightened state control over Bolivia’s natural gas reserves, the region’s second-largest and a key energy source for Argentina and Brazil. This month, he seized control of a Spanish power firm.
Months into his first term in 2006, he shook foreign investors by announcing the nationalization of the energy sector. His reforms effectively gave the state control of reserves, letting foreign firms operate as service providers.
Caipipendi, located in southern Bolivia and operated by a consortium that also includes Spain’s Repsol and Britain’s BG Group Plc, is the main source of natural gas sent to neighboring Argentina.
Output capacity at the field rose to 9 million cubic meters per day at the start of the month and should rise to 15 million cubic meters per day within two years on completion of a $1.5 billion investment plan aimed at boosting supplies to Argentina.
Natural gas is Bolivia’s top export earner and the nation has a daily output capacity of up to 53 million cubic meters.
21. ARGENTINA TARGETS MINING FIRMS IN IMPORT CRACKDOWN (Reuters News)
28 May 2012
* Mining companies must get government approval for imports
* Government wants to foment local service providers to industry
* President boosting import controls to bolster trade surplus
BUENOS AIRES, May 28 (Reuters) – Argentina’s government tightened controls on imports of equipment and supplies by mining companies on Monday in a new measure to boost the trade surplus and foreign currency stocks.
Mining companies operating in the South American country, which include Xstrata, Barrick Gold Corp and AngloGold Ashanti, will have to get prior approval for overseas purchases and submit import plans 120 days in advance.
They will also have to consider swapping imports for locally produced goods, a government statement said.
“(The controls will help) safeguard jobs, create new employment opportunities and intensify the import substitution process,” it said.
Earlier this year, President Cristina Fernandez’s center-left administration launched a new system to pre-approve, or reject, nearly every purchase from abroad.
Latin America’s No. 3 economy has also been pushing importers to match their purchases abroad with exports, leading to quirky deals such as one whereby carmaker BMW exports rice.
Fernandez says such policies are needed to protect a local manufacturing industry gutted during a burst of free-market policies in the 1990s.
They are drawing intense criticism from abroad, however, and the European Union filed a suit against the import restrictions with the World Trade Organization on Friday.
Mining companies had been working with the government on a program of import substitution, but an industry source said Monday’s resolution was unexpected.
The latest measure could deepen uncertainty among potential investors.
Brazil’s Vale SA is reviewing a $5.9 billion potash project in Argentina, partly due to concerns about political uncertainty related to import controls and the recent renationalization of energy company YPF.
It is one of the biggest investments planned by Vale, the world’s second-largest mining company, which declined to comment on the latest government measure.
Compared with neighboring Chile or Peru, Argentina’s mining industry is relatively undeveloped. That has drawn interest from global companies in recent years and overall investment reached a record $2.6 billion in 2011.
Soon after her re-election last year, Fernandez ordered energy and mining firms to cash in export revenues in the local market and ordered tax officials to approve dollar purchases on a case-by-case basis.
Both measures were designed to counter galloping capital flight and bolster the central bank’s foreign currency reserves, which the government has earmarked for debt repayments for a third straight year.
22. CENTER OF GRAVITY IN OIL WORLD SHIFTS TO AMERICAS; FROM CANADA TO COLOMBIA TO BRAZIL, OIL AND GAS PRODUCTION IN THE WESTERN HEMISPHERE IS BOOMING (Washington Post.com)
By Juan Forero
28 May 2012
LOMA LA LATA, Argentina — In a desertlike stretch of scrub grass and red buttes, oil companies are punching holes in the ground in search of what might be one of the biggest recent discoveries in the Americas: enough gas and oil to make a country known for beef and the tango an important energy player.
The environment is challenging, with resources trapped deep in shale rock. But technological breakthroughs coupled with a feverish quest for the next major find are unlocking the door to oil and natural gas riches here and in several other countries in the Americas not traditionally known as energy producers.
That is quickly changing the dynamics of energy geopolitics in a way that had been unforeseen just a few years ago.
From Canada to Colombia to Brazil, oil and gas production in the Western Hemisphere is booming, with the United States emerging less dependent on supplies from an unstable Middle East. Central to the new energy equation is the United States itself, which has ramped up production and is now churning out 1.7 million more barrels of oil and liquid fuel per day than in 2005.
“There are new players and drivers in the world,” said Ruben Etcheverry, chief executive of Gas and Oil of Neuquen, a state-owned energy firm that is positioning itself to develop oil and gas fields here in Patagonia. “There is a new geopolitical shift, and those countries that never provided oil and gas can now do so. For the United States, there is a glimmer of the possibility of self-sufficiency.”
Oil produced in Persian Gulf countries — notably Saudi Arabia, Iran, the United Arab Emirates, Kuwait and Iraq — will remain vital to the world’s energy picture. But what was once a seemingly unalterable truth — that American oil production would steadily fall while the United States remained heavily reliant on Middle Eastern supplies — is being turned on its head.
Since 2006, exports to the United States have fallen from all but one major member of the Organization of the Petroleum Exporting Countries, the net decline adding up to nearly 1.8 million barrels a day. Canada, Brazil and Colombia have increased exports to the United States by 700,000 barrels daily in that time and now provide nearly 3.4 million barrels a day.
Six Persian Gulf suppliers provide just 22 percent of all U.S. imports, the nonpartisan U.S. Energy Information Administration said this month. The United States’ neighbors in the Western Hemisphere, meanwhile, provide more than half — a figure that has held steady for years because, as production has fallen in the oil powers of Venezuela and Mexico, it has gone up elsewhere.
Production has risen strikingly fast in places such as the tar sands of Alberta, Canada, and the “tight” rock formations of North Dakota and Texas — basins with resources so hard to refine or reach that they were not considered economically viable until recently. Oil is gushing in once-dangerous regions of Colombia and far off the coast of Brazil, under thick salt beds thousands of feet below the surface.
A host of new discoveries or rosy prospects for large deposits also has energy companies drilling in the Chukchi Sea inside the Arctic Circle, deep in the Amazon , along a potentially huge field off South America’s northeast shoulder, and in the roiling waters around the Falkland Islands.
“A range of big possibilities for oil are opening up,” said Juan Carlos Montiel, as he directed a team from the state-controlled company YPF to drill while a whipping wind brought an autumn chill to the potentially lucrative fields here outside Añelo. “With the exploration that is being carried out, I think we will really increase the production of gas and oil.”
Because oil is a widely traded commodity, analysts say the upsurge in production in the Americas does not mean the United States will be immune to price shocks. If Iran were to close off the Strait of Hormuz, stopping tanker traffic from Middle East suppliers, a price shock wave would be felt worldwide.
But the new dynamics for the United States — an increasingly intertwined energy relationship with Canada and more reliance on Brazil — mean U.S. energy supplies are more assured than before, even if oil from an important Persian Gulf supplier is temporarily halted.
The fracking ‘revolution’
Perhaps the biggest development in the worldwide realignment is how the United States went from importing 60 percent of its liquid fuels in 2005 to 45 percent last year. The economic downturn in the United States, improvements in automobile efficiency and an increasing reliance on biofuels all played a role.
But a major driver has been the use of hydraulic fracturing. By blasting water, chemicals and tiny artificial beads at high pressure into tight rock formations to make them porous, workers have increased oil production in North Dakota from a few thousand barrels a day a decade ago to nearly half a million barrels today.
Conservative estimates are that oil and natural gas produced through “fracking,” as the process is better known, could amount to 3 million barrels a day by 2020.
“We have a revolution here,” said Larry Goldstein, director of the Energy Policy Research Foundation in New York. “In 47 years in this business, I’ve never seen anything like this. This is the equivalent of a Category 5 hurricane.”
All of this has happened as exports from Mexico and Venezuela have fallen in recent years, a trend analysts attribute to mismanagement and lack of investment at the state-owned oil industries in those countries. Even so, there is a possibility that new governments in Mexico and Venezuela — Mexico elects a new president July 1, and Venezuelan President Hugo Chavez has cancer — could open the energy industry to the private investment and expertise needed to boost production, analysts say.
“There’s a lot of upside potential in Latin America that will boost the oil supply over the medium term,” said RoseAnne Franco, who analyzes exploration and production prospects in the region for the energy consultant Wood Mackenzie. “So it’s very positive.”
Political elements
Much of the exploration, though, will not be easy, cheap or, as in Argentina’s case, free of political pitfalls. Price controls on natural gas and import restrictions have made doing business in Argentina hard for energy companies. And last month, President Cristina Fernandez de Kirchner’s populist government stunned oil markets by expropriating YPF, the biggest energy company here, from Spain’s Repsol.
But the prize for energy companies is potentially huge . Repsol estimated this year that a cross section of the vast Dead Cow formation here in Neuquen province could hold nearly 23 billion barrels of gas and oil. That followed a U.S. Energy Information Administration report that said Argentina possibly has the third-largest shale gas resources after China and the United States.
“All the top-of-the-line companies are here,” said Guillermo Coco, energy minister of Neuquen province, including ExxonMobil, Chevron and Royal Dutch Shell. Although only about 200 wells have been drilled, Coco said companies here talk of drilling 10,000 or more in the next 15 years.
Wells on the horizon
On a recent day here in a dusty spot called Loma La Lata, German Perez oversaw a team of 30 technicians from the Houston-based oil- services giant Schlumberger as they prepared to frack a well.
The operation was huge: Trucks lined up with revving generators. Giant containers brimmed with water. Hoses used for firing chemicals into wells littered the ground. Cranes hoisted huge bags of artificial sand into mixers. Then, 1,200-horsepower pumps blasted water, chemicals and sand nearly 9,000 feet into the earth. “This is a hard rock, so we create countless cracks and fissures, for the gas and oil to flow,” Perez said.
Staring at the stark landscape, broken up here and there by oil rigs, Perez said he thought many companies would one day arrive in search of oil and gas. “The projections are pretty good,” he said. “In our case, we have been here a year and a half and we have tripled the equipment we have. And we think we will double that in another year.”
23. CHILD OF ‘DIRTY WAR’ LEARNS PARENTS PART OF REGIME THAT KILLED REAL PARENTS (CNN Wire)
By Rafael Romo and Michael Martinez
25 May 2012
(CNN) — Victoria Montenegro of Argentina considered the military couple who raised her as generous, humanitarian people, taking her into their home as if their own baby because her real parents were killed in a shootout in Buenos Aires in 1976.
She had no reason to believe otherwise — until the year she turned 24.
That’s when a group investigating the atrocities of Argentina’s so-called Dirty War from 1976 to 1983 told Montenegro that her real parents were among “the disappeared ones,” as the war victims are hauntingly called.
What happened to the thousands of disappeared ones — mainly leftists — is an enduring agony of the war’s horrors.
Montenegro felt betrayed — and shocked to realize that the couple who raised her were part of the military regime responsible for her parents’ disappearance.
“I was ‘appropriated,’” Montenegro said, using the term given to children whose parents were killed or disappeared during the Dirty War and were given to other couples. “It took me several years to assimilate my new identity and find peace about my true background.”
Now a 36-year-old mother of three children, Montenegro learned another truth this week: One of eight unidentified bodies found across the border in Uruguay in 2002 was confirmed to be the remains of her father.
Roque Orlando Montenegro, who disappeared at age 20 in 1976 when Victoria was just a few days old, was an apparent victim of the war’s barbaric “death flights,” a series of military airplane rides in which political prisoners were thrown alive into the sea, forensic investigators said.
His body probably washed ashore on the Uruguayan coast, and someone buried him in a nameless grave.
“I personally feel that there is no word for so many feelings,” she told reporters this week, describing her country as “a genocidal state” that threw her father into the ocean.
Today, Victoria Montenegro feels disconnected from her military father — who died in 2003 — because he was part of the regime targeting liberals like her real parents.
Her adoptive mother died recently.
Affection for the adoptive couple has dissipated: They had been good parents who raised her well. She feels no hate or animosity — just betrayal, she told CNN this week.
She felt “peace” knowing the truth about her father’s fate.
But now she wonders about what happened to her mother.
The group investigating the war’s legacy, Abuelas de Plaza de Mayo (May Square Grandmothers), which determined her father’s fate through DNA testing, is now continuing to help Montenegro about the mystery of her mother — as well as thousands of others who were taken away from their politically persecuted parents as children.
Guillermo Wulff, a spokesman with Abuelas, said that for Montenegro, learning the truth about her parents wasn’t easy.
“It took a long time for her to accept it; but when she did, she was then ready for the next step, which was finding out how her parents died,” Wulff said.
The Argentinian Forensic Anthropology Team (EAAF by its Spanish acronym) announced this week that forensic and DNA tests prove that human remains found in a Uruguayan cemetery are those of Roque Orlando Montenegro, known as “Toti.”
Said Victoria Montenegro: “It is a miracle that the EEAF, with a drop of my blood, has succeeded in identifying the remains of my father that were in Uruguay since May ’76.”
Luis Fondevrider, president of EAAF, said that identifying the remains of Montenegro was a process that started 10 years ago in Colonia, Uruguay, across the Rio de La Plata from Buenos Aires.
“In 2002 we exhumed eight unidentified bodies from the cemetery in Colonia. At that time, we had no hypothesis as to how the bodies ended up there,” said Fondevrider.
EAAF took DNA and forensic samples from the bodies. In 2007, the independent organization started taking blood and DNA samples from people in Argentina with missing relatives. Victoria Montenegro was one of 8,500 people who left samples over the following four years. Finally, a match was made this year.
But how did the body of a man kidnapped in Buenos Aires end up in a different country? Fondevrider believes Montenegro was killed during the so-called “death flights.” Montenegro’s body probably washed ashore on the Uruguayan coast. A nameless tombstone was placed over his grave in Colonia.
For Victoria Montenegro, seeking the truth about her origins has been a slow and painful process, but she says knowing what truly happened has given her some closure.
“Recovering my true identity was paramount,” Montenegro said. “Having a true identity is a human right. Recovering the remains of my father has been important not only to understand how he died, but also to bring some justice to Argentina and the victims of the regime.”
Montenegro said her rendezvous with her past is only halfway done.
She has no knowledge or clues about what happened to her mother.
Now with a son who, at 20, is as old as her father was when he disappeared, Montenegro said she hopes the episode shines a little more light on a dark past.
“As painful as it may be, we need to find the truth about our history,” she said. “By exhuming and identifying our loved ones after all these years, we give them back their dignity.”
24. ARGENTINA: COUNTRY RISK SUMMARY (Economist Intelligence Unit – ViewsWire)
24 May 2012
Argentina: risk assessment
Sovereign risk Currency risk Banking sector risk Politicalrisk Economic structure risk Countryrisk
May 2012 CCC B B B B CCC
Sovereign risk
Stable. Argentina’s CCC rating reflects its default history and loose fiscal stance. Heightened concerns over the sustainability of Argentina’s policy framework have in effect closed the door to international markets and delayed the prospect of any ratings upgrade. However, in the medium term, Argentina’s easing public debt/GDP ratio will be supportive of creditworthiness.
Currency risk
Negative. Real peso appreciation stemming from double-digit inflation has wiped out the current-account surplus, net capital flows are negative, and capital flight has continued despite the recent imposition of controls. There is still a fairly solid reserves cushion, but this has been eroded in recent months to prop up the peso. The outlook for currency risk has thus shifted to negative.
Banking sector risk
Negative. The level of US dollar deposits in the banking system has stabilised and interest rates have come down after a period of volatility in late 2011. But concerns about the policy framework persist. At the same time, the growth outlook is weakening, heightening the risk of a deterioration in asset quality.
Political risk
The government appears to be committed to repaying its external debts.
Economic structure risk
The shift of the current account from surplus to deficit, commodity dependence and weak public finances expose the economy to external shocks.
25. ARGENTINA ECONOMY: MARKET OPPORTUNITIES (Economist Intelligence Unit – ViewsWire)
24 May 2012
2011 2012 2013 2014 2015 2016
Population (m) 40.9 41.3 41.7 42.0 42.4 42.7
GDP (US$ bn at market exchange rates) 448.2 473.6 495.3 519.4 558.2 602.4
GDP per head (US$ at market exchange rates) 10,957 11,473 11,889 12,357 13,164 14,091
GDP (US$ bn at PPP) 717.2 763.1 812.5 860.1 910.8 962.1
GDP per head (US$ at PPP) 17,536 18,486 19,502 20,462 21,481 22,506
Median household income (US$) 8,778 10,343 10,735 11,161 11,741 12,952
Household consumption (US$ bn) 252.8 275.5 293.8 315.6 338.9 364.3
Household consumption per head (US$) 6,180 6,670 7,050 7,510 7,990 8,520
Exports of goods & services (% change) 4.3 2.8 6.7 5.9 8.4 8.8
Imports of goods & services (% change) 17.8 5.7 10.4 10.2 9.7 9.5
Argentina’s wealth of natural resources, large domestic market with high per head incomes relative to much of the rest of the region, and proximity and preferential access to the booming Brazilian market represent attractive market opportunities for foreign investors. However, the prospect of less dynamic rates of economic growth in the medium term than in other emerging markets (partly reflecting the weakness of institutions and the legal framework for investment, which will improve only gradually) will prove a deterrent to investment in the forecast period. A lack of openness to foreign trade and an erosion of the exchange rate competitiveness that attracted an influx of investment to the country in the years following the 2001-02 crisis will also make Argentina less attractive as a destination for investment in the forecast period.
Some improvement in purchasing power expected
Argentina is a middle-income country with among the highest levels of GDP per head in the region (US$17,536 at PPP exchange rates in 2011). Demographics are generally supportive of growth: the population is estimated at around 40m (the fourth largest in Latin America), and is relatively young, albeit not as young as that of most of the rest of Latin America, and urbanisation is high, at slightly under 90% of the population. However, as in much of the region, income inequality and poverty remain relatively high. This is not reflected in official poverty statistics, which showed a continued decline in the poverty rate (defined as being unable to afford the basic food basket and a narrow range of services, including transportation, clothing and healthcare) in mid-2011, to just 8%, but these are based on widely discredited inflation statistics that overstate real incomes by a substantial margin (official 12-month consumer price inflation was around 10% in March 2012, versus private and provincial estimates of around 25%). These factors will continue to restrict purchasing power in the forecast period, although there should be some improvement on the basis of a steady increase in access to consumer credit, falling unemployment, and, for the first half of the forecast period at least, continued positive real wage growth.
26. ARGENTINA ECONOMY: TEN-YEAR GROWTH OUTLOOK (Economist Intelligence Unit – ViewsWire)
24 May 2012
2012-20 2021-30 2012-30
Population and labour force (% change; annual av)
Total population 0.86 0.70 0.77
Working-age population 0.98 0.85 0.91
Working-age minus total population 0.11 0.16 0.14
Labour force 0.98 0.85 0.91
Growth and productivity (% change; annual av)
Growth of real GDP per head 2.4 2.5 2.5
Growth of real GDP 3.3 3.2 3.3
Labour productivity growth 2.4 2.3 2.4
Growth of capital stock 4.4 3.7 4.1
Total factor productivity growth 1.2 1.3 1.4
Abundant natural resources and skilled labour force underpin potential
Very weak output growth in the late 1990s, culminating in the 2001-02 economic crisis, has been followed by a decade of rapid GDP growth, driven in part by extremely expansionary economic policies that have created large imbalances and raised the risk of new cycles of boom and bust. The Economist Intelligence Unit’s long-term growth forecast rests on the assumption that Argentina will adopt a more sustainable economic model and avoid serious imbalances in the very long term, allowing the economy to grow by an average of 3.3% in 2012-20 and 3.2% in 2021-30. The main risks to this forecast will be both exogenous (falling commodity prices, or a sharp drop in capital flows to emerging markets) and policy-related. The benign macroeconomic scenario rests on the assumption of greater fiscal discipline and the avoidance of large amounts of external borrowing to cover fiscal deficits-one of Argentina’s main weaknesses in the past.
Initial conditions: Argentina’s GDP per head of US$10,957 in 2011 (US$17,536 at PPP) is still one of the highest in the region, despite the effects of recession and maxi-devaluation of the peso in 2002. But with per head GDP at only 33% of US levels in 2011, there is clearly potential for Argentina to catch up to developed-country levels. The internal market is relatively large, and although the territory is extensive, there are few internal geographical obstacles. Argentina is, however, distant from developed-country markets and high transport costs will place an extra burden on exporters. Reflecting the change in relative prices post-devaluation, labour remains cheaper than in the 1990s (although the gains from devaluation are rapidly being eroded, owing to high inflation and high real wage growth). Despite two decades of gradual de-industrialisation, Argentina also retains a solid skilled labour base and a limited capacity to carry out high-level research and development. It will attract manufacturing investment, but its competitiveness as a global manufacturing centre will lag Asian rivals. Argentina has strong comparative advantages in agriculture, although, as a commodity producer, it will face more volatile terms of trade than Asian competitors. This means that growth is likely to be uneven.
Demographic trends: Argentina shares demographic as well as cultural features with Europe. The average age of the population is higher than that in Brazil, and population growth both in percentage and absolute terms is expected to be slightly lower. We expect population growth of just under 1% in 2012-30, around one-half the average recorded in 1980-2000. The population will age, but the working-age population will continue to grow faster than the overall population. The population is more urbanised and better provided with healthcare than in other Latin American countries, leading to a life expectancy of around 76 years, comparable with developed countries. Given the existence of the welfare state and the severe weakening of the finances of the state and private pensions systems in the past two decades, the growing elderly population will increasingly generate strains on the public finances.
External conditions: Growth-determining factors exogenous to Argentina will include the level of developed-country interest rates (in the past this has been strongly correlated with the volume of capital flows into Latin America and has had a major impact on growth), and commodity prices. Argentina will remain highly dependent on income from exports of agricultural commodities to provide an investible surplus for deployment elsewhere in the economy. Ongoing demand growth from China should keep commodity prices relatively high. Restricted access to finance since the 2001 default has raised the cost of capital by forcing reliance on financing from the shallow, more expensive domestic market; later in the forecast period we expect improved access to international capital markets to facilitate stronger growth in investment, particularly in agriculture.
Persistent institutional weaknesses will constrain growth
Institutions and policy trends: Disappointing economic outcomes have been the indirect result of shortcomings in policymaking and poor fiscal discipline. Argentina scores moderately to poorly on measures of corruption, security and the rule of law. Our analysis suggests that an improvement in the overall institutional climate would have a significant impact on long-term growth. Argentina needs to move towards a more professional and less clientelist public administration. Although it will draw upon multilateral help to reform its institutions, we do not assume that the quality of public administration will improve greatly over the long term as political imperatives will retain too great an influence over the direction of government spending.
Although the current government has clashed with foreign investors over the terms of contracts, and recent decisions on labour law have raised costs for business, the policy environment will not constrain entrepreneurship unduly. A reaction against the pro-free-market and privatisation policies of the 1990s has led to greater intervention in the economy, which will take time to reverse, even assuming a return to more market-friendly governments early on in the forecast period (which could take place in 2015). The longer the state is seen to control key economic sectors, the longer it will take to attract investment in key areas in private hands, and this could quickly become a problem for the growth outlook. We assume that the government will succeed in establishing a new framework for foreign investors in sectors such as utilities.
The lessons drawn from the economic crisis of 2001-02 will incline the government towards self-reliance and a cautious attitude to external borrowing, at least over the initial half of the forecast period. The government will maintain primary fiscal surpluses in order to generate resources for debt-servicing. However, the government will still need to borrow on the domestic market and this will to some extent crowd out private-sector investment.
GDP will grow by an annual average of 3.3% in 2012-20 and 3.2% in 2021-30
Long-term performance: Argentina’s abundant natural resources and relatively strong skills base represent economic potential, but the country will struggle to achieve the productivity gains in agriculture and services that are needed to converge with developed markets income levels, and income per head at PPP levels will remain relatively stable at around one-third of US GDP per head over the long-term forecast period. Argentina’s surplus (unemployed) labour may not easily be matched with new opportunities, which are likely to be generated in skills-specific areas. With limited scope for further debt accumulation, a sustainable economic expansion will need to be export-led in the long term. However, the improvement in relative prices since 2002 (which we do not expect to be substantially reversed in the outlook period) will not alone be sufficient to ensure sustained export expansion. Encouraging the investment necessary to promote export growth in the long term will require a stable macroeconomic environment, a focus on higher value-added products and improved financing conditions. Argentina’s comparative advantages will continue to lie in natural resource-intensive products, but exporters will move up the value chain.
We forecast that average annual GDP will grow by 3.3% in 2012-20, and by 3.2% in 2021-30. The capital stock will continue to grow and investment will rise as a share of GDP. As growth in the working-age population slows, the increase in the availability of labour will slow and growth will become more dependent on productivity gains. This will be achieved through technology transfer and higher foreign investment. Firms will increasingly look beyond national borders in order to achieve economies of scale, and this will stimulate efficiency gains.
Income and market size
2011 2020 2030
Income and market size
Population (m) 40.9 44 47
GDP (US$ bn at market exchange rates) 448 732 1,286
GDP per head (US$ at market exchange rates) 10,960 16,570 27,150
Private consumption (US$ bn) 253 460 819
Private consumption per head (US$) 6,180 10,410 17,290
GDP (US$ bn at PPP) 717 1,173 1,994
GDP per head (US$ at PPP) 17,540 26,540 42,110
Exports of goods & services (US$ bn) 98 162 254
Imports of goods & services (US$ bn) 88 173 304
Memorandum items
GDP per head (at PPP; index, US=100) 36.4 39.9 43.8
Share of world population (%) 0.60 0.59 0.58
Share of world GDP (% at market exchange
rates) 0.66 0.64 0.60
Share of world GDP (% at PPP) 0.90 0.89 0.87
Share of world exports of goods & services
(%) 0.45 0.39 0.30
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