ARGENTINE UPDATE – May 9, 2016


1. ARGENTINA’S MACRI STRIKES DEAL TO SUSPEND LAYOFFS (The Washington Post)

2. KIRCHNER MINISTER WHO STAYED ON WITH MACRI SPEAKS OF DIFFERENCES (Bloomberg News)

4. ARGENTINA ECONOMY: INFRASTRUCTURE DEVELOPMENT IN THE SPOTLIGHT (Economist Intelligence Unit – ViewsWire)

5. ARGENTINA SHALE DEVELOPMENT MOVES FORWARD, BUT STILL SLOW (Platts Commodity News)

6. ARGENTINA’S REFORMS PAY OFF IN THE FORM OF S&P RATINGS UPGRADE (Business News Americas)

7. PRESIDENT MACRI RELAUNCHES PRICE CONTROLS IN ARGENTINA (PanamPost)

8. ARGENTINA ZOO WORRIED ABOUT DECAYING HEALTH OF POLAR BEAR (The Washington Post)

1. ARGENTINA’S MACRI STRIKES DEAL TO SUSPEND LAYOFFS (The Washington Post)
May 9, 2016

BUENOS AIRES, Argentina — Argentine President Mauricio Macri has struck a deal with local businessmen to suspend layoffs for 90 days.

Macri’s announcement of the deal Monday comes as job cuts and high inflation rate are worrying many Argentines.

Tens thousands of state and private employees have been fired since he came to power in December promising to cut bloated government spending and tame high inflation.

Macri has said measures are needed to jump start Argentina’s stagnant economy and end economic distortions that have led to years of high inflation.

His government says the layoffs are justified because many employees hired during previous administrations never showed up for work. Unions representing workers say they are being indiscriminately fired.

Argentina’s opposition has proposed a bill that would ban laying off workers “without just cause.”

2. KIRCHNER MINISTER WHO STAYED ON WITH MACRI SPEAKS OF DIFFERENCES (Bloomberg News)
By Charlie Devereux and Pablo Rosendo Gonzalez
May 9, 2016

* Fernandez’s Science Minister Baranao kept on by Macri
* Country in transitory crisis but long-term prospects are good

The only Argentine minister to survive the chopping block when President Mauricio Macri took over from Cristina Fernandez de Kirchner in December has spoken of the contrast between the two styles of government. For a start, Macri holds cabinet meetings.

Lino Baranao, who was appointed science and technology minister by Fernandez at the beginning of her first term in 2007 and was surprisingly kept on by Macri, said the new cabinet works as a team whereas before the orders tended to come from on high.

“The previous team was dominated by the direct impact of the president – she was the one who took the decisions,” Baranao said in a phone interview. “There wasn’t so much horizontal interaction. In fact, there were no cabinet meetings.”

Argentina is experiencing a “transitory economic crisis” as Macri seeks to close a 7 percent fiscal deficit that he inherited from Fernandez, Baranao said. But the country’s long-term prospects are promising and while the new government’s operating style is very different, it has maintained investment in science and technology, he said.

“This government wants to first of all reduce the fiscal deficit and it is more open to foreign investment which is different from the previous government,” Baranao said. “There is a lot of emphasis on teamwork, something that didn’t happen before. The atmosphere is very cordial – they are different styles.”

3. AS ARGENTINE CORRUPTION PROBE GROWS, MACRI ALLIES FEEL THE HEAT (Reuters News)
By Nicolás Misculin
May 9, 2016

A judicial probe of possible corruption during Argentina’s last government is also threatening the new administration as some of President Mauricio Macri’s own allies face investigation.

Macri, a center-rightist, took over as president in December from outgoing leftist Cristina Fernandez, pledging to root out corruption as well as implement sweeping market-friendly economic reforms.

Investigations have already led to the arrest of a Fernandez ally and landed the ex-president in court for questioning. But now questions are also being asked of some close to Macri, threatening to taint his image.

Iecsa, a construction firm that is part of the Macri family empire and controlled by his cousin Angel Calcaterra, is one of nearly 100 companies in Argentina being investigated as part of Brazil’s growing “Car Wash” scandal, an Argentine judicial source close to the case told Reuters.

The source did not provide specifics of the Iecsa case, but the “Car Wash” probe has focused on kickbacks and other irregularities in bloated contracts at state oil firm Petrobras.

A source close to Iecsa said the company “has never been notified of any investigation”.

Government anti-money laundering and anti-corruption officials, newly appointed by Macri, are pushing to investigate corruption under Fernandez’s administration.

They have encouraged whistleblowers to come forward and offered lighter punishments for wrongdoers in exchange for information.

Macri has kept his distance from the probes.

“I will permit, stand back and work with it when needed, but justice has to work independently,” said Macri this week.

Still, Fernandez is portraying herself as the victim of persecution.

“They can call me to testify 20 times. They can imprison me. But they will not be able to silence me,” she told cheering supporters after testifying about charges against the central bank for selling U.S. dollar futures at below-market rates during her presidency.

Daniel Scioli, the opposition leader and Fernandez ally who lost to Macri in the presidential election, has warned against a witch-hunt.

“We hope politics does not become judicialised and that the justice system does not become politicized,” he told Reuters.

‘K MONEY ROAD’
Argentine media are closely following the twists and turns of the corruption allegations that have become known as the ‘K money road’, an allusion to Fernandez’s deceased husband and ex-president Nestor Kirchner and their ‘Kirchnerista’ movement.

Prosecutors are probing a complex web of cases linked to property entrepreneur Lazaro Baez, a close ally of both Fernandez and Kirchner.

He was arrested last month for questioning after some $5 million was allegedly deposited in a bank account in his son’s name.

Fernandez denies any wrongdoing.

Associates of Macri, including Iecsa, also have Baez connections. Iecsa joined forces in recent years with Baez’s Austral Construcciones in a failed attempt to compete for public works projects.
Iecsa is not part of the judicial probe into Baez and the source close to the company said it was not a partner of Austral, but “just worked with it on two bids, as it has with many other companies”.

The source added that Macri’s cousin Calcaterra is trying to sell Iecsa to avoid possible conflicts of interest.

Also caught in the probe of Baez is a federal intelligence official, Silvia Majdalani, who was appointed by Macri and is now being investigated for money laundering. Other officials in Macri’s government are also being questioned in the dollar futures case.

A spokesman for the government said: “The government isn’t worried because it is allowing justice to act freely.”

The Supreme Court has asked judges to push ahead with corruption and drug trafficking cases and legal sources say judges who may have faced stonewalling from security forces or the civil service under Fernandez’s government can now count on more collaboration.

“There are judges that now feel empowered to investigate the last administration. Before, they couldn’t get access to information,” a federal court source told Reuters.

Yet, there are political risks. When Fernandez went to court to answer questions in the central bank case, huge crowds filled the streets of Buenos Aires in a show of support as she railed against Macri.

“They went looking for the K money road,” she cried. “They found the M money road.”

4. ARGENTINA ECONOMY: INFRASTRUCTURE DEVELOPMENT IN THE SPOTLIGHT (Economist Intelligence Unit – ViewsWire)
9 May 2016

The new government has been unveiling an ambitious series of infrastructure projects, designed both to facilitate trade as it seeks to drive GDP growth and to fulfil its campaign promise to work towards “zero poverty” with, for instance, water and sewage works. But the announcements come as the president, Mauricio Macri is trying to cut the fiscal deficit and rein in inflation, so the government is courting foreign investors-and reportedly considering public-private partnerships-as well as leaning on international capital markets and multilateral lending institutions to, in large part, fund the projects.

The government is targeting average annual GDP growth of 4.5% in 2017-19 (we expect adjustment policies this year to result in a recession, with GDP contracting by 0.8%). To achieve this, it has made upgrading infrastructure a pillar of its economic plans. In the short term, investment in infrastructure projects will provide employment at a time when Mr Macri is under pressure over layoffs in both the public and private sectors. In the medium and long term, better transport links will help to reduce logistical bottlenecks and help farmers and manufacturers, whose products often travel huge distances to ports for export.

Provinces look to finance infrastructure upgrades

Mr Macri has been announcing a host of infrastructure projects over the past few weeks. But as his administration wants to reduce the fiscal deficit, it must find ways to finance these projects without eating into tax revenue. After US$16.5bn in issuance in global bond markets last month, a record for an emerging-market creditor, the economy minister, Alfonso Prat-Gay, said that much of the money not used to pay holdout creditors and exchange bondholders (approaching US$5bn) will be destined for public works at the federal level. The high demand for the bonds also augurs well for the provinces, which will now turn to capital markets to fund their own infrastructure upgrade programmes. Neuquén was the first province to tap international capital markets following the sovereign’s landmark deal, selling US$235m in early May at a yield of 8.625% in an issue that was subscribed six times over.

Buenos Aires province, Argentina’s largest and most populous, is likely to lead the way in provincial infrastructure development. Mr Macri and María Eugenia Vidal, the governor of the province, have unveiled a wide-ranging, Ps150bn (around US$10bn) plan for the province. It includes adding flood defences; extending sewage systems; building or upgrading nearly 1,300 miles of roads; modernising train lines between the capital city, Buenos Aires, and Rosario, a strategic port city, and Mar del Plata, on the Atlantic coast; and improving Ezeiza international airport.

Multilateral loans to boost transport infrastructure

Mr Macri’s administration has been meeting with foreign leaders and businesses in Asia and Europe as it looks for investment in national road, rail and port networks. The government has also received funding from the Inter-American Development Bank (IDB), the Development Bank of Latin America (CAF), and the World Bank-after the US stopped opposing the latter’s loans to Argentina. The IDB will finance a total of US$5bn of government spending until 2019, according to the Ministry of Finance, including US$815m this year that is destined for infrastructure and social policies. IDB financing includes a plan to press ahead with the US$1.6bn Agua Negra road tunnel, an idea first floated in 1996 to link San Juan Province in Argentina to the Coquimbo region on the other side of the Andes in Chile. Last month the two countries also agreed to progress with the Las Leñas crossing to the South, connecting Mendoza province with the O’Higgins region of Chile (although, for now, there appears to be no third-party financing).

The World Bank agreed in March to lend Argentina US$3.5bn over the next three years, with US$1.4bn destined this year and next, in part, to infrastructure. Part of these funds, along with a US$2bn loan from CAF agreed at the start of May, will go towards the Plan Belgrano. The plan, a campaign pledge, involves spending US$16bn to improve transport links and water and sewage works across ten provinces in the north of the country, and build 150,000 homes. According to Mr Macri, this will include the construction beginning in June of a water-treatment plant and pipeline in Formosa province.

PPPs on the cards?

On a similar note, Mr Macri, who campaigned on a promise of “zero poverty”, is pushing ahead with a National Water Plan, announced on April 29th, which will require investment of Ps200bn over the next four years and Ps80bn this year, according to the government. The goal is that by the end of this government’s term all Argentinians will have access to drinking water and three-quarters will be connected to a sewage system. On April 22nd the government also set up a fund to shore up flood defences in the Northeast, which has been hit badly by rains in recent weeks and months. Finally, on April 28th Mr Macri unveiled a housing plan for which US$100bn will be needed this presidential term. In addition to the homes to be constructed under the Plan Belgrano scheme, it aims to ease access for hundreds of thousands of Argentinians to mortgage loans and financing to build or repair homes.

Even with recently announced multilateral loans and an expectation that provincial debt issuance will help finance infrastructure works, announcements of this scale raise big questions over financing. The government has not officially announced the introduction of a public-private partnership (PPP) framework for investment, but it seems clear that Mr Macri is keen on the participation of the local and foreign private sector in the infrastructure drive, and this is most likely to take place under the auspices of such legislation. Local news reports have suggested in fact that the government is currently preparing a bill on PPP framework legislation to present to Congress in the coming weeks. Such arrangements can take on different forms and they have been successful in other Latin American countries. It remains unclear for now what the government’s approach to PPPs would be, but it seems likely to be a crucial element of any plan to improve infrastructure under the Macri administration.

5. ARGENTINA SHALE DEVELOPMENT MOVES FORWARD, BUT STILL SLOW (Platts Commodity News)
By Charles Newbery
9 May 2016

Buenos Aires (Platts)–9May2016/226 pm EDT/1826 GMT Argentina has the potential to become a net exporter of oil and natural gas from its huge shale resources, a task that will require large investments not just by majors but also a lot of junior players, executives said Monday.

“If Argentina does things right, it could become a big exporter of oil and gas,” Arturo Vilas, general manager of Canada’s Miramar Hydrocarbons, said at the Argentina Shale Gas and Oil Summit in Buenos Aires.

Argentina has among the world’s largest shale oil and gas resources, and big companies like the country’s state-run YPF, Chevron and Dow Chemical have started to put them into production, while ExxonMobil, Shell and Total are pursuing production pilots.

The investments have achieved stable production, but it is still “very little,” Vilas said.

The country is producing about 50,000 b/d of oil equivalent in shale oil, gas and liquids, according to Neuquen government data. Neuquen is a southwestern province that is home to the giant Vaca Muerta play and most of the country’s shale drilling.

There could be an increase in investment this year thanks to improved conditions for doing business in the country. The new right-of-center government of President Mauricio Macri, who took office in December, has returned the country to global financial markets by ending a 15-year sovereign debt default, expanding financing opportunities for companies. His administration has also raised most energy prices, lifted capital controls and scrapped trade restrictions.

“Investment conditions have improved,” Vilas said.

What is more, he said the investments over the past few years have reduced operational risks and proven that Vaca Muerta can extract oil and gas.

To expand production, Argentina needs an influx of junior companies, Vilas said, drawing a comparison to their role in the shale boom in Canada and the United States.

A longer-term necessity is to integrate the region so that the future surplus in Argentine oil and gas production can be sold to neighboring countries, he added.

If Argentina can bring in the investments needed to develop Vaca Muerta and other shale and tight plays, then it could become a net exporter in the nearly 15 years it took the US to go from a big energy importer to a “potentially big exporter,” Vilas said.

However, to attract investment, Argentina faces competition from other shale plays in Latin America, including in Brazil, Colombia and Mexico, as well as the offshore subsalt resources in Brazil, he said.

Hermann Steinbuch, the manager of production and operations in Argentina for Canada’s Madalena Energy, also said that more companies are needed in the plays to achieve explosive growth.

“We need small companies to work in the formations, to take on the risks,” he said.

With more operators as well as services companies, this will help to cut cost and improve profit potential, he said.

YPF produces 44% of the country’s 520,000 b/d of oil and one-third of the 120 million cu m/d of gas, trailed by BP-backed Pan American Energy, France’s Total, Argentina’s Pluspetrol and Tecpetrol, China’s Sipetrol and Chevron. Most of the juniors produce less than 1% of national oil and gas and have little acreage.

6. ARGENTINA’S REFORMS PAY OFF IN THE FORM OF S&P RATINGS UPGRADE (Business News Americas)
9 May 2016

Considering the Argentine government’s commitment to fiscal and structural adjustments, ratings agency S&P Global Ratings raised its long and short-term foreign currency ratings on the South American country to ‘B-/B’ from ‘SD/D’ with a stable outlook.

The ratings rationale reflects “Argentina’s curing of the default on its foreign currency bonds that had started in July 2014,” said the agency in a release.

In a historic return to international markets, Argentina issued US$16.5bn bonds on April 10 in its first such issue since 2005.

Of the total, US$9.3bn were used to settle the longstanding legal battle with holdout bondholders and more than 220 extra judiciary arrangements with creditors who did not participate in the 2005 and 2010 debt restructurings.

The cut in fiscal subsidies, the unifying of exchange rates, the elimination of capital controls, the reduction of some export duties, and the beginning of the restructuring of the national statistics agency, are listed by S&P as economic reform advances made by the government in its first five months in office.

Among the challenges faced by the administration of President Mauricio Macri, S&P points to substantial economic imbalances, high inflation and a large fiscal deficit “in a context of a still-polarized society and an unfavorable external environment.”

The agency expects Argentina’s GDP to contract this year and it estimates that the 12-month inflation rate is likely running above 40%.

S&P also affirmed Argentina’s ‘B-/B’ local currency ratings and the ‘B-‘ transfer and convertibility assessment.

7. PRESIDENT MACRI RELAUNCHES PRICE CONTROLS IN ARGENTINA (PanamPost)
By Orlando Avendaño
May 9, 2016

“Price Protection” Program Targets 400 Products to Curb Inflation

Argentina President Mauricio Macri announced through his Twitter account Friday, May 6 that the country will be reimplementing the Price Protection Program that allows the government to temporarily control the price of certain products sold at supermarkets.

The program was also announced by Secretary of Commerce Miguel Braun. He said the government plans to increase the number of products in the program from 317 to 400. The rise in prices will be 4.8 percent on average, La Nación predicted last month.

Price controls will start this Saturday, May 7 and last for at least four months. The program will include fresh produce and other perishables like fruits, vegetables, bread and certain meats.

Convenience stores will not be included in the program.

The Price Protection Program was an initiative that arose during former President Cristina Fernández de Kirchner’s administration, which established price controls in January 2014 as part of an attempt to reduce the level of inflation to below 28 percent.

At first, the program only covered 194 different products, but that increased to 500 under Kirchner’s watch.

Macri’s administration also announced the “Precios Cuales” Program starting May 13, which will allow people to monitor supermarket prices via the internet. On the site, users can compare constantly updated prices from different chains.

8. ARGENTINA ZOO WORRIED ABOUT DECAYING HEALTH OF POLAR BEAR (The Washington Post)
May 9, 2016

BUENOS AIRES, Argentina — The director of the Mendoza zoo in western Argentina says she has concerns about the health of the country’s last captive polar bear.

Zoo director Mariana Caram said Monday that the bear named Arturo is losing his appetite and is showing signs of decline.

Animal rights activists circulated a petition in 2014 that was signed by more than a half million people asking that Arturo be moved to Canada. Caram said then that the bear was too old to be safely relocated.

Activists say Arturo paces nervously in his concrete enclosure and suggest the animal suffers from depression. Arturo’s partner, a polar bear named Pelusa or Fuzz, died of cancer in 2012.

The last polar bear at the Buenos Aires zoo died in late December 2012 amid a heat wave.

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