Argentina Country outlook - Banco BPI
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Country outlook Argentina
Argentina
Closing date of this issue: 31/05/2019
Form of Government: Presidential federal republic
Argentina Capital: Buenos Aires
Official language: Spanish
Population: 44 million inhabitants (2018)
Currency: Argentinean peso (ARS)
Exchange rate: 1 EUR = 49.95 ARS (31/05/2019)
1 USD = 44.77 ARS (31/05/2019)
GDP: $518 billion (0.6% of world GDP)
GDP per capita: $11,627 ($20,537 purchasing power parity)
Ease of doing business: 119th in the world out of 190
according to the World Bank (Doing Business)
Religion: Catholic: 88%
Country Outlook is a publication that is produced jointly by CaixaBank Research and BPI Research (UEEF) and it contains information and opinions from sources that we consider to be reliable. This
document is for information purposes only, so CaixaBank and BPI are not liable in any way for any use that may be made of it. The opinions and estimates are provided by CaixaBank Research and BPI and
may be changed without prior notice.
BPI RESEARCH MAY 2019 2Argentina
PIB. Variación interanual (%)
Economic GDP. Year-on-year change (%) CPI. Year-on-year change (%)
forecast 4
Forecast
60
Forecast
2.5 48.5
2.2 50
2
40
27.2
0 30
-1.2 20
-2 17.8
10
-4 0
Average 2015 2016 2017 2018 2019 2020 2021 Average 2015 2016 2017 2018 2019 2020 2021
2010-14 2010-14
•
Argentina is still in the midst of a difficult • Inflation is expected to fall from its current
economic situation. After the recession in 2018, high level in the near future, due to a
the macroeconomic adjustment being pursued combination of: i) the effects of the strong
by the country continues in 2019, so another monetary tightening, ii) the smaller impact
economic downturn is expected. In 2020-2021, of the depreciation of the peso on
with most of the fiscal and monetary 4
the prices of imported goods and iii) the
adjustments completed and the macroeconomic 2contraction of consumption, reducing
imbalances more contained, the economy is pressure on the demand side. Nevertheless,
expected to grow again, albeit at a moderate 0the levels at the end of the 2019-2021 forecast
pace. However, the situation is very uncertain, will only just be lower than the average over
-2
both with regard to the effectiveness of the the last decade.
planned adjustments and the political situation -4
(see the following section), so there is an equal
likelihood of it taking longer to exit the
recession.
Economic Benchmark interest rate (%)
policy and exchange rate (ARS/USD) Fiscal balance (% GDP)
Forecast Forecast
80 80 0
63.2 -1.5 -1.4
60 60 -2
60.1 -2.7
EE. UU. Eurozona56.9
43.3 Emergentes
40 40 -4
Fuente: CaixaBank Research, a partir de datos de Citigroup
35.8 y Bloomberg.
20 20 -6
21.7
0 0 -8
Average Average 2015 2016 2017 2018 2019 2020 2021 Average 2015 2016 2017 2018 2019 2020 2021
2010-14 2010-14 2010-14
Benchmark interest rate (left scale)
Exchange rate (right scale)
Current account (% GDP) Public debt (% GDP)
Forecast Forecast
0 100
0
75.9
-1 80
-2.0 69.0 65.1
80 -2 -2.5 -2.5 -2
60
-3 80 -4
60 40
-4
60 20 -6
40 -5
-6 0 -8
40
20 Average 2015 2016 2017 2018 2019 2020 2021 Average 2015 2016 2017 2018 2019 2020 2021
2010-14 2010-14
20
0
• Argentina has pledged to carry out an ambitious •
Despite the amount of aid provided by the
macroeconomic adjustment, combining 0a IMF, covering external funding needs remains
significant fiscal effort and a notable tightening an active front, as capital outflows may
of monetary conditions. This adjustment is increase due to electoral uncertainty, especially
being carried out while receiving financial aid if the doubts regarding its 100ability to meet the
0
from the IMF (totalling 57 billion dollars). The targets agreed with the IMF intensify. Given
-1
fiscal consolidation achieved in 2018 was the repayment schedule 80with the IMF, it is
-2
significant and this will continue in 2019, virtually certain that some60 form of additional
provided that the set targets are met (during financial -3scheme will be renegotiated
40
with the
past election years, there has been a tendency Fund, a -4 scheme that may entail further
toward easing in this respect, so we believe 20
structural-5reform commitments.
that there is reasonable likelihood of deviation -6 0
from the fiscal targets).
BPI RESEARCH MAY 2019 3Argentina
Financial Private credit (% GDP) Gross external debt (% GDP)
conditions 25
Forecast
80
Forecast
22.0 21.5 21.0 65.3 63.0 65.1
20 60
15
40
10
20
5
0 0
Average 2015 2016 2017 2018 2019 2020 2021 Average 2015 2016 2017 2018 2019 2020 2021
2010-14 2010-14
•
The combination of the economic recession • Ultimately, the agreement with the IMF will
and high inflation has led to a significant fall in
25
help to contain the government’s financial
credit and a decline in NPLs (albeit starting needs, while helping to ensure that public debt
20
from very low levels). Regarding the is channelled along a sustainable path. In this
capitalisation level, following an increase in 15 context, the increase in external debt that
capital consumption in the middle of 2018, this 10 occurred between 2015 and 2018, a period
has recovered, with yield following a similar during which it doubled (as a percentage
5
pattern. Generally, the banking situation can of GDP), should be followed by a period of
be considered relatively stable due to a0 stabilisation, albeit while still be exposed to
combination of ample liquidity, strong funding areas considered risky for an emerging economy.
of the sector and the government’s pledge to
support the big banks if necessary.
Political • The presidential elections in October 2019 are • After the elections, regardless of the result,
situation still a strong source of uncertainty, given that the key factor will be the extent to which the
they will occur against a backdrop of significant resulting government will be able to gain
economic and social costs for the electorate. enough credibility with the markets. This
The available polls suggest that there will rebuilding of confidence will ultimately
practically be a dead heat between the depend on the IMF’s assistance being renewed
candidate Mauricio Macri, who is seeking re- in a non-confrontational context and on
election, and the alternative Alberto economic policy continuing along the rigorous
Fernández. If the anticipated fall in inflation path established in 2018.
has materialised when the vote is held, the
current President’s chances will improve
significantly.
Long-term GDP growth (%) Population (milions of inhabitants)
outlook 2.5 50
2.0 48.6
2.0
48
1.5
46
0.8
1.0 44.7
44
0.5
0.0 42
Average 2009 -18 Average 2019 -29 2018 2028
•
Without meaningful structural reforms, • To increase long-term growth potential, it is
Argentina’s long-term growth will continue to essential for the authorities to make strong
be significantly lower than that of other headway in the structural reforms that will
regional players. Although the demographics allow them to boost productivity growth,
are at a somewhat higher stage of maturity including any that improve the efficiency of
than the rest of Latin America (older and with the economy, promote competition in the
less dynamic population growth), the goods and services market and increase the
institutional factors (essentially corruption, flexibility of the labour market. Furthermore,
democratic quality, rule of law and security) the country must tackle corruption, reduce the
are the biggest obstacle to creating long-term distortions in the tax system and remove the
prosperity. barriers to investment and international trade
that still exist.
BPI RESEARCH MAY 2019 4Argentina
Country Last CDS* 5 years (basis points) OECD credit risk rating
Rating Outlook
risk changed
2,000 (from 0 to 7, with 0 being the best)
1,560.8
B 12/11/18 Stable 1,500
1,217.5
B2 29/11/17 Stable
1,000
6
500 7
B 7/11/18 Negative 0
Average 2015-18 31/05/2019
Indicates that the country has an “investment grade”. *Credit default swap: measurement of country risk that reflects
the cost of ensuring the non-payment of the sovereign bond.
Indicates that the country does not have an “investment grade”.
Risks SHORT-TERM LONG-TERM
• Tightening of global • Insufficient economic
financial conditions - + liberalisation - +
• Higher inflation - + • Lack of institutional
• Social instability due improvements - +
to the tightening - + • Inadequate investment
• Failure to meet infrastructure - +
fiscal targets - +
Business STRENGTHS WEAKNESSES
environment • Potential of the domestic market. • Low productivity growth.
• Large business sector. • Inadequate, low-quality infrastructures.
• Solvent, liquid banking sector. • Low level of competition in some sectors.
• High level of corruption and political, legal and
social uncertainty.
• Low financial inclusion.
Main sectors EXPORTERS IMPORTERS
• Waste, cereals, vehicles, vegetable and • Vehicles, machinery, electronics, mineral fuels
animal fats and oils, fruit, seeds and grains. and plastics.
Source: BPI Research, based on data from Bloomberg, IMF, OECD, Oxford Economics and Thomson Reuters Datastream.
BPI RESEARCH MAY 2019 5Argentina
Taxation In Argentina, the tax system is comprised of Certain public services such as electricity, water,
state, provincial and municipal taxes. At the wastewater treatment and telecommunications
federal level, the main taxes levied on legal company subsidiaries are subject to a rate of
entities are the income tax (IT) and the value- 27%. Equipment or production goods, public
added tax (VAT). Meanwhile, the main transport, beef, fresh vegetables, accommoda-
provincial taxes are the turnover tax, stamp tax tion, interest on loans acquired by Argentinian
and property tax. At the local level, financial institutions, some properties and
municipalities essentially levy taxes on the equipment, newspapers and magazines are
public services provided, as well as other minor subject to a VAT rate of 10.5%. Exports of goods
specific taxes. Regarding corporate taxes, both and services are not taxed. The 21% VAT is not
residents and non-residents are subject to the applied to foreign tourists who book their
same tax treatment. Non-resident companies travel in Argentina with a credit card issued
must register for the VAT or Gross Income Tax abroad or via a bank transfer made from
(IIBB) if they provide taxable supplies in outside Argentina. VAT-exempt supplies include
Argentina. The standard corporate tax rate education, books, international transportation
(joint stock companies, limited liability and certain basic necessities including water
companies, limited partnerships) is 35%. Sale and milk for qualifying buyers. The VAT rate is
taxes are levied at the provincial level, in the applied to the sales price. VAT registration is
city of Buenos Aires and in some municipalities; required for (a) corporations or other legal
generally at a rate of between 3% and 5% of entities that commence taxable activities in
gross revenue. Higher rates may be imposed on Argentina, and (b) individuals that have an
certain services in some provinces. Industrial annual taxable turnover of over ARS 300,000
activities are usually exempt or subject to lower for goods and ARS 200,000 for services. VAT
rates. A financial transactions tax of 6% is levied returns must be filed monthly. For imports, VAT
on debits and credits in current accounts. Of the is calculated and paid with custom duties.
amount levied on credits, 0.2% may be taken as Entities must register for the gross income tax if
an advance payment of income tax or minimum they provide taxable supplies as part of doing
presumed income tax, resulting in an effective business; no turnover limit applies. The gross
rate of 0.4%, and thus 1% rate on a complete income tax is a provincial tax applicable to self-
collection/payment cycle. A stamp tax of 1% is employed individuals on their net income. The
levied on the formal execution of public and average rate is 4% in the federal capital (city of
private documents including contracts, notarial Buenos Aires), and similar rates are applied in
deeds and promissory notes. This rate is the other provinces. Professionals who do not
increased to 2.5% or 4% for real estate sales. In operate as a company are exempt from the
terms of consumption taxes, the general VAT gross income tax in the city of Buenos Aires. The
rate is 21% on the net amount of transactions. tax is paid by filing monthly tax returns.
Investment Foreign investment receives equal treatment In terms of procedures related to foreign
and is subject to the same burdens and investment, there is freedom of establishment.
incentives as domestic companies. Foreign investors are able to invest in all
For the protection of foreign investors there sectors of the economy on equal footing with
are: bilateral agreements on investments with national investors. The investment regime is a
more than 60 countries; disputes registered by liberal one. Foreign investment is not subject
the UNCTAD; organisations offering assistance to any authorisation or declaration, regardless
with disagreements (International Chamber of of the amount or the activity involved, even in
Commerce, Argentina Chamber of Commerce the case of taking a majority stake in a local
and the International Centre for Settlement of company. There is no obligation to declare,
Investment Disputes); and Argentina has been and there is no declaration nor specific
a member of the Multilateral Investment requests for authorisations except for large
Guarantee Agency (MIGA) since 1992. projects which require the agreement of the
competent ministry.
BPI RESEARCH MAY 2019 6Argentina
Establishment LOCAL COMPANY
The legal forms of companies in Argentina 25% of the capital must be used in the creation
are: Individual Businessperson, which is a of the company and the balance paid during
single-person company. The number of the following two years. Partners’ liability is
partners or shareholders is one person, there is limited to the amount of capital contributed.
no minimum or maximum capital, and the Corporations must incorporate via a registered
business owner is liable for the company’s notarial deed. There are no restrictions in
debts with their personal assets. Public Limited terms of the residence or nationality of the
Company (S.A.): the number of partners or shareholders; however, if the shareholder is a
shareholders is at least two shareholders, the foreign commercial enterprise it must first
minimum capital is ARS 12,000, and at least register in the Companies Register.
BRANCH / REPRESENTATIVE OFFICE
A branch or representative office, which is assigns to its Argentina branch – is liable for all
created when a foreign company opens a the transactions carried out by the branch.
branch in Argentina, does not require the The branch’s account must be kept separate
creation of a new legal entity. Although a from the operations of the headquarters, and its
branch must be registered in the Public financial statements must be filed regularly in
Companies Register corresponding to its the Companies Register.
location, the laws governing its existence and The branch must be managed by a legal representa-
validity are mainly the laws of the company’s tive granted full administrative and judicial
country of origin. A branch may undertake all authority – which may be limited in certain
the activities that the company’s headquarters circumstances – to ensure that the business affairs
engage in, on behalf of that headquarters, and transactions of the entire branch are handled
through the individual designated as the efficiently. Branches are subject to oversight
company representative. As a general rule, from the corresponding Companies Register and
the assets of all foreign businesses – that is, the must comply with the same requirements as
total capital value of the headquarters, and corporations.
not just the capital that the headquarters
Alliances FREE TRADE ZONE
strategic In Argentina there are currently: nine free seven have been awarded, two have been
trade zones in operation, two of them are in a rejected and another one is in a regulatory
tender process, two are in a process of drawing process.
up specifications, one has been pre-awarded,
JOINT VENTURE
There are two kinds of joint ventures, or 2. Foreign company and Argentinian company
associations between two or more legal that sign a contract under which each
entities that share resources, know-how, commits to contribute a series of resources
interests and liabilities to develop a project: to carry out the project in question. In this
1.
Foreign company that associates with an case, the joint venture does not have its
Argentinian company to create a third own legal personality independent of that
company in which become shareholders of the legal entities that comprise it.
through purchasing shares and which is However, it should be remembered that
tasked with carrying out the project in because there are no controls of foreign
question. capital, there is free repatriation of capital,
dividends and profits.
Customs FREE TRADE AGREEMENTS
conditions Because it is a member of Mercosur, Argentina does not have bilateral free trade treaties, but
rather has free trade treaties as part of the regional block.
FREE TRADE ZONES
• Tucumán Free Trade Zone. • Comodoro Rivadavia Free Trade Zone.
• Mendoza Free Trade Zone. • Río Negro Free Trade Zone.
• Córdoba Free Trade Zone. • Santa Fe Free Trade Zone.
• Bahía Blanca Free Trade Zone. • General Pico Free Trade Zone.
• América Free Trade Zone. • San Luis Free Trade Zone.
BPI RESEARCH MAY 2019 7Argentina
Customs Despite being a member of Mercosur, certain Any imports of pharmaceutical products,
conditions products like sugar, textiles, steel, cars and insecticides and medical devices –among other
(continuation) vehicle parts are protected with customs items– require prior Government approval.
restrictions, quotas or high tariffs. Likewise, agricultural products, livestock and
Companies that wish to convert local currency plants require public health certificates issued by
into foreign currency must request permission a competent authority in the country of origin.
from the Federal Public Revenue Administration
(AFIP).
Negotiations BUSINESS CULTURE
and protocol Argentines have a true business culture. The Europe or the US. As they are in constant pursuit
turbulent economic cycles that the country has of new solutions and opportunities, Argentines
experienced over the years has resulted in a are quite open and often receive foreign
short- and medium-term outlook on business. businessmen.
The general consensus is therefore to make It is recommended to make an appointment at
quick investments. least two weeks in advance for the first meeting,
Given that loans are practically non-existent or and reconfirm three days prior. Avoid January
carry very high interest rates, local entrepreneurs and February, when people usually take their
prefer to use their own funds. They therefore do holidays.
not have the same circumstances as exist in
Top fairs • Expoagro • AgroActiva
• ExpoMEDICAL • SIMATEX
• INTERSEC • FIMAR
Websites • Official website of the Argentinian State: https://www.argentina.gob.ar
of interest • AFIP - Federal Public Revenue Administration: http://www.afip.gob.ar/sitio/externos/
• CAME - Argentine Confederation of Medium-Sized Enterprises: http://www.cta.org.mz
• Argentinian Chamber of Commerce: http://www.cac.com.ar
• Argentinian Agency for Investments and International Trade: http://www.inversionycomercio.org.ar
• National Statistics Institute (INE): http://www.ine.gob.mz/
• Invest in Argentina: http://www.inversiones.gob.ar
• Central Bank of Argentina: http://www.bcra.gob.ar
Payment The Central Bank established a new standard an exchange rate set by the Central Bank, below
and charging which repeals and modifies various aspects of the the free-market dollar. Moreover, the
methods red tape that existed for operating in the foreign operation’s supporting documentation,
exchange market: including a copy of the invoices, had to be
1. For charging abroad. Another major change submitted in person in order to get the money.
affects physical persons or companies that 2. For purchasing real estate. The Central Bank
export services abroad. Now they can charge also did away with the two million dollar per
for those services in dollars to a local bank person limit for purchasing foreign currencies
account, with a limit of up to two million dollars when being used to pay for real estate
per month. purchases. In this situation, the transaction
Before, it was required to “liquidate” – change must be done through a deposit or transfer to
to pesos – and the conversion was done using the seller’s bank account.
BPI RESEARCH MAY 2019 8You can also read
