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Argentina is undergoing a complex and profound process of change under new president Mauricio Macri. He has announced a number of transformative initiatives that, if executed properly, should give rise to compelling investment opportunities. The new administration is indeed aiming to establish order in what has been a chaotic business backdrop in this country.

For the current government, these first months of work are all about understanding what was inherited from the previous administration of Cristina Fernández de Kirchner, and about initiating a different type of dialogue with key market players. Managing the transition towards a predictable economic and political environment is key at this stage, but the transformation envisioned by Macri’s government goes well beyond that.

At the Argentinian government’s offices and ministries, the transition and its daily repercussions are at the top of the agenda, but the teams working on the field are also rather conscious about the fact that the “transition” cannot go on for too long. The work currently underway needs to be aligned with the administration’s long-term goals and campaign promises: reducing poverty levels down to zero, addressing regional economic disparities, reconnecting Argentina with the international political and business communities, and, generally speaking, regaining the country’s past stature.

To achieve order and avoid social chaos, Macri’s administration must demonstrate legitimacy in decision-making. He must follow through on his promises swiftly but without further destabilizing the economy, which suffers from high inflation and high public deficit. Importantly, he needs to restore the confidence of investors in order to regain access to an important flow of dollars entering Argentina in the form of foreign direct investments, international loans, swaps and debt.

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Argentina is undergoing a complex and profound process of change under new president Mauricio Macri. He has announced a number of transformative initiatives that, if executed properly, should give rise to compelling investment opportunities. The new administration is indeed aiming to establish order in what has been a chaotic business backdrop in this country.

For the current government, these first months of work are all about understanding what was inherited from the previous administration of Cristina Fernández de Kirchner, and about initiating a different type of dialogue with key market players. Managing the transition towards a predictable economic and political environment is key at this stage, but the transformation envisioned by Macri’s government goes well beyond that.

At the Argentinian government’s offices and ministries, the transition and its daily repercussions are at the top of the agenda, but the teams working on the field are also rather conscious about the fact that the “transition” cannot go on for too long. The work currently underway needs to be aligned with the administration’s long-term goals and campaign promises: reducing poverty levels down to zero, addressing regional economic disparities, reconnecting Argentina with the international political and business communities, and, generally speaking, regaining the country’s past stature.

To achieve order and avoid social chaos, Macri’s administration must demonstrate legitimacy in decision-making. He must follow through on his promises swiftly but without further destabilizing the economy, which suffers from high inflation and high public deficit. More importantly, he needs to restore the confidence of investors in order to regain access to an important flow of dollars entering Argentina in the form of foreign direct investments, international loans, swaps and debt.

Setting Up a Baseline
The elimination of currency controls and restrictions on the repatriation of dividends, which were in place during Kirchner’s last term, were two critical measures that have set the baseline for investors to start considering the country as an interesting market again. On this topic, Will Landers, Managing Director at BlackRock, highlights that “we still have to make sure that the currency has reached its market equilibrium.”

Furthermore, the end of import controls is particularly helpful in attracting productive foreign investments. In short, an investor can now enter the Argentine market at a competitive exchange rate of 14 pesos per dollar, import the necessary capital goods to ensure the value enhancement in an investment project, and repatriate the dividends from eventual returns. However, the government still needs to provide potential investors a sense of legal security through reinforcing the application and revision of existing norms, and the creation of new regulation. Current efforts to overcome the country’s default status and to control inflation are key at this stage.

To facilitate this ideal of openness, an Investment Promotion Agency is being created, which aims to provide order, coherence and transparency for investment projects in Argentina. According to the government, the agency will help to reduce perceptions of risk and transaction costs and boost competition. Macri’s administration is determined to bolster operations in the capital markets as well. This year we will see a move towards the integration of the stock exchanges. As expressed by Claudio Zuchovicki, the Buenos Aires Stock Exchange Development Manager, his institution is “already having productive meetings with the National Commission of Securities about this matter.” Integration would also entail catching up with globally accepted financial norms and regulation that enhances good corporate governance, as Juan Cruz Díaz, Managing Director at Cefeidas Group, highlighted. In this context, greater transparency and disclosure will be demanded from listed companies.

Despite the fact that Macri’s administration has a clear intention of elevating corporate governance standards and related regulations, it’s too soon to determine if he can succeed. The change of approach on macroeconomic policies and regulations was necessary, but the changes are not yet sufficient to create the ideal environment for Argentina to flourish as an emerging market.

Upcoming Opportunities
Throughout the last decade, restrictive import policies were set to preserve and expand local production, also aiming to replace foreign products that needed to be paid with American dollars; hence, focus on the country’s strategic sectors was lost. Macri has decided to fuse the former Ministry of Industry with the Ministry of Trade into one institution, the Ministry of Production, which will focus on restoring Argentina to competitive strength, prioritizing the technological and innovative components in products and services, their penetration in the international market, the transformation of traditional productive sectors, and the promotion of new value chain dynamics.

There is a consensus among market players and society at large that President Macri has proven strong leadership and technical capacity to launch his project; yet results are still to be seen. Investors will be able to assess the situation as time goes by; the annual salary negotiations with unions will set the tone for what the economic expectations are for 2016. From a governance perspective, the Congressional sessions will determine Macri’s real negotiating power on ensuring stability and progress. Finally, the Brazilian recession, the repercussions of its downgrade to junk status by Fitch, together with the country’s political scandals, will have an impact on what is coming for Argentina, and more broadly for Latin America.

Establishing order has been set as the base from which bigger ideas can be constructed. This conception of the new Argentine reality results in a very interesting opportunity for long-term oriented, responsible investors. The aim is to get into a dynamic where not only the macroeconomic situation is improved, but also innovative, social and institutional assets are elevated again. Despite the challenges, this year provides an important baseline from which to move forward to a prosperous, sustainable Argentina.

Delfina Lopez Freijido is Co-Founder and Associate Director at Acrux Partners. Located in Buenos Aires, she works to grow the company’s network in South America with a special focus on enabling policy development for sustainable investment.

Miguel Ferreyra de Bone is one of Acrux Partners’ Advisors. Located in New York, he collaborates advising on the company’s business strategy in North America and Emerging Markets in Latin America.

Acrux Partners is a strategic consulting firm that works to support the transition to a low carbon and inclusive economy in South America.

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