Studi Economici
Argentina

Argentina

Population 44.6 million
GDP 11,658 US$
D
Country risk assessment
B
Business Climate
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Synthesis

major macro economic indicators

  2017 2018 2019  2020 (e) 2021 (f)
GDP growth (%) 2.8 -2.6 -2.1 -12.8 3.5
Inflation (yearly average, %) 25.7 34.3 53.5 46.3 43.1
Budget balance (% GDP) -5.9 -5.2 -3.8 -8.9 -5.5
Current account balance (% GDP) -4.9 -5.2 -0.9 0.7 1.2
Public debt (% GDP) 58.9 89.8 93.8 117.3 118.3

 

(e): Estimate. (f): Forecast.

STRENGTHS

  • Major agricultural player (notably soya, wheat and corn)
  • Large shale oil and gas reserves
  • Education level higher than the regional average
  • GDP per capita above the region´s average

 

·                  Major agricultural player (notably soya, wheat and corn)

·                  Large shale oil and gas reserves

·                  Education level higher than the regional average

·                  GDP per capita above the region´s average

WEAKNESSES

  • Weak fiscal accounts and concerns over debt sustainability
  • Capital controls were tightened, in order to curb dropping foreign exchange reserves
  • Dependency on agricultural commodity prices and weather conditions
  • Sticky and skyrocketing inflation and prohibitive interest rates level
  • Bottlenecks in infrastructure

RISK ASSESSMENT

Covid-19 adds to the already pre-existent ailments

Argentina has faced a dire economic situation, marked by an already two-year recession and made worse by the hard and prolonged battle against the COVID 19. Compared with other large Latin American economies, the COVID 19 outbreak has cost less lives in Argentina. As of August 11 2020, the virus has infected over 253 thousand people and left a death toll of more than 4.7 thousand lives. That´s probably related to an early (mid-March) and stricter reaction of the president Alberto Fernandez government. Nevertheless, in early August the number of cases and deaths were still growing rapidly. The focus is on the metropolitan area of Buenos Aires and the 40 surrounding districts, which are home to roughly 37% of the population, hold the highest population density and contribute with about 48% of GDP. Regarding the side effects on the economy, the initial impact was already visible in the Q1 2020, when GDP dropped by 4.8% QoQ (from -0.9% QoQ in Q4 2020). From the expenditure side, gross fixed investments (-9.7% QoQ) and household consumption (-6.8% QoQ) were the main drags to activity. Moreover, the economy seems to have bottomed in April, with some rebound since then. The official monthly activity indicator EMAE rose by 10% MoM in May 2020, up from -17.9% MoM in April. Despite that, the year-to-date slide in activity is huge (the EMAE accumulated a drop of 13.2% YoY in January - May 2020). It is worth noting, that the lack of fiscal space (with the government now facing a tough debt renegotiation) has limited the government´s ability to implement fiscal stimulus. The announced measures total roughly 5% of GDP (3% in the budget and 2% off budget). Looking ahead, recovery is expected to be very gradual, due to the weak point of departure and the erosion of income fundamentals. In fact, the number of registered workers fell by 3.4%YoY in May 2020, which represents 409 thousand fewer workers.Moreover, the real wages received by registered workers in private companies dropped by 4% YoY in May 2020 (influenced by a stubbornness high inflation – at 40.6% in July 2020).

 

Narrowing current account deficit diverges from the challenging fiscal situation

The current account registered a deficit of USD 0.4 billion in Q1 2020 (USD -3.5 billion in Q1 2019), taking the 12 months rolling deficit to USD 0.9 billion (0.2% of GDP). The improvement in the quarter has been underpinned by a stronger trade surplus (imports shrunk by 19% YoY, while exports dropped by 7% YoY driven by a slide in industrial sales) and the narrowing of the service account deficit to USD 0.9 billion (from USD 1.8 billion), due to lower deficit of the tourism account. Finally, the deficit in income account decreased to USD 3.7 billion, from USD 4.6 in Q1 2019 (thanks to lower profits and dividends). Despite the external account improvement, international reserves shrunk by USD 1.1 billion in Q1 2020, as the country lacks access to external financing. That´s particularly worrisome, since net foreign exchange reserves stand at roughly USD 8 billion, covering roughly 2.5 months of imports). This has led the government to maintain strict capital controls (the gap between the official exchange rate and the black market currently stands at 78%) and to raise import controls.

 

Regarding the fiscal side, on August 4, 2020, Argentina reached a preliminary agreement with private creditors to restructure USD 66 billion in debt under foreign legislation (equivalent to 26% of debt in foreign currency and 18% of GDP as of Q1 2020). Three major groups of creditors led by BlackRock accepted "the debt restructuring proposal". This represents a positive news for a country in its ninth default after it let the grace period on interest payment expire in May 2020. According to the agreement, the new bonds will be worth roughly 55% of the face value of the current ones (this means below their initial 60% proposal, but above the government 40% first offer). Still, the government postponed the deadline for the offer to be accepted by other creditors until August 24 (the outcome will be announced on August 28). Overall, policymakers aim to reach the necessary thresholds to trigger the collective action clauses (extending the proposal to all holders), avoiding any type of legal problem in foreign courts. Looking ahead, the government will focus on restructuring USD 42 billion in dollar bonds under Argentine law and the USD44 billion debt with the IMF (part of the Stand-By Agreement). Regarding the renegotiation with the institution, IMF will probably demand a credible fiscal consolidation program (something the government has not done since taking office). This would involve lowering the fiscal deficit by cutting into public expenditure, and reducing its monetary financing (the monetary base expanded by 88% YoY through 4 August 2020).

 

Prolonged mobility restriction measures and public debt renegotiation can prove politically costly.

The left-wing “Everyone’s Front” coalition Alberto Fernandez and his running partner, the former President Cristina Fernandez de Kirchner (2007/2015), won the presidential elections in October 2019 and took office on December 10, 2019 for a four-year term. Currently President Fernandez´s popularity remains high (approval rating at 69% in July 2020), but it has started to decline since the 83% peak reached at the beginning of in April 2020 (according to Poliarquía pollster). That´s underpinned by the prolonged mobility restriction measures and the side effects of the economic crisis. In fact, support is likely to continue to decline, as the poverty rate increases due to the COVID 19 (at 35.5% in H2 2019). Moreover, the IMF is not a popular institution in the country, thus renegotiation could also prove politically costly. Finally yet importantly, populism is a further risk to be monitored. Notably, the influence of former president and current vice-president Cristina Fernandez de Kirchner in the government. Recently, she exerted influence on the president´s decision in early June to expropriate the large grain trader Vicentin, an idea he gave up later, due to the strong negative reaction).

 

 

 

Last update: October 2020

Payment

The most common payment instruments in local commercial transactions are:

  • cash (for low-value retail transactions);
  • bank transfers;
  • cheques (ordinary cheques, deferred payment cheques or other types).

In case of default, these cheques represent an executable legal document which facilitates a fast track legal proceeding.

For international commercial transactions, the most common payment instrument is Bank transfer via SWIFT. Currently there are no restrictions on foreign exchange and fund transfers from Argentina.

 

Debt Collection

Amicable phase

Out-of-court settlement negotiations are focused on the payment of the principal, plus any contractual default interest that may be added. Argentine regulations provide alternative dispute resolution methods, such as mediation, which is mandatory prior to commencement of any judicial process. At this stage, it is advised to obtain a notarised acknowledgement of debt signed by the debtor, or notarized payment plan agreement signed by both parties. Under amicable negotiation fees payable only apply to recoveries obtained.

 

Legal proceedings

Argentina is a federal republic with 24 independent judicial systems and national judicial system. The highest court in the country is the National Supreme Court.

Regarding debtors abroad, Argentine courts only have jurisdiction when debtors have assets in Argentina (in which case insolvency proceedings will only involve such assets) or when their principal place of business is in Argentina.

The Argentine Civil and Commercial Code classifies proceedings into two types: ordinary proceedings (juicio ordinario) and executory or fast track proceedings (juicio ejecutivo). Ordinary proceedings usually last between one and four years. If applicable, an appeal may be filed for the Court of Appeals to hear the case.

Executory processes are simplified and prompt proceedings that mainly consist of claimants’ request for the execution of debtors’ assets to obtain payment of a debt. They apply when creditor has documents known as enforceable instruments (titulos ejecutivos), such as public instruments, private instruments signed by the concerned party (debtor or guarantor) and legally acknowledged, bills of exchange, checks or credit invoices. Contrary to ordinary proceedings, it is not necessary to provide proof of the debt. The judgment is delivered between approximately six months and two years.

Costs include a court tax (3% of the amount in dispute to be paid by claimants upon commencing proceedings), and lawyers’ fees. The prevailing party is entitled to recover its costs, including attorneys’ fees (subject to court approval).

All documents (original or notarised copies) submitted to the court must be (i) apostilled (for member countries of the 1961 Hague convention, which includes Argentina), and (ii) authenticated by the Argentine consulate in the issuing country. All non-Spanish documents must be translated by a certified translator registered in Argentina.

Enforcement of a Legal Decision

For local judgments, final decisions are initially considered enforceable. However, if a decision has been appealed, it can be partially enforceable in relation to the part of the judgment that is final. In principle, any of the debtor’s assets can be seized (including but not limited to property, trademarks, and accounts receivable from third parties and shares).

Insolvency Proceedings

There are three insolvency proceedings:

 

Out-of court reorganization

Acuerdo preventivo extrajudicial (APE) is a proceeding in which the debtor and a majority of unsecured creditors enter into a restructuring agreement. This

agreement must be submitted by the debtor to an Argentine court for it to become enforceable. In practice, out-of-court agreements provide a series of conditions that must be complied with, including a minimum threshold of consenting creditors.

 

Reorganization

Concurso preventivo is a reorganisation proceeding that can be initiated voluntarily by an individual or entity, who must submit proof of their inability to pay their debts. Debtors must file a petition to the court requesting relief under bankruptcy law. The court will appoint a trustee. All creditors must file evidence of their proof of claim with the trustee (verificación de créditos). Debtors must submit a proposal for reorganization and must obtain creditors’ approval during an “exclusive period” of 90 days, with the possibility of an extension. If the proposal is approved by the majority, the judge reviews the terms of the plan prior to approving it. Upon homologation by the court, the reorganization plan becomes effective to all unsecured creditors (even those who have not agreed to it). A special payment offer can only be proposed and approved for secured creditors. If the proposal is not approved by the required majority (51%), debtor bankruptcy may follow. The process generally takes between one and two years, depending on the volume and nature of debt being renegotiated and the size of the debtor.

 

Bankruptcy

Quiebra is initiated when a reorganization proceeding fails, either voluntarily (by the debtor) or involuntarily (by the debtor’s creditors’ request). The petitioner must show that the company is insolvent or that it has entered into a “suspension of payments” status. In case of an involuntary bankruptcy, after the petition has been filed with the relevant court and all necessary evidence is presented, the court will summon the debtor to provide an explanation of the reasons why payments of the obligations in favour of the petitioning creditor have not been made and to prove that the debtor is solvent. If the debtor is unable to do so, the court will declare the debtor bankrupt. Unlike reorganization, bankrupt debtors lose control of the administration of their assets. A trustee is appointed in order to preserve and administer the debtor’s property. As a result, all payments to creditors and debtor must be made through court. All claims and proceedings against the debtor are automatically stayed as from the date of the order that determines debtor’s bankruptcy. All creditors must submit their proof of claims for payment. Once the assets available and the amounts owned to each creditor are determined, the trustee liquidates the assets and proceeds with the distribution of repayment to creditors.

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