TIME TO REVIEW ARGENTINE INVESTMENT

Since its financial and political collapse, fight with the IMF and banks, and eight-year rule by the Kirchners, investors are wary of Argentina. Many major investors, especially in the energy and mining areas, who were first attracted to Argentina during the 1990s have left the country and dumped their holdings at bargain-basement prices.

Much of the blame for this flight can rightly be focused on the successive Administrations of Néstor and Cristina Kirchner. Still, many of the investors of the 1990s were inebriated by the “reform” policies and the wave of free market verbiage that swept the Region and neglected to look at past trends and understand traditional cyclical economic and political cycles. 

  

 

 

TIME TO REVIEW ARGENTINE INVESTMENT

BY

MICHAEL A. MAY

 

Many articles have been published in the press in the last several months regarding the problems facing Argentina and its uncertain economic and political future. Since its financial and political collapse, fight with the International Monetary Fund (IMF) and Paris Club, and subsequent eight-year rule by the Kirchners, potential investors are wary of Argentina. In fact, many major investors, especially in the energy and mining areas, who were first attracted to Argentina during the boom years of 1990s under President Menem (1989-1999), have left the country and dumped their holdings at bargain-basement prices.

Much of the blame for this flight can rightly be focused on the lack of transparency, abrupt rule changes, cronyism, and insufficient “rule of law” in the successive Administrations of Néstor Kirchner and his wife, Cristina Fernández de Kirchner. They have given little confidence to Argentine investors let alone the foreign ones. They have also conflicted with historical friendly neighbors such as Uruguay and have snubbed the likes of the Queen of Holland. Néstor even managed to get into a disagreement with the Holy See. 

That being said, many of the investors of the 1990s were inebriated by the “reform” policies of the “Washington Consensus” and the wave of free market verbiage that swept the Region. They neglected to look at past trends and understand the cyclical economic and political cycles that historically affected Latin America and bought high during one of the biggest – and atypical – booms in recent decades. Many of the privatizations were flawed and private monopolies replaced those previously owned by the state.

Based on this recent record most investors have taken an arm’s length – or even farther – approach to Argentina. Despite the bevy of problems facing Argentina, I believe that now is an opportune moment to examine future investment acquisitions.

The Kirchner’s power base has been severely weakened as a result of their many fights with virtually all sectors of Argentina society. Cristina’s calamitous fight with the agricultural sector – key for future Argentine economic development and food production – revealed the chink in Kirchner’s armor. Most of the population, including Cristina’s own Vice President, supported the rural producers. The June 28 congressional elections, moved up from their original October 25 date, were a clear repudiation of Kirchnerism. Presidential elections will not be held until October 2011 and the Kirchners can still implement questionable policies such as the broadcasting bill. Regardless, the opposition will control the congress on December 10 and should restrain more populist initiatives of the government. The major players eyeing the presidency agree that Argentina has no choice but to implement clear, transparent and pro-growth policies and that the rules of the game need to be established, known by all and respected. They know that there is no other option but reform.

Argentines themselves have scooped up many investments that were privatized and then sold at bargain prices. They now have skin in the game and will push hard for the new rules. Argentine owners have local knowledge and connections but lack capital and the “security” of an international investment partner. This new marriage whether it is out of love or convenience is likely to be profitable for both parties. Argentina is a rich country, with much potential. Its 40 million-person population is well educated and a significant percentage is university educated and speaks English well.

Now is the time to begin to take a new look at Argentina and to identify investments with a strong upside potential. Investors who take an open-minded yet realistic approach will profit. 

This author consults with leading institutions through GLG