Argentina Comes to Market:
New Investment Opportunities
Last week saw Argentina’s return to international capital markets with its well-oversubscribed $16.5 billion bond offering that generated $70 billion of offers. The three-, five-, and ten-year tranches all tightened their yields in response to their strong demand; the only outlier was the thirty-year tranche, which traded slightly under issue price, highlighting EM buyer skepticism that Argentina can tame its macro-economic demons over the long-term past new Pres. Macri’s business-friendly reforms.
Last week, the New York HQ of Council of the Americas hosted a real Argentine business branding exercise, timed to coincide with the bond offering. Everyone from Argentina’s Foreign Minister Susanna Malcorra (who used to be UN Sec Gen Ban Ki-Moon’s chief of staff and is now rumored to be nominated to take his place when his UN term ends) and Argentina’s Ambassador to the US Martín Lousteau and a whole bevy of business consultants were on hand to promote FDI into Argentina. Macri’s filling his Cabinet with talent from the private sector, and his rapid economic reforms away from kirchnerismo have certainly inspired a lot of confidence in the international investment community, which is watching closely for their moment to swoop and buy assets at the right moment: when risk is low but before prices spike.
The US is the biggest investor in Argentina, but it has strong trade relationships with the rest of the G20, to which it belongs, too. The main advantages cited in the presentation were:
- Solid macroeconomics. This is a dubious claim: Argentina still has high inflation and an unbalanced budget with which to contend. Also, Macri must negotiate with political opposition that still controls the parliament, though he is giving every indication of being an agile coalition-builder, particularly after gaining the crucial support of governors for his negotiations with the holdout bondholders.
- Scalability of labor talent. Argentina does have a highly-educated and multi-lingual workforce that is cheaper than in many other countries with an equally-skilled labor force. The high educational level of its work force enables Argentines to offer complex services with higher added value than many other places in the continent.
- Security. Argentina is not racked by the violence or homicide rates of many other countries in Latin America. So that is another low cost for business.
- Good IP protection: a good legal framework enforced by an increasingly strong and independent judiciary.
- A good tax structure that is both half that of Brazil’s and equal across the country under Argentina’s centralized system.
- It is in the same time zone as the Eastern US, making it very easy to do business between the two countries.
- Argentina has a competitive advantage in IT. Presenters cited its three Nobel Prizes in science (two in medicine and one in chemistry) and its satellites, one of which it is about to privatize.
- Strong support for entrepreneurship: “4 out of 5 of Latin America’s unicorns are in Buenos Aires”
Foreign Minister Malcorra emphasized that it is time to trust Argentina because the Macri administration is already delivering on its promises and “the Argentine people want to walk into the future with seriousness and discipline.”
Let’s hope so.
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Originally published at asymmetrica.net on April 27, 2016.