IT Landscape in Argentina

Former President Carlos Menem, who assumed office in 1989, entered his presidency having to remedy the huge external debts, inflation that was averaging 200% monthly, and domestic output that was falling (1). To combat this economic crisis, the Menem Administration embarked on a path of trade liberalization, deregulation, and privatization. In 1991, it implemented radical monetary reforms which pegged the peso to the US dollar and limited the growth in the monetary base by law to the growth in reserves. This quickly resolved the matter of hyper-inflation. In subsequent years, Inflation dramatically fell. However, there was little time for rejoicing when because in 1995 the Mexican peso crisis produced capital flight, the loss of banking system deposits, and a severe, but short, recession. In 1997, real GDP growth recovered strongly, reaching 8% (2).

In 1998, financial crisis hit Argentina yet again. Russia's economic crisis had a domino effect which generated investor anxiety in Brazil. Brazil's devaluation of the Real produced the highest domestic interest rates in more than three years in Argentina, halving the growth rate of the economy. Conditions only worsened in 1999 with GDP falling by 3%.

President Fernando De la Rua, who took office in December 1999, sponsored tax increases and spending cuts to reduce the deficit, which had ballooned to 2.5% of GDP in 1999. Growth in 2000 was a disappointing 0.8%, as both domestic and foreign investors remained skeptical of the government's ability to pay debts and maintain its fixed exchange rate with the US dollar (3).

Today Argentina's debt crisis, described as the largest and perhaps the most painfully prolonged in history, appears to be entering a critical phase. Economy Minister Domingo Cavallo indicated that the government would call for broad renegotiation of its $132 billion debt and could guarantee full repayment.

Argentina's debt crisis is unlike any other in recent history. Nations such as Russia and Brazil quickly reached their breaking points but managed to renegotiate their loan terms and survived an economic crash. However, Argentina has been avoiding financial collapse for almost a year now. Unemployment and poverty is soaring and signs of economic improvement in the near future are doubtful.

Foreign Investment

Argentina welcomes foreign direct investment, which is an essential element of the country’s economic growth strategy. Argentina’s climate for foreign investment is among the most favorable in Latin America. The Administration of President De la Rua encourages foreign investment through national treatment under a free foreign exchange and capital movement regime without wage or price controls. Foreign investors, including many U.S. corporations, operate in major economic sectors.

Foreign firms are among the most prominent participants in Argentina’s ambitious privatization program, which includes oil, gas, electric power, telecommunications, transport, water and other service sectors (4). Foreign firms may also participate in publicly financed research and development programs on a national treatment basis.

Outlined below are four facts available for those interested in investing capital in Argentina.

Foreign investors need not register in Argentina nor obtain permission to invest.
Complete foreign ownership of local companies is permitted.
Investment in shares on the local stock exchange requires no government approval
Investors are free to enter Argentina through merger, acquisition, or joint venture.

[Decree 1853, of September 8, 1993, governs foreign investment in Argentina. Foreign companies may invest in Argentina without registration or prior government approval on the same terms as investors domiciled in Argentina.] (5).

Businesses in Argentina, foreign and domestic, continue to face problems involving inconsistent application of regulations, fraud and corruption. U.S. businesses have identified corruption in Argentina as a significant problem for trade and investment. The situation for foreign investors has nevertheless improved dramatically in Argentina since 1989. A more efficient, transparent judicial system would improve the environment for all long-term investors in Argentina.

In recent years, Argentine firms have increased investment abroad –particularly in Brazil, Paraguay and Uruguay. Still, Argentina remains a large net recipient of foreign direct investment. Foreign investment in Argentina has grown rapidly since 1989 (6). Other than the United States, Chile, Spain, Italy, France, Canada, and Japan are important sources of investment capital. Construction, food processing, telecommunications, mining, energy, transportation, and motor vehicle production are of great interest to foreign investors. Important Telecom foreign investors in Argentina include:

	Bell South
	CDSI
	CMS
	Enron (no longer)
	France Telecom
	GTE
	Hewlett Packard
	IBM
	Lockheed-Martin
	Motorola
	TCI
	Telefonica of Spain
	3M
	United Technologies
	Xerox (7)

U.S. Foreign Investments in Argentina

The U.S. is Argentina’s largest trade and investment partner. U.S. lifestyle and consumption habits are increasingly influential. U.S. products have a strong reputation for quality and technological innovation in Argentina. U.S. direct investment in Argentina is concentrated in telecommunications, petroleum and gas, electric energy, financial services, chemicals, food processing, and vehicle manufacturing. The stock of U.S. direct foreign investment in Argentina approached $16 billion at the end of 1999. According to embassy estimates, Canadian, European, and Chilean firms also have invested significant amounts. Spanish companies have entered the Argentine market aggressively, with major investments in the petroleum and gas sector, as well as the telcommunications and banking sectors (8).

Bilateral Agreements

Several bilateral agreements play an important role in promoting U.S. private investment. Argentina has an Overseas Private Investment Corporation (OPIC) agreement and an active program with the U.S. Export-Import Bank. Under the 1994 U.S.-Argentina Bilateral Investment Treaty, U.S. investors enjoy national treatment in all sectors except shipbuilding, fishing, nuclear power generation and uranium production. The treaty allows for international arbitration of investment disputes. The U.S.-Argentina agreement for reciprocal promotion and protection of investments entered into force in October 1994 (9).