Argentina

major macro economic indicators

(e): Estimate (f): Forecast

RISK ASSESSMENT

Activity to sharply lose momentum in 2022

In 2022, activity will strongly decelerate, despite being underpinned by the positive statistical carry-over of the strong economic performance in Q4 2021. Household consumption (68% of GDP) is likely to register a shy rise, driven by a relatively lower unemployment rate and by social transfers designed to smoothen the negative impact of skyrocketing consumer prices. In fact, the sticky high inflation (historically fuelled by monetary financing of the fiscal deficit) was aggravated by the war in Ukraine and related sanctions (increasing global food and energy prices), and rising import restrictions (prompting goods shortage risks). Meanwhile, private investments (20% of GDP) should contract. This outlook is propelled by investors' growing caution towards the fragile economic outlook (amid increasing capital controls and the escalating gap between the official and parallel exchange rate markets). In fact, the difference between the two markets widened to 147% in July 2022 (from roughly 100% in January 2022). Moreover, public investments should remain subdued due to fiscal constraints. Finally, exports (21% of GDP) will be supported by the tailwinds of still high agricultural and mineral commodity prices that favour Argentina´s foreign sales. Nonetheless, the drought and the strong shock in the global agricultural input markets (fertilizers, seeds, etc.) should reduce producer margins.

External account surplus to narrow and fiscal consolidation unlikely to gain momentum

The current account surplus will shrink in 2022, notably hampered by a lower trade surplus (3.8% of GDP in 2021) and by the widening of the services deficit (0.7% of GDP in 2021), while the primary income (i.e. investment revenues) deficit (2% of GDP) should not vary meaningfully. Regarding the former, while exports should increase, favoured by still strong agricultural commodity prices, some exporters may hoard production fearing a possible exchange rate devaluation. In order to discourage such actions, the central bank implemented new measures in July 2022, with the aim to stimulate farmers to sell their soybean abroad. Meanwhile, imports growth is set to outpace foreign sales. This is due in particular to some anticipation by importers (fearing a possible stronger currency depreciation), and by the rising energy deficit. In fact, with the rise in energy commodity prices since the beginning of the war in Ukraine, the sector´s trade imbalance reached USD 3.1 billion in the 12 months to June, up 417% compared with December 2021. Regarding services, the wider deficit is mainly explained by higher freight costs and net travel outflows, with Argentines resuming overseas trips. On the financing side, FDI will remain at low level due to economic and political uncertainties. In addition, although foreign currency reserves stood at USD 39.8 billion in July 2022, net reserves (deducting the central bank’s foreign borrowing from BIS, China and dollar reserve requirements) were estimated at only USD 3.5 billion (ensuring an import coverage of less than one month). Under these conditions, and to meet the challenging hard currency accumulation goal established by the IMF, the central bank has gradually tightened the rules for accessing the exchange rate market for import payment since March 2022.
 
On the fiscal front, the consolidation agreed upon with the IMF for 2022 seems difficult to accomplish. In H1 2022, public expenditure increased twice as fast as revenues, pulled by higher social transfers and subsidies (taking the 12-month cumulative primary deficit - i.e. excluding interests on debt - to an estimated 3.3% of GDP at the end of Q2 2022). Overall, the weak fiscal framework and the distrust in economic policies have cast doubt about the sustainability of the local currency debt (increasing the rollover risk; local currency debt represents 31% of total public debt). Inflation-linked debt, makes up the majority of the local obligations, and is becoming a growing burden as the index accelerates.
 

Political environment weakened by lack of consensus within the ruling coalition

The economic consequences of the COVID-19 pandemic and then the war in Ukraine have taken a toll on the popularity of President Alberto Fernández’ - of the Peronist Frente de Todos (FDT) coalition. In front of the economic and social side effects of the crises, the divergences between the moderate stance of the government and the more hardliner and interventionist wing linked to Vice-President Cristina Kirchner have gained momentum. In fact, the latter group did not agree with the conditions attached to the USD 44.5 billion Extended Fund Facility reached with IMF in March 2022. The new arrangement overlapped and restructured the debt contracted under the 2018 USD 57 billion Stand-By Agreement (with USD 44 billion disbursed) signed during the mandate of former right-wing president Mauricio Macri. Generally, it requires policymakers to curb the primary fiscal deficit (from 3% of GDP in 2021 to 2.5% in 2022, 1.9% in 2023 and 0.9% in 2024) and reduce the monetization of the fiscal deficit (to 1% of GDP in 2022, 0.6% in 2023 and 0% in 2024, from 4.7% in 2021). Moreover, it also requires the gradual phase out of energy subsidies (estimated at 2.4% of GDP in 2021), positive real interest rates, and an increase in reserves of USD 5.8 billion for this year and a cumulative increase of USD 15 billion by the end of 2024. Nonetheless, the government is struggling to meet the targets, as the economic outlook has become bleaker. Furthermore, in early July 2022, the architect of the current deal with IMF, the Minister of Economy Martín Guzmán resigned due to divergences in the ruling coalition. He was replaced by Silvina Batakis, who is seen as a technocrat. However, after less than a month in the role, she was also replaced by Sergio Massa. He will head a super-ministry, with more powers in the economic area, which will incorporate the Mass of Production and Agriculture. Massa was a former chief of staff of the government of Cristina Kirchner between 2008 and 2009.

Last updated: September 2022

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 that facilitates a fast track legal proceeding.
For international commercial transactions, the most common payment instrument is Bank transfer via SWIFT. Since December 2019, the new government has implemented restrictions on foreign exchange and fund transfers from Argentina. Payments to related companies abroad are not allowed.

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.