Economic Analysis
Argentina

Argentina

Population 44.6 million
GDP per capita 11,658 US$
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Synthesis

major macro economic indicators

  2017 2018 2019 (e) 2020 (f)
GDP growth (%) 2.7 -2.5 -3.0 -7.5
Inflation (yearly average, %) 25.7 34.3 54.5 43.0
Budget balance (% GDP) -5.9 -5.2 -4.1 -4.3
Current account balance (% GDP) -4.8 -5.3 -0.8 0.5
Public debt (% GDP) 59.0 89.4 103.0 102.0

 

(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

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

Economy in a third recession year

GDP dropped a second year in a row in 2019, as high inflation and prohibitive interest rates linked to the monetary crisis triggered in April 2018 were still present, prevailing over the robust rebound in agriculture (following the 2018 drought). Indeed, the crisis gained further momentum after the presidential election primary of August 2019, when the strong showing by the now President Fernandez unleashed a new round of Peso (ARS) selloff. The economy seems destined to remain in recession in 2020. The uncertainty regarding the economic policies of the newly arrived government, and to how it will handle the unsustainable public debt, should imply a still low level of private investments (notably for the moribund construction). Moreover, the fiscal deficit will limit policymakers’ capacity to implement a desirable expansionary policy. Besides that, the skyrocketing inflation is not likely to ease significantly and, thus, will continue to erode real income (causing knock on effects on household consumption). Finally, net foreign trade is likely to contribute positively to GDP, as imports should continue to drop and exports to benefit from a relatively higher economic activity in Brazil. The risks to the economic scenario are various, with the sensitive fiscal situation and the possible failure in renegotiating public debt possibly triggering new pressures on the exchange rate which would affect the economy through higher inflation and possibly a tightening of capital controls.

 

Recovering current account contrasts with the sensitive fiscal situation

The current account deficit registered a strong narrowing in 2019. It was mainly driven by a rebound in trade balance, from a large deficit of 2.3% of GDP to a surplus estimated at 2.9% of GDP (thanks to collapsing imports and recovering agro exports). Moreover, the services deficit (of roughly 2.1% of GDP) also registered an improvement (mainly driven by a narrowing of the travel imbalance). Alongside, the lower deficit also started to be fully covered again by foreign direct investments (estimated at 1.3% of GDP in 2019). Overall, the current account is likely to become slightly positive in 2020, as the economy is to remain in recession (thus implying low import level) and export is likely to continue climbing as a result of expected good crops this year and higher economic momentum in Brazil.

However, the fiscal scenario is much more challenging. Although the previous government was able to somewhat reduce the budget deficit in the last two years (a condition of the IMF loan deal), a lot still needs to be done. As the public debt is majorly in foreign currency (roughly 81%), it is highly sensitive to strong exchange rate movements. Its amortization will be very high in the upcoming years (estimated at 16% of GDP in 2020 only). In December 2019, the new government of president Fernandez unilaterally postponed until August 2020 the payment of USD 9.1 billion of short term treasury bills issued under local legislation. He also announced his intention to restructure long bonds term issued under local and foreign law in early 2020. Alongside, the more interventionist and fiscal expansionary approach that is expected could make the negotiations with the IMF difficult. Finally yet importantly, taking into account the hard debt payment schedule ahead, capital controls which came into force since September 1, 2019, and were tightened after the presidential elections, are not likely to be eased in the short term and could even be strengthened. That is because of the strong slump in foreign exchange reserves in 2019 (net reserves give import coverage of roughly three months of imports), which was a consequence of the bank run alongside the primary election and of the reserves that were burnt by the central bank with the aim to control the ARS sell-off. Two weeks in power the new government got congressional approval for his emergency plan, which includes measures to increase tax revenue, a 30% tax on hard currency purchases and higher taxes on agricultural exports. It also gives the government increased regulatory powers in areas such as service rates public and pensions.

 

Peronists return to power

The harsh economic challenges prevented President Macri (2015/2019), from the centre-right “Together for Change” coalition, from achieving re-election. The left-wing “Everyone’s Front” coalition candidate Alberto Fernandez and his running partner, the former President Cristina Fernandez de Kirchner (2007/2015), won the presidential elections held on October 27, 2019. Mr Fernandez, a lawyer and politician, was the Chief of the Cabinet of Ministers during Néstor Kirchner’s presidency (2003/2007) and the early months of Cristina Fernández de Kirchner’s mandate (he left after falling out with her). He took office on December 10, 2019 for a four-year term. The government will count with a simple majority in the Senate (with 39 seats out of 72), while the coalition “Juntos por el cambio”, will hold 29 seats (enough to block constitutional reforms). In addition, in the Lower House, the latter will hold 116 seats out of 257, while the coalition of Fernandez will count on its 120 seats.

 

Last update: February 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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