Milei touts US$50 billion from investors eyeing 30-year loopholes

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Argentina would seem to have it all — abundant natural resources, legions of well-educated workers. But it struggles to attract investors because its politicians have a habit of changing the rules on a whim, favouring the state over private enterprise.

President Javier Milei is on a crusade to resolve that persistent grievance by offering big companies a way to bulletproof their capital commitments. There are signs it could work.

Energy and mining companies with potential to supercharge growth in the nation, which has endured six recessions in the past decade alone, are starting to file applications to be granted sweeping tax, currency and customs benefits enshrined in law for 30 years.

Milei — a libertarian who stormed to power a year ago — says companies will pledge more than US$50 billion under the incentives package, known by its Spanish acronym ‘RIGI.’ So far, six proposals have been submitted for roughly 15 percent of that.

For the trickle to become a flood, overseas investors are desperate for Milei to remove Argentina’s notorious currency controls, which would unify dual exchange rates. That’s because RIGI largely requires them to turn dollar capital into pesos at a government-controlled rate, which is stronger than one they can get on financial markets and so provides them fewer local funds.

Much of the stage has therefore been left to national companies. “Extinguishing the exchange-rate gap is a prerequisite to RIGI gathering steam,” said Sergio Caveggia, a partner at the Buenos Aires offices of international tax consultancy Ernst & Young LLP, who is working on RIGI applications.

The incentives package was implemented at the end of August after emerging as a marquee section of Milei’s signature legislation to deregulate Argentina’s economy. And by extending its terms until far into the future, the president is trying to guarantee that his free-market vision for business withstands any move by voters to usher back in statist policies.

‘Rules of play’

It’s a ticket, in theory at least, to the consistent “rules of play” that company executives so often plead for. Critics, however, warn that RIGI risks writing a new chapter of Latin America’s so-called resource curse — where nations have allowed their natural riches to be exploited by corporations, only to see few of the profits trickle down.

“Even astronomical returns can’t combat the risk perception in Argentina; RIGI has arrived on the scene to resolve that,” said Juan Procaccini, a lead consultant at the local branch of PriceWaterhouseCoopers LLP, who spearheaded Argentina’s last major attempt to attract foreign investment almost a decade ago under then-president Mauricio Macri.

Procaccini was speaking at a recent gathering of lawyers and consultants in downtown Buenos Aires to discuss RIGI, as they race to compile paperwork for clients seeking inclusion in the programme. “The level of interest has wowed us,” Andrea Oteiza, head of deal advisory at KPMG Argentina, said during a panel at the event.

Under the framework’s rules, companies have until August 2026 to apply and must disburse at least 40 percent of the capital expenditure — the floor for any single project is US$200 million — within two years of getting the green light.

That would mean a lot of fresh money in Argentina, where investments in recent times have been merely enough to amortise existing assets, according to Fausto Spotorno, director of economic research at Buenos Aires consulting firm Orlando J. Ferreres y Asociados. But he advised caution over Milei’s US$50-billion headline figure: “Those pledges and how real investments pan out can be like apples and oranges,” Spotorno said.

Milei has appointed ex-Merrill Lynch investment banking veteran Daniel González as his RIGI czar, responsible for deciding with a committee of advisers whether a project makes the cut. González has plenty of experience in the energy space that’s at the front of the line, having served for years as an executive at Argentina’s biggest oil producer, state-run YPF SA.

Stumbling blocks

Several energy and mining companies have already applied, and a handful of other industries — tech, forestry, steel and tourism — are eligible.

YPF led a proposal by drillers for a US$2.5-billion pipeline and port to export shale oil. Pan American Energy Group and a global partner, Golar LNG Ltd, have also sought RIGI benefits for an even costlier venture to liquefy and ship natural gas. Meanwhile, TGS SA and Pampa Energia SA are weighing projects to pipe Argentina’s vast deposits of the transition fuel and process it into other commodities.

In mining, the promise of foreign investment without the helping hand of local associates is clearer, with South Korea’s Posco Holdings Inc and an Australian junior filing proposals to develop lithium. Canada’s McEwen Copper Inc is also preparing a submission.

The upsides of the incentive programme are unmistakable in a troublesome investor jurisdiction like Argentina. “RIGI is an attempt to create a bubble of normalcy in a context where there are still stumbling blocks,” said Marcelo García, Americas director at New York-based consultancy Horizon Engage.

Provisions to circumvent many of Argentina’s foreign-exchange regulations are perhaps the biggest lure. After just a few years, companies can use hard-currency revenue from exports as they wish, instead of having to swap it for pesos at the Central Bank.

Lower taxation is another plus. Tariffs will be scrapped on materials that companies import to build plants and — addressing a major gripe in the Argentine business world — they will be allowed to export tariff-free. There’s also a loophole for value-added tax that will slash costs.

Lastly, RIGI establishes rights for companies to short-circuit the Argentine legal system and go straight to international arbitration courts should any future government renege on the contracts.

To be sure, Argentina has been here before. Long-standing tax breaks for miners have had only patchy success. And previous administrations peppered the oil industry with incentives, only for drillers to find them tough to collect on.

The Rohatyn Group, a New York-based asset management firm that’s planning a new Argentine infrastructure fund, said it all comes back to a blanket removal of currency controls.

“I hope they get lifted sooner rather than later,” Roberto Chute, who heads Rohatyn’s private equity investments in Latin America, said on a panel. “It’s a tough bet to bring US$200 million into Argentina when there are still doubts over the macro.”

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