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Capital Markets

Argentina: Rules keep Argentina tied to the ground

Tighter rules on imports and capital outflows; Potential export growth being stymied

Falling commodity prices, a likely poor harvest and rising imports are threatening Argentina’s trade surplus. In 2010 the country had a surplus of $10 billion but as this has come under pressure the government has implemented new regulations on imports.

From February 1 all registered importing companies have been required to fill in the anticipated sworn declaration of imports (DJAI) application. "The move seems to be part of new measures to achieve greater control on imports and safeguard Argentina’s trade surplus," says Shan Nair, co-founder of tax and accounting advisory firm Nair & Co. The rules have already led an Argentina-based Fiat factory to suspend production because of delays to the importation of parts.

Import regulations were already onerous, requiring companies to match exports to imports. For example on October 13 2011 BMW Argentina was forced into agreeing a programme with the Argentine government to compensate its imports in absolute numbers with exports of products from Argentina. A company official confirms: "BMW Argentina’s export plan includes Argentine leather and automotive parts as well as processed agro-industrial commodities, such as broken rice or wheat."

The government has also tightened rules on capital outflows. Businesses are increasingly concerned about their impact on foreign-currency transactions. Meanwhile the central bank has limited the size of banks’ dividends by requiring Argentine banks to hold an extra 75% of their minimum capital requirements before dividend payments, up from 30%. The central bank said it was to ensure that the banks are compliant with Basle III.

There are even rumours about the nationalization of oil company YPF that have been strong enough to have led Antonio Brufau, chief executive of Spanish oil company Repsol, which owns 57% of the Argentine oil producer, to make a diplomatic mission to Buenos Aires at the beginning of February.

"The government is as involved in the micro-management of the economy as I have ever seen and I have been going there for 20 years," says Jim Craige, partner at Stone Harbor Investments, who has just visited the country and met government officials. "They have forced companies to repatriate export receipts, clamped down on financial transactions – even cash transactions of a couple of hundred of dollars need to be accompanied with tax receipts. They are using administrative measures to try to plug the holes in the current account – it’s helped stabilize reserve loss but it is certainly not a very good way of managing things."

The economy is due to grow by 4% this year but some potential investors lament that this growth is being misread domestically as good performance when potential growth is much higher.

"This is a country that has low debt, a good workforce and is producing primarily commodities, which is what the rest of the world wants more of right now," says Craige. "It ought to be flying. You could write a playbook that would take it to investment grade in a very short length of time but they won’t do it. They want to manage everything. That’s Argentina."

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