The Congress of Argentina has successfully been able to pass a significant set of reforms championed by the President, Javier Milei, which have focused heavily on improving the country's receptiveness and openness to foreign investment and shifting the domestic climate toward a more pro-business standing. Amongst other items, it concerns itself with the restructuring of the public sector and directing the liberalisation of businesses which have been accustomed over history to excessive state intervention.1 The Bill itself – known authentically as the Ley de Bases, or 'Framework Law' – passed on 28 June 2024, with a 147 to 107 final tally, demonstrating a legislative willingness to support such initiatives.2
A substantial effort has been placed in order to attract
investment from the energy sector in particular, given the
incumbent advantage Argentina has in this regard with respect to
the abundance of natural resources it possesses and the increased
pace in which projects related to the sector are advancing –
such as those in Vaca Muerta, containing one of the largest
deposits of shale oil and gas in the world.3
One of the most noteworthy aspects of the Bill is the investment
promotion regime it contains, known as RIGI –
authentically named Regimen de Incentivo para Grandes
Inversiones, or 'Incentive Regime for Large
Investments'. RIGI targets those projects with a required
outlay of US$200-900M, and more specifically 'grants certain
tax benefits and exchange control exceptions for 30 years to large
projects carried out by special purpose vehicles and enforceable by
international arbitration'.4 The category of
industries that RIGI is set to target is dramatically broad, and is
perhaps a sign of the expansiveness and boldness with which the
political force in Argentina is looking to supercharge the economy.
These sectors include agribusiness, infrastructure, forestry,
mining, oil and gas, energy, and technology.
Importantly, the predominant purpose of this regime is to provide
investors with predictability, stability, legal certainty, and
protection of acquired rights in tax, customs, and foreign exchange
matters.5 RIGI is held to be open for a two-year period
from inception, and to those entities which are classed as SPVs, or
Special Purpose Vehicles. In order to fulfil the relevant criteria
within the documentation and obtain the approval of the Application
Authority, the primary objective is for the project to qualify as a
'large investment' – this broadly involves investing
in one of the aforementioned sectors, with a sizeable amount
(greater than US$200M), for the long term. In addition, and given
the broader impetus of Argentina to become a more dominant economic
force on the global stage, it would be useful to note that there
are specific considerations (enjoyment of incentives under RIGI)
offered to those projects that would have the consequence of
positioning the country as a long-term supplier in those markets in
which it does not yet have standing.6
Specific financial benefits include a 25% income tax rate,
inflation adjustments, and tax credits. In addition, there is a
graduated increase in percentage terms with which export
collections become exempted from having to be entered and settled
in the local Official Foreign Exchange Market, and can instead be
freely available.
The prospect of increased profitability comes to the forefront,
given that reduced tax burdens allow foreign investors to retain a
larger portion of their earnings. This also serves to increase the
attractiveness of Argentina as a destination for FDI and provides
those investors with a competitive edge as they compete on the
global marketplace. Provisions to do with offsetable losses also
directly address one of the underlying concerns that investors may
have when investing in a country undergoing change like Argentina,
in that it reduces the financial risk associated with new
investments, and especially in projects and sectors to do with
infrastructure and energy.7
Stability, and ensuring confidence within the investment regime is
another critical issue that this legislation seeks to address. The
30-year period in itself goes a long way toward building that,
although it is not the time alone that brings assurance –
there is a base level guarantee associated with the financial
aspects involved with the regime, in that future legislative
changes (should they be comparatively restrictive) will not have an
impact on the incentives provided for within the regime the foreign
investors had initially invested in.
For instance, this would apply to items such as taxes, or customs and foreign exchange regulations and in effect helps insulate foreign investors from what they may view as regulatory or political risk that would otherwise have discouraged them.8 Critically, this is held as being one of the most beneficial aspects of RIGI, given that in countries like Argentina, tax policy decisions are predicated upon a requirement for steady increases in revenue – budget shortfalls thus lead to a 'raid' on benefits afforded to the private sector, such as those offered within this regime.9
Again, this is perhaps another sign that economic considerations are changing under the presidency of Milei, to the benefit of capital allocators across the world. Understandably, in sum, this provides an impactful opportunity for investors to pour capital into the country, with those entities being able to benefit from the incentives on offer with the knowledge that there is not only a longer-term plan in place but that there is legislative appetite for further progress in this matter.
There are similarities to be observed with the structural
reforms and changes that Argentina went through in the 1990s, where
there was rampant hyperinflation and severe economic
instability.10 The Argentina of today is also undergoing
some financial challenges, with high inflation, a substantial debt
burden and a tough macroeconomic environment. While privatisation
was a key focus in the 1990s, the privatisation measures within
RIGI are designed to be more selective, due predominantly to the
need to gain legislative backing. Additionally, while the 1990s
gave more attention to the broader picture of economic
liberalisation, RIGI in 2024 offers a more specific incentive in
order to attract foreign capital. In essence, RIGI is tailor made
to the situation Argentina finds itself in today, by providing a
more favourable and flexible investment environment.
In conclusion, the Ley de Bases and the RIGI within it are a strong
step forward for Argentina in its quest to turn a chapter within
its economic playbook, and strategically positions the country as a
prime destination for foreign direct investment by offering a
robust framework of incentives. The inclusion of strong pull
factors to attract outside capital and a genuine willingness to
engage with and nurture industries and sectors critical to the
wellbeing of Argentina bode well for its future.
Footnotes
1. https://kluwertaxblog.com/2024/05/06/argentine-large-investments-incentive-program-a-primer/
2. https://www.bloomberg.com/news/articles/2024-06-28/milei-wins-approval-for-landmark-economic-reform-in-argentina
3. https://www.eia.gov/analysis/studies/worldshalegas/pdf/fullreport.pdf
4. https://www.bnamericas.com/en/analysis/mileis-investment-regime-proposal-divides-argentine-mining-players
5. https://www.ey.com/en_gl/tax-alerts/argentine-executive-branch-sent-bill-to-congress-that-includes-n
6. https://kluwertaxblog.com/2024/05/06/argentine-large-investments-incentive-program-a-primer/
7. https://www.ey.com/en_gl/tax-alerts/argentine-executive-branch-sent-bill-to-congress-that-includes-n
8. https://www.ey.com/en_gl/tax-alerts/argentine-executive-branch-sent-bill-to-congress-that-includes-n
9. https://kluwertaxblog.com/2024/05/06/argentine-large-investments-incentive-program-a-primer/
10. https://www.imf.org/external/pubs/ft/fandd/2000/03/pou.htm
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