Index trend
Previous quarterly editions
Expropriation Risk: 59 60 59 58 ▼Political Violence Risk:48 48 66 66 ►Terrorism Risk:23 23 23 23 ►Exchange Transfer and Trade Sanction Risk: 73 73 45 45 ►Sovereign Default Risk:74 74 65 65 ►
Overall Risk Temperature: 58 (Significant) TREND ►
Special topic: Gray zone aggression
Degree to which the country relies on outbound gray zone action to achieve its strategic objectives1 = Not at all5 = Gray zone action is a core tactic
1
Impact of inbound gray zone attacks on the country1 = Negligible impact5 = Significant impact on economic growth and/or political stability
Argentina is not involved in any of the kind of territorial, maritime or security disputes that normally prompt gray zone aggression, either as target or aggressor. The only recent case of potential military/security tension arose when an Argentine naval base installed a photovoltaic panel that Chile claimed was located three meters inside its border, apparently “in error.” The surveillance post itself had been installed in April. The panel was rapidly relocated following a complaint from Chile.
While arguably not constituting gray zone aggression of the type defined here, China has on various occasions claimed phytosanitary reasons for refusing to accept Argentine shipments of soybeans, usually in order to press for a price reduction or other economic measures beneficial to China. The threat to halt soya imports from Argentina carries weight in particular because Argentine soya products are all genetically modified and few alternative markets are open to them.
President Javier Milei has frequently made use of social media to attack governments he views as ideologically antagonistic, notably Venezuela, Brazil and Spain. In particular, he has used speeches and the social media platform X to criticize the Spanish prime minister and his wife (prompting the withdrawal of the Spanish ambassador) and to criticize Brazilian President Luiz Inacio Lula da Silva and express support for his far-right predecessor, Jair Bolsonaro.
Notably, Milei has promised his support to X owner Elon Musk in his dispute over X’s suspension in Brazil by Supreme Court Justice Alexandre de Moraes.
Milei’s main digital strategist for his 2023 presidential campaign last year (formerly an advisor to Bolsonaro) has been accused by Brazilian investigators of involvement in organizing the January 2023 Brasilia riots that apparently sought to overturn the Lula presidency. However, Milei’s vitriolic rhetoric has little real impact on its targets or on public opinion in their home countries.
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Expropriation risk to foreign investors per se is minimal at present, given the number of companies that have already exited Argentina, the lack of government funds and the current government’s hope of encouraging foreign investment. Indeed, the current government is focusing on privatizing state companies (albeit with limited success thus far and having reduced the number of companies up for privatization from 40 to only three) rather than taking on new obligations.
However, last year’s U.S. District Court ruling awarding some $16 billion to minority investors in YPF following the 2012 expropriation of 51% of the company is unlikely to be complied with, raising the likelihood of new efforts to embargo Argentine state properties overseas and complicating any effort to improve investor sentiment.
Subsequent events suggest that the value of YPF shares could be further deteriorated, in essence representing a virtual expropriation for its private shareholders. The company’s first-half accounts included a year-on-year increase of over 400% in its advertising and media spending, to ARS 33 billion (over $35 million). The sharp rise coincides with the first six months of Milei's government, when a close associate of his key advisor, Santiago Caputo, was designated as YPF's vice president in charge of advertising.
This also coincides with the government's announced decision to eliminate media and advertising spending from the federal budget, which in practice appears to have translated to using state companies such as YPF and flag carrier Aerolineas Argentinas to fund such costs. Plaintiffs seeking to identify assets to be seized in order to comply with the U.S. District Court judgment aim to demonstrate that such public companies are in practice “alter egos” of the state, an argument seemingly substantiated by YPF's media spending. As such, YPF’s overseas assets could risk seizure given the dearth of specifically state-owned assets abroad that could be subject to seizure.
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Protests have continued since Milei took office despite the introduction of draconian security measures to curb demonstrations. Protests have as yet remained relatively peaceful, despite clashes with police outside Congress as the government’s “base law” was debated in June. However, they are likely to increase in coming months as economic conditions deteriorate and controversies over economic policies deepen.
Overall, personal security and the risk of violent crime will remain a key concern, notably in connection with a sharp rise in violence related to drug trafficking in Rosario, Argentina’s second-largest city.
There has been no major terrorist attack in Buenos Aires since 1994, and the risk of terrorism in Argentina remains low today. However, in August the government said it was taking very seriously warnings by Israel that Iran could be planning attacks on countries considered “friends of Israel” — notably including Argentina. Subsequently, seven people were arrested in Mendoza province for allegedly belonging to a terrorist cell planning attacks on Jewish targets there, although the circumstances appeared confused, and the cell was allegedly linked to (mutually antagonistic) groups in Afghanistan, not Iran.
Continued heightened tensions surrounding the Israel-Hamas war and possible Iranian retaliations for Israeli strikes, together with Argentina’s porous borders and large Jewish and Arab communities, suggest that an attack cannot be ruled out.
Central bank reserves rose after Milei came to office, reaching nearly $28.2 billion as of mid-March. However, the central bank has subsequently been forced to intervene in exchange markets to try to reduce the gap between the official and parallel exchange rates; this, together with a sharp decline in the dollars entering the economy as a result of agricultural exports in the early part of the year, has seen reserves fall into the red again, and net reserves are forecast to be negative by about $10 billion by year-end.
Moreover, exporters are estimated to be retaining some $15 billion in the hope that a devaluation will be implemented, and the insistence on avoiding a new devaluation in order to prevent a new spike in inflation will discourage sales of export dollars to the central bank. At the same time, the government’s debts to importers remain high, and likely economic contraction this year will raise doubts about any sustained increase in reserves.
Following a December devaluation, the official peso exchange rate is now around 994 pesos to the U.S. dollar, while the so-called blue dollar is currently around 1,280 pesos to the U.S. dollar. Much of the fiscal surplus at the start of this year was due to the so-called PAIS tax on foreign currency transactions; its importance makes it unlikely that the government will lift foreign exchange controls in coming months even if reserves continue to strengthen.
The International Monetary Fund currently predicts a contraction in GDP of 3.5% this year, after a contraction of 1.6% in 2023, which will make it extremely difficult to stabilize the country’s debt position. The main concern will remain a possible default on domestic debt as well as the onerous and short-term conditions on which rollovers are being made. Standard & Poor’s recently downgraded its domestic currency debt rating to “selective default” following a debt swap involving some ARS 42.6 trillion in bonds the agency defined as “distressed.” However, in 2025, capital and interest payments on foreign debt totaled $23.8 billion, and given the decline in central bank reserves, analysts increasingly point to the likelihood of a new debt restructuring.
The government could launch a new debt swap to alleviate the domestic payments scheduled for 2025 (some $54 billion). However, its success would mainly depend on keeping capital controls in place. At the same time, if capital controls remain in place, the government's chances of obtaining new funds on global markets for 2025 foreign debt repayments will fade.
Although the new government achieved a fiscal surplus in January and February, largely by dint of slashing public spending in such areas as pensions and transfers to provinces, falling tax revenues are making it more difficult to continue to achieve its fiscal targets unless it continues to cut spending, which in turn would deepen the recession. Worsening social conditions are likely to harden resistance to compliance.
