Index Trend Previous Quarterly Editions
Expropriation Risk: 58 ▲ Political Violence Risk: 57 ▲ Terrorism Risk: 31 ▼ Exchange Transfer and Trade Sanction Risk: 64 ► Sovereign Default Risk: 66 ►
Overal Risk Temperature TREND ▲
Special topic: Government's commitment on climate policy 2
Fires which started in January destroyed more than 800,000 hectares of the north-eastern province of Corrientes, including natural parks and wetlands. Some of the fires were reportedly deliberately set to clear land, but high temperatures and the lengthy drought are blamed for their extent and the difficulty in extinguishing them. The fires had largely ended in early March thanks to rainfall, although other provinces as well as Bolivia and Brazil sent assistance and firefighting equipment.
The fires did massive damage to wildlife, forests and farming with losses estimated at some ARS40 billion (USD369 million). The provincial government declared a state of emergency and the province was subsequently declared an ecological disaster zone. However, the national government was widely criticised for its failings and the provincial governor received criticism from national Environment Minister Juan Cabandié for leaving him exposed to political pressures. Cabandié also blamed the provincial government and provincial farmers for the disaster. Cabandié himself, a member of the pro-Kirchnerist group La Cámpora, has often been criticised as a political appointee rather than an expert in the area.
Argentine governments of different parties have long been under fire for lack of effective environmental policies, blamed for the lengthy drought affecting much of the country and bringing water levels on the key Parana River to an 80-year low. Some provincial governments have been more proactive, in some cases banning open-pit mining or the use of cyanide in mining in response to public pressures and, in the case of Mendoza, long known for efficient management of water resources, the government presented a new ‘Drought Plan’ in 2018.
Provincial and national governments of different parties have also been criticised for failure to regulate the intensive use of genetically modified crops such as soya, cited for its impact on water and soil erosion. Despite popular activism on some issues such as mining and water, Argentina has no green party and emissions reduction has not been a key political issue.
Despite a poor record on environmental management, Argentina has had some success in attracting investment in renewable energy in recent years, notably reported plans by Australian Fortescue to invest over USD8 billion in green hydrogen projects in the southern province of Rio Negro. A law passed in 2015 under the previous government aimed to attract investment in biomass, wind and solar energy, with a view to increasing the share of renewable energy through a range of tax benefits. However, governments have long focused also on development of the controversial Vaca Muerta shale deposits as a source of hydrocarbons production, despite substantial criticism of the potential environmental impact.
The government itself lacks fiscal resources to invest in renewable energy, and the investment climate in the country more generally has represented a disincentive to fixed investments over many years.
Generally speaking, climate and environmental concerns have yet to be given great weight in policymaking, geared primarily to boosting domestic energy sources to reduce import spending. Longstanding economic and social crises have also reduced public activism on environmental issues, with popular protests focusing primarily on other issues.
Ahead of the COP26 summit of November 2021, President Alberto Fernández proposed a “debt for climate action swap”, under which Argentina would reduce carbon emissions by 23% over 2016 levels in exchange for debt relief, and defined the fight against climate change as “a state policy” but without outlining specific actions or targets. The Frente de Todos (FdT) coalition government is trying to reach a deal to restructure some USD45 billion of debt with the International Monetary Fund (IMF).
Expropriation Risk 58 (Significant) TREND ▲
Expropriation risk to foreign investors per se is relatively limited at present, given the number of companies that have already exited Argentina, lack of government funds and the fact that there are currently no politically or emotionally significant companies (such as YPF or Aerolíneas Argentinas) to be targeted.
However, there are questions over the future of some concession contracts such as the Hidrovía concession to manage the Paraná River, which accounts for some 70% of Argentina’s export traffic. The tender of a new concession was recently impugned by one of the disqualified bidders, arguing that the only consortium qualified by the authorities to bid for the cession included Belgian Jan De Nul, which led the consortium that held the previous, expired concession. The fact only one consortium was pre-qualified implies there will be no competition on prices. Sources claim delays to the concession have already cost some USD10 billion annually.
Vice-President Cristina Fernández de Kirchner (CFK)’s apparent influence in the government’s controversial judicial reform plans – widely seen as designed to increase political control over the judiciary and safeguard CFK from a series of pending corruption cases – her apparent opposition to the economic policies of Economy Minister Martín Guzmán and the proposed deal with the IMF have all complicated policymaking. Although CFK has remained relatively silent in public on the IMF deal, it has been the subject of protests by her supporters in the youth movement La Cámpora and prompted the resignation of her son Máximo Kirchner as the FdT bloc’s leader in the Lower House in January.
Political Violence Risk 57 (Significant) TREND ▲
Protests have continued in recent months among both pro-government and anti-government factions, with the proposed IMF debt deal a key point of contention. This will continue in coming months, especially if utilities tariffs report sharp increases. However, this is unlikely to lead to major violence. Personal security and the risk of violent crime will remain a key concern.
Terrorism Risk 31 (Low) TREND ▼
There has been no major terrorist attack in Buenos Aires since 1994, and despite almost continuous protests there have been no significant acts of violence under the current government.
Exchange Transfer and Trade Sanctions Risk 64 ( Significant) TREND ►
Central bank reserves have been declining steadily and net reserves are now negative after the use of USD1 billion to meet a late-2021 debt payment. The government has tightened import controls and less formal measures also abound to discourage imports.
Rising agricultural prices following the Russian-Ukraine crisis may boost foreign exchange inflows, although the continuing impact of drought on shipping costs may undermine any favourable impact, as may rising oil and gas prices.
The official peso exchange rate has now fallen to some 107.5 Argentine pesos to the U.S. dollar, while the so-called ‘blue’ dollar is currently around ARS197:USD1. Lacking foreign reserves, the central bank will increasingly limit access to U.S. dollars.
Sovereign Default Risk 66 ( Medium-high ) TREND ►
On March 3, the IMF announced it had reached a staff-level agreement with Argentina for a 30-month Extended Fund Facility to restructure the USD45 billion in debt, which must now be approved by Congress and the IMF Executive Board. Details are sparse, but an IMF press release described it as “a pragmatic and realistic program, with credible economic policies” aimed at improving macroeconomic stability and tackling persistent high inflation.
If the deal is approved, it will delay repayments until 2026, with final repayment made in 2034, This would avert USD19 billion in payments originally due this year, including a USD2.8 billion tranche due on March 22 which cannot be met with central bank reserves. However, doubts persist over congressional approval, not least due to opposition within the governing FdT coalition to the increases in utilities tariffs proposed by the IMF. This has been one of the most contentious points in talks with the IMF, with government tariff subsidies reaching some USD11 billion last year.
The greatest risk to approval of the deal is Congress, with the opposition unlikely to back it if large numbers of pro-government legislators reject it. Long-term implementation is another serious doubt, but the near-term implication of rejection would be default on the payment due on March 22. Lawsuits in the U.S. against the federal and some provincial governments may see new payment orders in coming months, which may well not be met.
