Previous Quarterly Editions
Expropriation Risk: 53 58 58 64 ▲Political Violence Risk:35 57 59 50 ▼Terrorism Risk:33 33 31 29 ▼Exchange Transfer and Trade Sanction Risk: 55 64 55 73 ▲Sovereign Default Risk:66 66 66 74 ▲
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Geopolitical alignmentEast 1 2 3 4 5 West
Alignment five years agoEast 1 2 3 4 5 West
Degree of contestationSettled 1 2 3 Contested
Except for the 1990s, Argentina has long pursued a non-aligned foreign policy which has included ties with both Russia and China. Argentina’s recent application to join the BRICS group of countries (Brazil, Russia, India, China, and South Africa) suggests relations with China and Russia may become more important on at least some levels. However, there are significant differences in Argentina’s relations with Russia and China.
Russia has no military and limited economic influence in Argentina. The Russian narrative of a multipolar world order plays well in Argentina, where public opinion tends to have a significant anti-US bias, but bilateral ties are largely rhetorical and based on some degree of mutual diplomatic support. As elsewhere in the region, sectors on the left in Argentina perceive a historical connection with the former Soviet Union. This preference was largely responsible for the government’s decision to purchase Russian COVID-19 vaccines, although in practice deliveries fell short of expectations. President Alberto Fernandez’s meeting with Russian President Vladimir Putin in Moscow days before Russia’s Ukraine invasion in February 2022
(an apparent effort to balance the foreign minister’s visit to Washington days earlier) was widely criticised but caused little serious domestic or international blowback. Bilateral trade reached only around USD1.3 billion last year, with fertiliser being Argentina’s main import from Russia.
By contrast, China is Argentina’s largest trading partner and a key source of investment. Argentina’s decision to join Beijing’s global infrastructure development Belt and Road Initiative this year is hoped to unlock nearly USD24 billion in investment. Economic relations have expanded significantly since 2005 under both the Kirchner and Macri governments, not least driven by the difficulties of attracting other sources of foreign investment.
Most Argentine exports to China are primary products, while most imports are capital and consumer goods. China is an increasingly important player in agribusiness, mining, energy, and railways, holding key stakes in sectors producing goods it imports, such as agriculture, as well as in transport infrastructure to facilitate their export. In March 2022, President Fernandez announced a new increase in the existing currency swap arrangement to USD23.5 billion, reflecting the importance of Chinese financing in a context where global capital markets remain closed to Argentina.
Although the Chinese space monitoring station built in Neuquen province during Cristina Fernandez de Kirchner (CFK)’s second presidency – in theory built for peaceful space exploration – aroused U.S. concerns it is also being used for military goals, China has minimal if any military influence in Argentina (a country with a minimal defence budget) and makes no effort to influence policy. Despite some domestic and international concerns, China’s significance as a trade and investment partner is not heavily questioned given both its weight and the U.S. not being able or willing to supplant it in those areas. If a new government is elected next year, Russia may receive less attention, but China will not.
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Expropriation risk to foreign investors per se is relatively limited at present, given the number of companies that have already exited Argentina, the lack of government funds, and there currently being no politically or emotionally significant companies, such as YPF or Aerolineas Argentinas, to target.
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Since December 2019, President Fernandez’s term has been complicated by an experience of the COVID-19 pandemic that hit Argentina hard, political frictions within the governing Frente de Todos (FdT) coalition, especially between Fernandez and the supporters of CFK, and the unpopular deal to restructure some USD45 billion of debt with the International Monetary Fund.
Fernandez and other government figures have continued to struggle with low approval ratings, with the FdT performing poorly in midterm elections in November last year, losing seats in both houses of Congress. For its part, the opposition is also badly divided, and both the main coalitions face difficulties ahead of the 2023 general elections.
Meanwhile, CFK’s judicial woes – including a pending corruption case in which prosecutors have sought a 12-year sentence – have influenced the government’s controversial judicial reform plans which have been widely seen as designed to increase political control over the judiciary and safeguard CFK.
CFK’s opposition to the economic policies of Economy Minister Martin Guzman has complicated policymaking. However, while Guzman’s departure in July could be seen as a triumph for CFK, his replacement by so-called ‘super minister’ Sergio Massa, a pragmatist to the right of the government, may curtail her powers. Although CFK has remained relatively silent in public on the USD45 billion Fund debt deal, it has been the subject of protests by her supporters in the youth movement La Campora and prompted the resignation of her son Maximo Kirchner as the FdT bloc’s leader in the Lower House in January.
The September 1 assassination attempt against CFK sharply raised concerns over the risk of political violence. Although it is not yet clear whether those involved acted alone or were linked to wider political groups, the fear of increased political violence, including from right-wing groups such as Federal Revolution, will remain high.
Furthermore, protests have continued in recent months among both pro and anti-government factions, with the IMF debt deal a key point of contention. This will continue in coming months as economic conditions deteriorate. Overall, personal security and the risk of violent crime will remain a key concern.
There has been no major terrorist attack in Buenos Aires since 1994 and the risk of terrorism in Argentina remains low today.
Central bank reserves have continued to decline. The government has tightened import controls and less formal measures also abound to discourage imports. The government is hoping a temporary favourable exchange rate for agricultural exporters will encourage a rise in sales and boost reserves by some USD5 billion, although this is likely to prove optimistic.
The official peso exchange rate has now fallen to some ARS149:USD1, while the so-called ‘blue’ dollar is currently around ARS277:USD1. Lacking foreign reserves, the central bank will continue to limit access to U.S. dollars.
Although the economy recovered strongly last year from the 9.9% contraction in 2020, it has deteriorated this year, with slow growth, a weakening exchange rate, and inflation likely to hit 100% by year-end (partly, though not wholly, due to global fallout from the Russia/Ukraine crisis).
The 30-month Extended Fund Facility agreed with the International Monetary Fund (IMF) in March will delay repayments until 2026, with final repayment made in 2034. This will avert USD19 billion in payments originally due this year.
However, the deal was approved only very reluctantly by the governing FdT coalition in Congress and there is still resistance to many of its terms, as seen above. Moreover, the deteriorating domestic and international environment will make the deal’s fiscal and monetary targets more difficult to achieve, and worsening social conditions are likely to harden resistance to compliance, especially as the 2023 elections draw closer.
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.
