2009 Investment Climate Statement - Argentina

2009 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
February 2009

Openness to Foreign Investment

Argentina remains open to foreign investment and currently hosts over 500 U.S. companies that employ over 155,000 Argentines. Five consecutive years of real GDP growth over 8.5 percent between 2003 and 2007, and preliminary estimates of 7% growth in 2008 attracted considerable U.S. and other international investor interest in exploring opportunities in the Argentine market. The government of Argentina, in turn, has signaled its desire to see continued foreign direct investment (FDI) flows to enhance the nation’s productive capacity and GDP growth potential. However, the attractiveness of some sectors for foreign investors is affected by uncertainties relating to the expected deceleration of economic activity in 2009, as well as by longstanding concerns regarding creditor and contract rights and a perception of unpredictable regulatory and tax changes.

Following a December 2001 financial crisis, the government ended a currency board regime ("convertibility") that had pegged the Argentine peso to the U.S. dollar and devalued the currency. In January 2002, the government defaulted on roughly $82 billion in privately held debt and over $6 billion in debt to official government creditors (including approximately $360 million owed to the U.S. government). By March 2008, Argentina's defaulted debts to official "Paris Club" creditors had grown to an estimated $7.9 billion, the vast majority of which consists of arrears and past due interest. In February 2005, private investors holding 76 percent of Argentina's defaulted debt accepted an Argentine government offer of approximately 34 cents on the dollar of old debt. Argentine President Cristina Fernandez de Kirchner announced in September 2008 that the government intends to pay debts to Paris Club creditors. She further announced that the government would consider a proposal from private banks on the settlement with international bondholders of untendered Argentine government debt stemming from the January 2002 default. However, neither of these initiatives has reached fruition as of this writing.

In a dramatic post-crisis recovery, Argentina posted real GDP growth rates of 8.8% in 2003, 9.0% in 2004, 9.2% in 2005, 8.4-5% in 2006, and 8.7% in 2007 (according to Argentine national statistics agency INDEC). On February 13, 2009, INDEC released a preliminary estimate for full-year 2008 GDP growth of 7%. This impressive six-year performance led to improvements in key socio-economic indicators, including a reduction in unemployment from a 21.5% peak in 2002 to 7.3% during the fourth quarter of 2008, according to official government statistics. Argentina's post-crisis move to a more flexible exchange rate regime, along with sustained global and regional growth, a boost in domestic aggregate demand via monetary, fiscal, and income distribution policies, and favorable international commodity prices and interest rate trends, were catalytic factors in supporting renewed growth between 2003 and 2008. The economic resurgence also enabled the Argentine Central Bank to accumulate substantial official reserves (estimated at almost $47 billion as of March 2009) to help insulate the economy from external shocks. In January 2006, the Central Bank used reserves to cancel Argentina's $9.5 billion debt to the IMF. A higher tax burden, improved tax collection efforts, and the recovery's strong impact on tax revenues supported the government's successful efforts to maintain primary fiscal surpluses since 2003.

The industrial sector performed well in the aftermath of the 2001/2 economic crisis, growing from 17% of GDP in 2001 to over 22 % in 2008. Investment in real terms, according to government statistics increased 12.3% in 2008. Illustrative of this industrial expansion, the domestic car industry had its best year in history in 2008, with over 595,000 units produced, up 10% from 2007. Automotive exports exceeded 350,000 units in 2008, also an all-time record, and comprising roughly 60% of total production. In 2007, the automotive industry accounted for almost 20% of Argentina's manufacturing output and 36% of all manufacturing exports, measured by value.

Although it continued its strong expansion in 2008, with INDEC estimating GDP growth at 7% year-over-year, Argentina, like the vast majority of economies throughout the world, is likely to experience a broad deceleration of economic activity in 2009 as a result of ongoing global financial turmoil and the resulting slowdown in world economic output.

Argentina’s Central Bank has managed monetary and currency policy in support of the economic expansion, maintaining an undervalued or “competitive” exchange rate, and negative real interest rates. However, a number of private economic and financial observers argue that the policy has contributed to a rise in the level of inflation in recent years. There has been substantial public debate in the media over inflation rates.

Private sector bank balance sheets, which deteriorated significantly during the economic crisis, recovered between 2003 and 2008, with improving levels of liquidity, net exposure to the public sector significantly reduced, and credit – primarily to the private sector – increasing at a faster pace than nominal GDP growth. Private banks operating in Argentina, which hold approximately 58% of total financial system deposits and 63% of loans, have returned to solvency, according to the Argentine Central Bank and international credit rating agencies. The ratio of private bank non-performing loans is currently 2.8%, just 0.6% percentage points above its historic low of 2.2% (achieved in December 2007), and profits for the overall banking system in recent years are among the highest levels achieved in over a decade. According to Central Bank regulatory authorities, Argentina's public banks, which hold the remaining assets, are also solvent and liquid.

Despite the strong banking sector performance of recent years, lending, system-wide, remains mostly short-term, as access to long-term financing is limited and borrowers are reluctant to borrow long-term at variable rates. Financial sector analysts have argued that the great uncertainty in local capital markets, including over the direction of the economy and government economic policy, as well as over the levels of long-term inflation, complicates government and private sector efforts to develop a long-term fixed interest rate market, without which it will be difficult to deepen Argentina’s financial markets or support large-scale private sector project finance. Government officials have acknowledged the lack of medium- and long-term credit facilities needed to support the expansion of domestic productive capacity, and the government has announced a number of programs aimed at expanding available credit.

Slowing domestic growth, uncertain macroeconomic conditions, continuing global financial turmoil and the government's nationalization of Argentina's private pension system are complicating operating conditions for Argentine banks. As a result, a number of non-government experts say they will likely be exposed to higher credit risks, pressures on profitability, and tighter liquidity conditions. While the systems' asset quality is solid and bank reserves exceed Central Bank requirements, a number of private financial sector experts predict that lending levels will decline as banks take precautionary measures to maintain liquidity and asset quality.

Decree 1853/1993 governs foreign investment in Argentina. According to this decree, foreign companies may invest in Argentina without registration or prior government approval, and on the same terms as investors domiciled in Argentina. Investors are free to enter Argentina through merger, acquisition, greenfield investment, or joint venture. Foreign firms may also participate in publicly financed research and development programs on a national treatment basis.

A Bilateral Investment Treaty (BIT) between Argentina and the United States entered into force in October 1994. The BIT provides protections against capital movement restrictions, expropriations, and performance requirements; it also establishes effective means for the settlement of investment disputes. The BIT lists a few sectors in which Argentina maintains exceptions to national treatment for U.S. investors: real estate in border areas, air transportation, shipbuilding, nuclear energy, uranium mining, and fishing. U.S. investors must obtain permission from the Ministry of Defense's Superintendency for Frontiers to invest in non-mining activities in border areas.

Foreign and Argentine firms face the same tax liabilities. In general, taxes are assessed on consumption, imports and exports, assets, financial transactions, and property and payroll (social security and related benefits).

The GOA has established a number of investment promotion programs. Those programs allow for VAT refunds and accelerated depreciation of capital goods for investors and offer tariff incentives for local production of capital goods. They also include sectoral programs, free trade zones, and a Special Customs Area (SCA) in Tierra del Fuego, among other benefits. A complete description of the scope and scale of Argentina’s investment promotion programs and regimes can be found at http://www.industria.gov.ar and http://www.prosperar.gov.ar. Information about programs that specifically apply to small and medium businesses may be found at http://www.sepyme.gov.ar.

According to the World Bank’s 2009 "Doing Business" survey (covering the period April 2007 to June 2008), Argentina ranks 113 out of 181 nations and territories surveyed in overall "ease of doing business." The survey considered issues such as: starting a business; dealing with licenses; employing workers; registering property; getting credit; protecting investors; paying taxes; trading across borders; enforcing contracts; and closing a business.

Conversion and Transfer Policies

Since 2001, the Argentine Ministry of Economy and Central Bank have issued various new or revised foreign exchange transaction regulations in an attempt to normalize the foreign exchange market and to limit the peso's appreciation against the dollar. In June 2003, Argentina imposed a registration requirement for inflows and outflows of capital. In 2004, the Central Bank issued several specific, narrowly applied new controls on capital flows. Argentine residents are restricted to net currency purchases of $2 million per month. Institutional investors are restricted to total currency transactions of $2 million per month, although transactions by institutions acting as intermediaries for others do not count against this limit. In May 2005, the GOA issued Presidential Decree 616 and extended the minimum holding period for capital inflows from 180 to 365 days.

The Ministry of Economy implemented Decree 616 through resolutions in 2005 and 2006 which imposed more restrictive controls on the following classes of inbound investments: inflows of foreign funds from private sector debt (excluding foreign trade and initial public offerings of stock and bond issues); inflows for most fiduciary funds; inflows of nonresident funds that are destined for the holding of Argentine pesos or the purchase of private sector financial instruments (excluding foreign direct investment and the primary issuance of stocks and bonds); and investments in public sector securities purchased in the secondary market. These inflows are subject to three restrictions: (a) they may not be transferred out of the country for 365 days after their entry; (b) proceeds from foreign exchange transactions involving these investments must be paid into an account in the local financial system; and (c) a 30 percent unremunerated reserve requirement, meaning 30 percent of the amount of such transactions must be deposited in a local financial entity for 365 days in an account that must be denominated in dollars and pay no interest. As of September 2006, a deposit is not required for capital inflows aimed to finance energy infrastructure works, and as of January 2008 a deposit is not required for inflows for the purchase of real estate property by foreigners as long as the foreign exchange liquidation occurs on the day of settlement (and transfer of the title). Violations are subject to criminal prosecution.

In October 2007, the Central Bank introduced new control measures, banning all foreign entities from participating in Central Bank initial public offerings; however, foreign firms may still trade Central Bank debt instruments on the secondary market. In a likely attempt to increase the supply of dollars in the local market, the Central Bank issued a new requirement in October 2008 (Circular A4860) introducing the requirement that exporters deposit the U.S. dollar proceeds from exports in “local” banks (cuentas de corresponsalía de entidades financieras locales) within ten days.

The Central Bank intervenes frequently in the foreign exchange market, with the objective of maintaining a competitive peso. International financial turmoil, falling commodity prices, and increasing uncertainty about the Argentine and regional economies in 2009 have private sector financial experts expecting a further nominal depreciation of the peso over the next year.

To combat capital flight and to encourage the return of billions held by Argentines outside the formal financial system (both offshore and in-country), Argentina’s legislature approved December 18, 2008, a tax moratorium and capital repatriation law that would provide a tax amnesty for persons who repatriate undeclared offshore assets. The law entered into force December 24. Under this law, companies or individuals have a six-month window (March 1 - August 31, 2009) to declare funds held abroad (or held locally, but outside of the formal financial system) to the local tax authority (AFIP). Those choosing to keep these funds abroad will pay an eight percent tax rate. Repatriated funds face a six percent tax if the funds are deposited in local financial institutions, three percent tax if the funds are invested in bonds, or a one percent tax if the funds are invested in real estate, infrastructure, or agricultural or industrial ventures. The GOA issued implementing regulations for the law February 2, 2009, which include a requirement that transfers from abroad originate in countries that comply with international money laundering and terrorism financing standards. They also require local financial institutions to comply with existing government and central bank laws, rules, and regulations related to the prevention of financial crimes. The government has offered assurances that Argentine legislation, including this law, will adhere to international anti-money laundering and counter-terrorism finance standards. (In March 2009, in order to facilitate the return of funds under this capital repatriation law, the Argentine government temporarily amended the aforementioned Decree 616 to suspend the 30% reserve requirement on inbound capital flows for the March 1 to August 31, 2009, period.)

Expropriation and Compensation

Section 17 of the Argentine constitution affirms the sanctity of private property and states that any expropriation must be authorized by law and previously compensated. Fair compensation for expropriation is also guaranteed by international treaty obligation: Article 4 of the United States-Argentina BIT states that investments shall not be expropriated or nationalized except for public purpose upon payment of prompt fair-market value compensation. Some U.S. investors claim the January 2002 pesification of dollar-denominated contracts amounted to a form of expropriation of their investments and have filed international arbitration claims against the government of Argentina (see Dispute Settlement Section). In October 2008, President Cristina Fernandez de Kirchner submitted a bill to Congress to nationalize Argentina’s private pension system and transfer pensioner assets to the government social security agency. The bill was approved by the Argentine parliament in November 2008. Compensation to investors in the privatized pension system, including to U.S. investors, is pending negotiation as of this writing. In December 2008, the Argentine parliament passed legislation nationalizing the Spanish-owned flag air carrier Aerolineas Argentinas.

Dispute Settlement

The GOA accepts the principle of international arbitration. The United States-Argentina BIT provides for binding international arbitration of investment disputes that cannot be settled through amicable consultation and negotiation between the parties. The Government of Argentina is a party to the International Center for the Settlement of Investment Disputes (ICSID), the United Nations Commission on International Trade Law (UNCITRAL), and the World Bank's Multilateral Investment Guarantee Agency (MIGA). Companies that seek recourse through Argentine courts, however, may not also pursue recourse through international arbitration.

Prior to and following the 2001/2 economic crisis, a number of U.S. investors in privatized public utilities filed ICSID arbitration claims against the government of Argentina claiming that the government rulings de-linking public utility tariffs to foreign inflation indices and a January 2002 pesification of dollar-denominated contracts were a de facto expropriation of their investments. In addition, some U.S. investors have filed ICSID arbitration claims based on disputes with provincial governments over unforeseen changes in tax laws and liabilities. Customs treatment and delays in re-negotiating public utility rate changes have also provoked investment disagreements.

There were over 34 pending cases against Argentina before ICSID tribunals as of mid-March 2009, with total potential liabilities estimated by private sector analysts in the $15 billion range. Twelve of these pending ICSID cases were filed under the U.S. BIT. Over the past three years, several ICSID claimants who represent a substantial share of total value of claims against Argentina suspended their ICSID proceedings to facilitate further negotiation with the government. A number of the pending cases are reaching their final stages. As of January 2009, the GOA has not complied with a September 2007 final ICSID judgment awarding approximately $133 million plus interest in favor of a U.S. investor.

Domestic investment dispute adjudication is available through local courts or administrative procedures. However, many foreign investors prefer to rely on private or international arbitration when those options are available.

Argentina has a strict bankruptcy law similar to that of the United States. However, initiating bankruptcy proceedings is more difficult in Argentina. Creditors can participate in a Chapter 11-like procedure to determine the best means of recovering debts from a bankrupt firm. Company directors are personally and criminally responsible in cases of fraud, although severe punishment for white-collar crime is not common.

Performance Requirements and Incentives

No performance requirements are aimed specifically at foreign investors. Government incentives apply to both foreign and domestic firms. The Ministry of Economy administers a complex trade-balancing regime involving quotas and tariffs for auto manufacturers including minimum-content and other requirements. Special regimes also apply to mining, oil and gas, and other natural resource sectors.

Right to Private Ownership and Establishment

Foreign and domestic investors have free and equal rights to establish and own businesses, or to acquire and dispose of interests in businesses without discrimination.

Protection of Property Rights

Secured interests in property, including mortgages, are recognized and common in Argentina. Such interests can be easily and effectively registered. They also can be readily bought and sold. However, in February 2002, the government of Argentina established an extended moratorium prohibiting financial institutions from foreclosing on delinquent mortgages on primary residences and implemented a special procedure for both parties to reach an agreement for repaying the mortgage. This special procedure is only applied when delinquency in payment occurred from January 2001 to September 2003.

The government of Argentina adheres to most treaties and international agreements on intellectual property and belongs to the World Intellectual Property Organization and the World Trade Organization (WTO). The Argentine Congress ratified the Uruguay Round agreements, including the provisions on intellectual property, in Law 24425 on January 5, 1995. However, Argentina is on the Office of the U.S. Trade Representative's intellectual property rights "Priority Watch List."

Patents: Patent protection has been problematic in Argentina's intellectual property rights regime, and extension of adequate patent protection to pharmaceuticals and genetically modified seeds has been a source of bilateral disagreement. In April 2002, the United States and Argentina reached an agreement with respect to most of the claims in a World Trade Organization (WTO) dispute brought by the United States with respect to Argentina's implementation of its TRIPS obligations. Two issues, including the critical issue of data protection, remain unresolved. The United States and Argentina have agreed to leave these issues within the WTO dispute settlement mechanism for action. New patent legislation implementing part of the April 2002 agreement was passed in December 2003. However, some U.S. and European pharmaceutical firms have expressed concern that some provisions in the legislation limit their ability to protect patented products via the use of judicial injunctions to prevent patent violations.

Copyrights, Trademarks, Trade Secrets, and Semiconductor Chip Layout Design: Despite the fact that Argentina’s copyright law dates to 1930, it provides a generally good legal framework to protect intellectual property such as books, films, music, and software. Piracy rates of CDs, DVDs, and software are estimated at over 60 percent. While enforcement continues to be sporadic and pirated products are widely available in the market, the government of Argentina has passed laws designed to allow authorities to mount undercover operations; to electronically flag suspect shipments; to facilitate the seizure and detention of suspect merchandise; and to more frequently rotate customs personnel. The Customs administration in 2006 instituted a voluntary trademark registry and owner notification program and seizures of imported counterfeit goods have since risen dramatically. The government has also improved the process for trademark registration, decreasing the time needed and increasing the rate at which trademarks are registered. However, in the view of many industry observers, the trademark law, passed in 1980, provides non-deterrent civil damages, and in criminal cases the judiciary is reluctant to impose deterrent penalties such as prison sentences. Argentina has no specific law on trade secrets, although penalties for unauthorized revelation of secrets are applied to a limited degree under commercial law. Argentina has signed the WIPO Treaty on Integrated Circuits, but has no law dealing specifically with the protection of layout designs and semiconductors.

Transparency of Regulatory System

Argentine government authorities, including the Ministries of Economy, Production, and Planning and a number of quasi-independent regulatory entities, have mandates to foster competition and protect consumers. Some international investors have expressed concern about abrupt changes in sector-specific regulatory regimes, including in the energy and natural resource extraction sectors that in their view increase uncertainty.

The government has encouraged companies to invest in hydrocarbon (oil and natural gas) exploration, development, and refining. Hydrocarbon industry sources and energy analysts have expressed concern that the government's efforts to control domestic retail prices of fuels, combined with hydrocarbon export tariffs and government regulations prioritizing supply of the domestic market at prices below international levels, have created disincentives for companies to invest in oil and gas exploration and related infrastructure. Inadequate investment in those areas could, in turn, result in energy supplies not keeping pace with energy demand, the private sector analysts argue.

In late 2007, the government moved to end export tax exemptions for several mining companies, and imposed a federal levy on mineral exports ranging from five to ten percent. A number of industry participants have characterized the action as a significant departure from Argentina's 1993-era mining law, which guaranteed tax stability for 30 years. Several have sought redress through the courts and others are working with the government to address their concerns

In general, national taxation rules do not discriminate against foreigners or foreign firms (e.g., asset taxes are applied to equity possessed by both domestic and foreign entities). Government tax authorities scrutinize tax declarations of foreign corporations operating in Argentina with the intent of curbing the use of offshore shell corporations to shelter profits and assets from taxation.

Efficient Capital Markets and Portfolio Investment

The Argentine Securities and Exchange Commission (Comisión Nacional de Valores) is the federal agency that regulates securities markets offerings. Securities and accounting standards are transparent and consistent with international norms.

U.S. banks, securities firms, and investment funds are well represented in Argentina and are dynamic players in the local capital markets. In 2003, the government began requiring foreign banks to disclose to the public the nature and extent to which their foreign parent banks guarantee their branches or subsidiaries in Argentina.

The private pension fund system -- consolidated in 1995 -- provided a growing base for capital markets until the 2001-2002 economic and financial crises. Following the government’s 2005 debt restructuring, private pension funds once again became significant players in domestic capital markets. However, the government's nationalization of the private pension funds' assets in November 2008 shut down the funds' investment activities. The resulting uncertainty about the source of future portfolio investment led to sharp reductions in Argentine equity and fixed income asset prices during October and November 2008. As a result of the nationalization, Argentina's semi-autonomous Social Security Agency (ANSES) now holds large equity stakes in domestic and foreign firms trading on the local stock exchange, and has also taken on the private pension funds' holdings of federal and provincial government debt. It is as yet unclear what actions ANSES will take with regards to its newly acquired assets or what role it will take in developing local capital markets, although the government has indicated a preference for using the private pension funds' assets to fund infrastructure investments.

Political Violence

Since the 2001/2 economic crisis, protests, marches, and roadblocks directed at the national, provincial and municipal governments, as well as some companies, have been commonplace in Argentina, but their number, size, and the likelihood of accompanying violence have decreased significantly since the crisis. There have been no cases of overtly political violence since the April 2003 national presidential election. In 2005, around the time of the Summit of the Americas held in Argentina, there were approximately 20 incidents in which local groups were involved in small bombings, attempted bombings, or arson, mostly against U.S. businesses (Citibank, Bank Boston, Blockbuster, and McDonald's in particular). Anti-U.S. pamphlets or graffiti were found at most of the 2005 incidents, none of which resulted in injury or death. Since these 2005 incidents, no other such events have occurred.

Demonstrations are common in metropolitan Buenos Aires and occur in other major cities and rural areas as well. Protesters on occasion block streets, highways, and major intersections, causing traffic jams and delaying travel. While demonstrations are usually nonviolent, hooligans in some of the groups sometimes seek confrontation with the police and vandalize private property. Groups occasionally protest in front of the U.S. Embassy or U.S.-affiliated businesses.


According to the World Bank's worldwide governance indicators, Argentine government corruption is a serious problem. Many observers argue that historically weak institutions and an often ineffective and politicized judicial system make rooting out corruption difficult. Corruption by government officials and private sector business fraud are sometimes the subjects of complaints from some U.S. investors. U.S. businesses also argue that their adherence to the letter of the tax and regulatory codes at times places them at a competitive disadvantage.

Transparency International (TI) has a local chapter in Argentina. In the latest TI Corruption Perceptions Index (CPI) that ranks countries and territories by their perceived levels of corruption, Argentina ranked 109 out of 180 countries and territories, below the average among Latin American countries. Transparency International’s 2008 Corruption Perceptions Index (CPI) can be found at http://transparency.org/policy_research/surveys_indices/cpi/2008. Such surveys have attracted media attention and contributed to more open debate in Argentina about corruption and fraud.

Argentina is a party to the OAS Anti-Corruption Convention and ratified the OECD Anti-Corruption Convention in 2001. Argentina has signed and ratified the UN Convention Against Corruption (UNCAC). It is an active participant in UNCAC’s Conference of State Parties and is participating in the pilot review of the implementation of UNCAC. It is also an active participant in the Mechanism for Follow-up on the Implementation of the Inter-American Convention Against Corruption (MESICIC).

The government has regulations against bribery of government officials, but a number of non-government observers argue that enforcement is uneven. The law provides criminal penalties for official corruption. There are frequent press reports alleging that executive officials engaged in corrupt practices, and there are several notable ongoing investigations. Public officials are subject to financial disclosure laws, and the Ministry of Justice's Anti Corruption Office (ACO) is responsible for analyzing and investigating federal executive branch officials based on their financial disclosure forms. The ACO is also responsible for investigating corruption within the federal executive branch or in matters involving federal funds, except for funds transferred to the provinces. Although nominally a part of the judicial branch, the ACO does not have authority to independently prosecute cases, but can refer cases to other agencies or serve as the plaintiff and request a judge to initiate a case.

A recent ACO investigation of GOA public purchases between 2002 and 2005 revealed that about 75 percent were accomplished via direct contracts, often with a sole provider, and not via public tenders. The ACO report expressed concern that this process can facilitate corruption and does not allow competition among providers. The ACO report noted that some GOA officials defended this practice, claiming that many contracts were below the legally-mandated limit of 10,000 pesos (about $3200), under which tenders are not required. GOA officials also claimed that sometimes only one provider was able to meet contract specifications. In response, the ACO report noted that GOA officials often avoided the 10,000 peso limit by disaggregating contract components so that no part exceeded this limit, that contract specifications were sometimes written so that only one provider could meet the requirement, or failed to widely advertise tenders so that other providers could be made aware of them. This report can be found at http://www.anticorrupcion.gov.ar/.

Inefficiencies in the Argentine judicial system limit the effectiveness of efforts to stem corruption. Anti-corruption experts point to various shortcomings which make corruption difficult to prosecute and make convictions rare.

In December 2008, the U.S. plea agreement by the German corporation Siemens identified generically several high-level officials in former Argentine governments as having accepted multi-million dollar bribes in the controversial procurement of a national identification card system.

Bilateral Investment Agreements (BIT)

The governments of Argentina and the United States signed a BIT in 1991. The agreement was amended, ratified by the Congresses of both countries, and entered into force on October 20, 1994. The Argentina-United States BIT can be found on the following site: //2009-2017.state.gov/documents/organization/43475.pdf. Argentina does not have a bilateral tax treaty (Treaty for the Mutual Avoidance of Double Taxation) with the United States.

At present, the GOA has signed and ratified bilateral treaties for the protection and promotion of investment with all of its major trade and investment partners. More information regarding Argentina's bilateral tax and investment treaties is available at www.infoleg.gov.ar.

Argentina has valid double taxation treaties with Australia, United Kingdom, Denmark, Germany, Belgium, Austria, France, Italy, Sweden, Switzerland, Spain, Canada, Chile, Bolivia, Brazil, Finland, Norway, and the Netherlands. In addition, a number of treaties concerning the exemption of income from international transport are in force.

OPIC and Other Investment Insurance Programs

The government of Argentina signed a comprehensive agreement with the Overseas Private Investment Corporation (OPIC) in 1989. The agreement allows OPIC to insure U.S. investments against risks resulting from expropriation, inconvertibility, war or other conflicts affecting public order. OPIC programs are currently used in Argentina. Argentina is also a member of the World Bank's Multilateral Investment Guarantee Agency (MIGA).


Argentine workers are among the most highly educated in Latin America. Wages in dollar terms remain competitive, even taking into account Argentina's relatively high social security charges and other taxes. As of the third quarter of 2008, the unemployment rate was 7.8 percent, down from a 21.5 percent peak in 2002, according to official government statistics. The Ministry of Labor estimated that 40 percent of the urban workforce worked in the informal sector.

Organized labor continues to play a strong role in Argentina. Sector-specific negotiations between unions and industry, although largely market-driven, have often been influenced by government suasion. In the 2002-2004 period, a number of general wage increases were mandated by presidential decree. In 2008, the government, through a Wage Council resolution, raised the monthly national minimum wage to 1,240 pesos ($354).

Argentine law provides unions with the right to negotiate collective bargaining agreements and to have recourse to conciliation and arbitration. The Ministry of Labor, Employment, and Social Security ratifies collective bargaining agreements, which covered roughly 75 percent of the formally employed work force. According to the ILO, the ratification process impeded free collective bargaining because the ministry considered not only whether a collective labor agreement contained clauses violating public order standards but also whether the agreement complied with productivity, investment, technology, and vocational training criteria. However, there were no known cases of government refusal to approve any collective agreements under these criteria. There are no special laws or exemptions from regular labor laws in the foreign trade zones.

In an effort to avoid massive layoffs during the 2002 financial crisis, severance payments were doubled. This "double indemnification" labor termination policy was ended in September 2007 when official unemployment dropped below 10 percent. According to the World Bank’s 2008 “Doing Business” survey, the cost of terminating an employee in Argentina averaged 95 weeks of wages, significantly above the Latin American average of 54 weeks and more than three times the OECD average of 26 weeks.

Foreign-Trade Zones/Free Ports

Argentina has two types of tax-exempt trading areas: Foreign Trade Zones (FTZs), which are found throughout the country; and the more comprehensive Special Customs Area (SCA), which covers all of Tierra del Fuego Province and whose benefits apply only to already established firms.

Law 24331 of 1994 establishes the FTZ regime for Argentina. Argentine law defines an FTZ as a territory outside the “general customs area” (GCA, i.e., the rest of Argentina) where neither the inflows nor outflows of exported final merchandise are subject to tariffs, non-tariff barriers, or other taxes on goods. Goods produced within a FTZ generally cannot be shipped to the GCA, unless they are capital goods not produced in the rest of the country. The labor, sanitary, ecological, safety, criminal, and financial regulations within FTZs are the same as those that prevail in the GCA. Foreign firms get national treatment in FTZs.

Under the current law, the GOA may create one FTZ per province, with certain exceptions. More than one FTZ per province may be allowed in sparsely populated border regions (although this provision has not been fully utilized). Thus far, the GOA has permitted FTZs in most of the 24 Argentine provinces. The most active FTZ is in La Plata, the capital of Buenos Aires Province.

Merchandise shipped from the GCA to a FTZ may receive export incentive benefits, if applicable, only after the goods are exported from the FTZ to a third country destination. Merchandise shipped from the GCA to a FTZ and later exported to another country is not exempt from export taxes. Any value added in FTZs and re-exports from FTZ is exempt from export taxes.

Law 19640, passed in 1972, codifies the Special Customs Area (SCA) rules for Argentina. Unlike FTZ-manufactured goods, products manufactured in an SCA may enter the GCA free from taxes or tariffs. In addition, the government may enact special regulations that exempt products shipped through an SCA (but not manufactured therein) from all forms of taxation except excise taxes. The SCA program provides benefits for established companies that meet specific production and employment objectives.

The SCA program applies only to Tierra del Fuego Province. The government reduced some SCA benefits in the early 1990s. Some of these benefits were later reestablished, but only for those firms previously established in Tierra del Fuego Province. The SCA program is scheduled to expire at the end of 2023. In late 2006, Economic Ministry Resolution 776 abolished export tax exemption enjoyed by oil companies operating in Tierra del Fuego Province.

Foreign Direct Investment Statistics

According to the United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2008, the total stock of FDI in Argentina at the end of 2007 was estimated at $66 billion. Spain, the United States, and France remain the top three investors. Other important sources of investment capital include Brazil, Canada, Mexico, U.K., Italy, Chile, the Netherlands, and Germany.

Also according to UNCTAD, Argentina received 1.1 percent of foreign direct investment (FDI) inflows to developing countries, and 4.5 percent of FDI inflows to Latin America and the Caribbean in 2007. Both of these shares are well below Argentina's average FDI share from the pre-crisis 1992-2000 period. Total FDI inflows in 2007 were estimated at $5.7 billion. The stock of U.S. FDI in Argentina in 2007 was estimated at $14.9 billion by the U.S. Commerce Department (http://www.bea.gov/international/datatables/usdctry/usdctry.htm). U.S. investment is widespread throughout the economy, but particularly concentrated in financial services, agribusiness, energy, petrochemicals, food processing, household products, and motor vehicle manufacturing. Many U.S. firms substantially wrote down the value of their Argentine investments in response to the 2001/2 devaluation and pesification of previously dollar-denominated contracts.

Argentine firms increasingly invested abroad during the 1990s (particularly in Brazil, Paraguay and Uruguay), although the country has remained a net recipient of foreign direct investment. In 2007, according to UNCTAD, its outward FDI amounted to $1.2 billion.

The Argentine Ministry of Economy (http://www.mecon.gov.ar) and the Investor's Information Service for Argentina (http://www.infoarg.org) and the National Investment Agency (http://www.prosperar.gov.ar) have additional detailed information on foreign direct investment in Argentina.

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