February 2016 in Argentina

Politics

President Mauricio Macri is pushing forward with his agenda to change several government policies, especially with respect to economy. The Macri administration has been working closely with Mediator Daniel Pollack to resolve the holdout hedge funds problem and regain access to global financial markets. In February 2016, Argentina presented, for the first time, a formal offer to the “vulture funds” of US$6.5 billion -- the original amount claimed in 2010 when the dispute began, but 25 percent less than the US$9 billion ordered by New York Judge Thomas Griesa. Montreux Partners and Dart Management accepted this offer, while Argentina awaits a counter offer from four other holdouts, like Paul Singer, NML Capital, and Aurelius. Any agreement must be approved by the Argentine Congress. Though Macri’s coalition is in the minority, a recent split within the Peronist Party raises the chances that it could pass. 

While Macri fights for market access so the government can invest in public works and avoid a deep recession, he has suggested that provincial governments take on foreign debt to solve budget shortages, a notable change from the previous administration. Buenos Aires, Mendoza, and Neuquén are among several provinces in need of assistance, since funds from Argentina’s National Treasury are frozen until Macri’s tax reforms are approved.

Macri removed Instituto Nacional de Estadística y Censos (Indec) Technical Director Graciela Bevacqua from her position for failing to push out the new consumer price index within two months in accordance with government plans. Bevacqua was replaced by Fernando Cerro. Within the same week, the government revealed its new Sistema Electrónico de Publicidad de Precios Argentinos (SEPA), an online price control system where consumers can check the prices of basic goods. The new system has received some criticism from Federación de Supermercados y Asociaciones Chinas de Argentina (Fesach) Executive Director Miguel Ángel Calvete for relying heavily on smart phones for checking prices and failing to regulate prices on goods in the standard household basket, which Calvete believes is susceptible to price hikes due to inadequate competition.

Also of note, with the installation of the Macri administration came charges against several Kirchner figures. Federal Judge Claudio Bonadio, former Cabinet Chief Aníbal Fernández, Former Health Minister and current Tucumán Governor Juan Manzur, and former Health Minister Daniel Gollán are being prosecuted for irregularities in the bidding on the Quinta plan, a program to deliver kits to pregnant women. Former Unidad de Información Financiera Chief José Sbattella is being charged with money laundering related activities. Former Interior Trade Secretary Guillermo Moreno and former Comisión Nacional de Valores head Alejandro Vanoli were convicted of inciting collective violence and slander against Grupo Clarin. Former Vice President Amado Boudou was convicted for corruption and giving “handouts.”

Business

Monthly inflation dropped from 3.8 percent in December 2015 to 3.6 percent in January 2016. The government hopes it can hold the inflation index around the same level for February and March 2016 by implementing various measures, including increasing electricity rates. Yet the U.S. dollar continues to rise, hitting 15 pesos in mid February 2015. Central Bank President Federico Sturzenegger is maintaining his policy not to intervene in the market, despite the steady currency devaluation. 

TMF Group released its Global Benchmark Complexity Index for 2015, which ranks 95 countries globally according to their complexity from a corporate perspective. Argentina was ranked, for the third consecutive year, the most complex place to do business due to corporate regulations and administrative obstacles. However, Macri is trying to make Argentina a friendlier environment for businesses, as he eliminated the tax on mining exports and a withholding tax on agricultural exports.

Neighboring Brazil is interested in opportunities in Argentina, as it opens up to more foreign trade. Brazilian Industria y Comercio Minister Armando Monteiro is seeking an a new agreement with Argentina regarding free trade in the auto industry, similar to their agreement with Uruguay. Currently, trade in the auto sector accounts for 45 percent of bilateral trade and is regulated by a limiting agreement set to expire in June 2016. Other multinational Brazilian companies are eager to take advantage of the new climate in Argentina, for example meat processing company JBS and bus manufacturer Marcopolo are both interested in reopening plants in Argentina.

Energy

Macri adjusted electricity tariffs shortly being sworn in, and in early 2016 Energy Minister Juan José Aranguren announced subsidies for domestic consumption of gas will be reduced, raising prices nearly 6 percent in March 2016. An initial price increase occurred in January 2016, however industry salary increases and reliance on dollar-denominated imports forced another increase. The government estimates subsidy cuts will save US$4 billion. On top of this, President Macri mandated the percentage of bioethanol in all gasoline mixtures to increase from 10 to 12 percent in an effort to stimulate Argentina’s sugar industry, as both the sugar and corn industry have been affected by low commodity prices.

A heat wave has hit the country, pushing up electricity demands and causing shortages. From 13 to 17 February, energy distributors Edenor and Edesur were required by Ente Regulador de la Electricidad (ENRE) to reduce demand by 200 MW, causing a massive shortage that left at least 90,000 users without energy at one point. Chilean Endesa exported a total of 6,900 MW or 2.3 GW per day to assist Argentina with its energy shortage and expects to continue to export electricity to Argentina through the end of March 2016. This problem coincides with Macri’s decision to establish a new tariff scheme for domestic energy consumption, which went into effect on 1 February 2016 and increased taxes up to 600 percent for some users. 

Security

Northwestern Argentina is affected by the drug trade, as cocaine paste is brought in from neighboring Bolivia via Ruta 34 to Córdoba for final processing. Argentina’s northeastern provinces are affected by the marijuana trade, as well as human trafficking, money laundering, and smuggling. Both regions have seen little increase in violence, however, criminal activity has corrupted local officials in these regions. Mendoza is comparatively violent for the western provinces, as local urban drug consumption is increasing; drugs are transported through this province to Chile. The cities of Rosario and Santa Fe are experiencing increased violence and corruption as result of the drug trade. Still, Buenos Aires is the most violent city, and the country’s largest drug market. Criminal groups in the border provinces are loosely organized, and become more organized as they approach the province of Buenos Aires and major cities, where most cocaine is destined. Los Monos is considered the most organized criminal group in Argentina, and they operate exclusively in Rosario without any international ties. As in Mexico, there are several groups that control territory and use planes to traffic drugs to Europe; Orán operates in Salta; Puerto Rico and Jardín América in Misiones.

Considering Argentina’s growing drug trade, President Macri’s campaign policy platform sought to militarize the fight on drugs. In January 2016, President Macri declared a Public Security Emergency for the duration of a year authorizing the government to forcefully control airspace, waterways, and border posts throughout the country to more effectively combat organized crime. The Security Minister anticipated federal forces will be placed in the Federal Capital, Córdoba, Santa Fe, and Buenos Aires, where narco trafficking is heavily present.