A century ago, Argentina was one of the world’s ten wealthiest nations, as the grand buildings towering over the streets of Bue-nos Aires attest. From the ornate Teatro Colón from 1908, one of the world’s finest opera houses, to the French-style Retiro railway station from 1915, the city’s ar-chitecture speaks to the glory of this once-eminent nation. But as a result of economic mismanage-ment by successive governments, Argentina is no longer synonymous with prosperity, and instead has seen its reputation damaged by the hyperinflation of 1989-90, the economic meltdown of 2001 and its run on banks, to its headline-grabbing loan default in 2014 with a group of holdout bondholders.

From the local and international investment outlook, however, it seems as if better days are on the way. President Mauricio Macri, elected in late 2015 on a platform of change and the country’s first center-right leader to come to power since it returned to democ-racy in 1983, has pledged to make Argentina “normal” again through a pro-business investment agenda to sustainably grow the economy and create jobs in order to reduce poverty.

The government has moved quickly with reforms but cautious-ly. President Macri’s Cambiemos (Let’s Change) coalition does not hold a majority in Congress, and needs to garner support from the opposition to advance its agenda. The government’s early reforms created enthusiasm with voters and investors alike, as it quickly dismantled currency and trade controls, committed to strengthen democratic institutions, and over-hauled the government statistics agency to restore its credibility.

In perhaps the biggest win for the economy, Argentina finally cut a deal with the holdout investors to return the economy to the interna-tional bond market. What ensued was the largest emerging market

bond sale to date, which not only netted it $16.5 billion in a hugely-oversubscribed offering, paid off holdout creditors from its previous default, placing it firmly back into the international capital markets.

“There was a before and after in the relationship with financial and multilateral global institutions,” says Luis Caputo, Minister of Fi-nance. “We had already removed the FX restrictions, which had been well-received by the international community, but the game changer was the agreement with the hold-

out creditors. It was a key decision that affected the way everyone regarded Argentina; it was proof that we wanted to join the world once more.”

In an exclusive interview with The Worldfolio, President Macri emphasizes, “Cambiemos is not a force trying to impose change on Argentine society, but rather a representation of a change that has already occurred and continues to consolidate in the society itself. The changes that global society has undergone in the last couple of dec-ades – globalization, new forms of communications and production, to name a few – have also taken place in Argentina. Our society looks at our past of cyclical crises and at the ex-amples of countries that have been able to develop sustainably and sees that we can achieve much more if we come together and try to imple-ment not only economic and political change, but also changes in values.”

Argentina’s transformation has not come without challenges. The administration encountered the first resistance early in its term as it began to remove energy and transport subsidies, which together were costing the gov-ernment a staggering 4 percent of GDP. Many of its changes are in the short-term either unpopular,

or unfelt. The government faces a major test in upcoming mid-term elections in October, when Argentines will take to the polls as a vote of confidence to the long-term goals put in place by the administration.

“The Cambiemos coalition is conscious of its political weak-ness if it doesn’t win the mid-terms, and it is also conscious of the fact that the previous four non-Peronist government did not serve out their full terms. There-fore, political stability and con-tinuity is a central theme,” says Javier González Fraga, President of Banco de la Nación Argentina, the country’s national bank.

Working on political consensus has been key to building stability in the country. “There is an innova-tive political process underway,” says Marcos Peña, Chief of Staff. “We are a young government, born out of the 21st century, and which doesn’t come with the ties of the past.”

With problems at home gradu-ally being ironed out, Argentina simultaneously looks to its region and the world to integrate itself in the global community. The remain-der of Mauricio Macri’s term will be dotted with high-profile events to draw attention to the country’s

transformation. Argentina re-cently hosted the World Economic Forum Latin America this month, and come 2018, it will be the first South American country to assume presidency of the G20.

To Mercosur, the near-moribund regional club of which Argentina forms a part along with Brazil, Paraguay and Uruguay, the Macri administration has injected new enthusiasm. Argentina, which for-merly blocked expansion of the regional trading bloc, recently proposed a free-trade agreement between Mercosur and the Pacif-ic Alliance at a summit in Chile. “With its extremely large market, endowed resources, and human and natural diversity, Mercosur is an enticing market for any global player,” asserts Vice President Gabriela Michetti. “Therefore, we must strengthen Mercosur as a platform for interaction with the rest of the world.”

Ms. Michetti adds that the President has asked every mem-ber of government to work on transforming Mercosur into a real customs union rather than one hampered by protectionism and red tape.

Argentina is also looking fur-ther afield to build trade ties, from the U.S. to Asia and beyond. “The

notion of being integrated to the world in terms of investment, trade, technology and ideas has to be reinforced by every area in the state,” says Mr. Peña.

There is another goal on the horizon for Argentina, and one which would have been unthink-able just a couple of years ago: to become a member of the OECD. “Our goal is to take as little time as possible,” says Mr. Caputo. “In the case of Chile, the process took three years. We are putting a lot of effort into this, and we have a lot of support from the interna-tional community.”

While strides have been made in putting Argentina on the path to sustainable development, everyone in the government ac-cepts that there are challenges ahead. “We have to live up to our promise of a different type of government: a more honest one, one that is closer to reality and has a more pragmatic view,” explains Mr. Peña. Thus far, how-ever, the international commu-nity has reacted to Argentina’s change: “A dozen of heads of state and heads of government visited Argentina in 2016, which comes to show that the world acknowledges this new period of trust, solidifying institutions and strengthening the rule of law,” says President Macri. And as the government continues to implement its reforms, for many investors, Argentina is well and truly back on the table.

This special supplement was prepared for the Advertising Department of The Washington Post by The Worldfolio.The production of this supplement did not involve the news or editorial staff of The Washington Post. For more information, contact The Worldfolio +44 20 8544 8094

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ARGENTINA RISINGPresident Mauricio Macri’s message of integration with the international community has drawn

the praise of foreign investors and world leaders. Will it be enough to break with historical trends at home and establish long-term, inclusive growth?

#Argentina#TheWorldfolio

Friday, April 28, 2017 01

Produced by The Worldfolio:Project Director: Joy Zoltobroda. Editorial Director: Nicolas Carver (@worldtempo) Project Coordinator: Florencia Icardi. Regional Directors: Leandro Cabanillas and Fatima Ruiz Moreno. Chief Editor: Jonathan Meaney

“Our society looks at our past of cyclical crises and at the examples of coun-tries that have been able to develop sustainably and sees that we can achieve much more if we come together and try to imple-ment not only economic and political change, but also changes in values”

Mauricio Macri, President of Argentina

“There is an innovative political process underway. We are a young govern-ment, born out of the 21st century, and which doesn’t come with the ties of the past”

Marcos Peña, Chief of Staff

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The news generated by Mauricio Macri’s business-friendly Cambie-mos (“Let’s Change”) government since entering office in late 2015 have been warmly received by the international investment communi-ty. The deal with holdout bondhold-ers in 2016, and the anticipated 3-4 percent GDP growth for 2017 have enticed investors to make a move on South America’s second-largest economy.

However, Mr. Macri is finding it tough to navigate between support-ers of rapid change and those wor-ried about the political and social implications of going too fast.

While the administration has ar-gued that its subsidy cuts and gov-ernment employee layoffs were nec-essary to return to growth, critics and the opposition have responded with mass demonstrations and con-frontations from trade unions. The resulting difficult political climate will put the Cambiemos coalition to the test as it faces voters in mid-term elections set for October.

Mr. Macri can look back with some satisfaction at results so far, despite a recent drop in his approval ratings. When elected, the fiscal deficit was at a preoccupying 5.4 percent of GDP, Argentina was iso-lated from global capital markets, its foreign reserves were depleting rapidly and economic growth was stagnant.

Early reforms included lifting foreign currency controls which al-lowed Argentines to access foreign currency at their will, striking an agreement with holdout bondhold-ers which brought the country back to international capital markets for the first time in 15 years, and pub-lishing credible economic statistics as a base from which to make sound fiscal and monetary policy.

Luis Caputo was President Mac-ri’s envoy sent to New York to settle the dispute with the holdouts and take Argentina out of default. Mr. Caputo insists that the deal was a “game changer” for Argentina’s economy as it allowed national and provincial governments to borrow from abroad once again, allowing them to inject foreign capital into badly needed public infrastructure projects. Immediately following the deal came Argentina’s successful sovereign debt sale of $16.5 billion.

The private sector later respond-ed in April 2016 with Grupo Super-vielle’s first foreign equity offering in two years for the country, when it launched its IPO on the New York Stock Exchange. Corporate issues

soon followed from other compa-nies including Aeropuertos Argen-tina 2000 (AA2000) and Pampa Energía. AA2000 issued a $400m bond at 6.95 percent, the lowest rate of any Argentine corporation.

Next on the government’s agenda is to overhaul the “inef-ficient and unfair” tax regime and present a draft in June. “Our goal is to propose to the Congress in

2018 a tax reform that aims to have a simpler and more efficient tax system,” says Minister of the Treasury Nicolás Dujovne.

Other priorities include the now autonomous Central Bank’s fight against inflation, developing domestic capital markets, forg-ing trade pacts, boosting foreign investment, whose levels that are far below those in other big Latin American countries, and helping small and medium-sized enter-prises to export and integrate themselves in the global value chain. The number of SMEs sell-ing abroad slumped to 6,000 last year from 15,000 in 2011.

“Our job is to develop enough credit, and to spread that credit among the SMEs,” says Finance Minister Caputo.

Argentina has trade agreements with only 10 percent of the global GDP, while some neighbors have them with 90 percent, notes Ho-racio Reyser, Secretary of Interna-tional Economic Relations at the foreign ministry.

IMF officials visited Argentina last September for the first time in a decade, and praised the gov-ernment’s “ambitious and much-needed” reforms.

“Important progress has been made already in 2016. The peso is now market-determined and exchange controls have been es-sentially eliminated. The increase in utility tariffs has brought prices more in line with underlying costs. The settlement with creditors has allowed a return to international capital markets by both the private and public sector.

“Medium-term fiscal and infla-tion targets have been announced in conjunction with a transition toward a modern system of infla-tion targeting. Finally, the national statistics agency is being rebuilt, allowing for the publication of im-proved and credible statistics,” the IMF said in November.

Recent data shows Argentina is no longer in recession, and the IMF is forecasting 2.7 percent GDP growth this year, although inflation

has accelerated since that forecast was made. In February, consumer prices rose 2.5 percent from Janu-ary’s 1.3 percent, and may pick up further as additional power and gasoline subsidy cuts bite.

The Central Bank is targeting inflation of no more than 17 per-cent by end-2017, 8-12 percent in 2018 and 5 percent in 2019, when the government plans to have shrunk the still-gaping defi-cit to 2.2 percent of GDP. Its vice president, Demian Reidel, stresses the vitality of the institution’s au-tonomy to successfully curb and reduce inflation. “In the end, how credible the targets are depends on the autonomy of the Central Bank, among other factors. From a legal standpoint, this has been eroded as the previous government used the Central Bank to finance its spend-ing” he says.

But pressure is building. Early this month, conflicts with labor unions erupted in the first general strike that the administration has faced, paralyzing transportation and pro-ductivity nation-wide for 24 hours.

The IMF sees potential problems ahead, saying the architects of eco-nomic reform “should be sensitive to its impact on growth, jobs, and the most vulnerable segments of the population.”

The OECD, too, while encouraged by the changes and forecasting good growth ahead, says that “downside risks from an unfavorable external environment and domestic chal-lenges may affect the outlook. Sus-tained inflationary pressures could require a tighter monetary policy that could delay the recovery.”

“Poverty and inequality remain high by OECD standards. Invest-ment growth has been stagnant, resulting in an important infra-structure gap,” it said in an end-2016 report.

Between 2015 and 2016, the number of Argentines living in poverty grew by 1.5 million, the Pontifical Catholic University of Argentina said in a recent report, putting pressure on the Macri administration to move faster on growing the economy. “Our goal of zero poverty has to do with our vision for the country: that true development is not achieved by economic growth alone, but with the added element of ensuring so-cial inclusion,” explains Minister of Social Development Carolina Stan-ley, who calls for the private sector involvement in order to reduce the poverty rate, by creating jobs.

Minister Stanley has presented this argument at the Coloquio IDEA, a yearly gathering of the private sector hosted by the entre-preneurial advocacy group, IDEA. Although the private sector and the government in Argentina have historically been at arm’s length at best, or mired in crony capitalism at worst, some voices from the pri-vate sector today indicate the need

to accompany development. “We need to lift one-third of Argentines out of poverty not by populism or social welfare plans but by creating jobs for solid economic develop-ment and moving people out of the informal economy,” asserts IDEA’s president, Ignacio Stegmann, who is an SME manager himself. Delfín Jorge Ezequiel Carballo, Vice Pres-ident of Argentina’s second-largest private bank, Banco Macro, sees high potential returns for foreign investors. “We have very attractive sectors for investors from energy, infrastructure, and logistics, where there has been minimal investment for the past 15 years.”

Argentine companies’ shortage of foreign capital could be eased this year if U.S. index provider MSCI upgrades Argentina’s investment grade from frontier to emerging market. It already meets key crite-ria on the size of its top companies and ease of capital movement. In March, Moody’s raised Argentina’s sovereign credit rating outlook to positive from stable, signifying re-duced lending risk.

Internationally, the recent changes make Argentina a source of good news for the region. “Bra-zil is undergoing political turmoil at the moment, while Chile is second-guessing the policies that have been implemented in the past years. Mexico faces the Trump ef-fect, and Colombia faces its own challenges. Peru and Argentina stand out as being different,” says HSBC Argentina’s President, Ga-briel Martino.

Government challenges include improving productivity and foreign sales if investment and exports are to become the key economic growth drivers instead of consumption, as was the case during Cristina Kirch-ner’s presidency, he says.

“If Chile exports $50 billion worth of metals, why can’t Argentina do the same, given that we share the Andes Mountains? The same happens with food and energy—we used to export gas in the 1990s and we are now importing it,” adds Mr. Martino.

Finance Minister Caputo ac-knowledges it may be hard for Argentines to think in a long-term basis while their day-to-day life is becoming tougher.

“As the economy starts recover-ing and people realize that all the measures we have taken were for their benefit, they will have it easier at accepting we did the right thing,” he concludes.

REFORMS INJECT FOREIGN CAPITAL INTO THE ECONOMY, THOUGH CHALLENGES REMAINArgentina’s return to the global lending market has injected a shot in the arm into the economy. The next hurdles include reducing both the budget deficit and inflation

“Our goal is to propose to the Congress in 2018 a tax reform that aims to have a simpler and more efficient tax system”

Nicolás DujovNe, Minister of the Treasury

“The game changer was the agreement with the holdout creditors…it was a key decision that affected the way everyone regarded Argentina”

luis caPuto, Minister of Finance

“Brazil is undergoing political turmoil at the moment, while Chile is second-guessing the policies that have been implemented in the past years. Mexico faces the Trump effect and Colombia faces its own challenges. Peru and Argentina stand out as being different”

Gabriel MartiNo, President, HSBC Argentina

President Macri (left) swears in his Ministers of Finance and the Treasury, Luis Caputo and Nicolás Dujovne, respectively

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03

After a decade of relative isola-tion from the global community, the sudden return of Argentina to the investment map with Mauri-cio Macri’s early reforms caused euphoria and exuberance among the investors.

By the time Argentina con-cluded its global CEO-studded Business & Investment Forum in September 2016, the finance ministry had announced $30 bil-lion in pledged investments. Final execution and realization of these investments however, has proven more cumbersome, with barely $4.7 billion in FDI finally entering the economy in all of 2016.

Indeed, after spending a dec-ade out of the investment equa-tion, Argentina is playing catch up with the rest of region. Juan Procaccini, President of the newly consolidated Argentina Investment and Trade Promotion Agency affirms that the country needs $25 billion of investment a year for sustained development. While this figure is far above Argentina’s current figures, it is on par with the average of its neighbors.

The government has identified more than $260 billion worth of projects where Argentina requires capital input across a range of sectors, including $75 billion in infrastructure and a further $75 billion in energy and mining.

It is not just greater foreign capital the government is after, but local investment as well. Ar-gentina knows that in order to es-tablish foreign confidence in the economy, local investors must set the example before international firms follow suit.

The country’s largest private hydrocarbons company is doing just that. Encouraged by the new stable business environment, Pan American Energy (PAE) an-nounced $1.4 billion worth of oil and gas investments last July.

“The Macri reforms were nec-

essary in order to start building confidence in Argentina again,” explains Alejandro Bulgheroni, Honorary Chairman of PAE.

Mr. Bulgheroni, though, adds that he believes more still needs to be done in order for other com-panies to emulate PAE.

“Now that the business envi-ronment is more favorable for investment, efforts should be focused on unleashing the poten-tial the country has, starting with agribusiness, energy and mining,” he stresses.

“I believe that we should be looking at redefining the coun-try’s economic rules with a sector-by-sector approach. If the right business settings are achieved, then foreign invest-ments will consequently show up.”

Mr. Bulgheroni cites the exam-ple of the energy industry, where the risk is generally higher for investors, more of a long-term commitment, and prone to great-er market fluctuations than other sectors such as agriculture.

“Therefore, investors look for predictability in terms of regu-lations, which is something the government is working on,” he says.

This sentiment has been ech-oed by other industry leaders as well. “Local businesses must take the first step. Foreign inves-tors are waiting for us to set the example,” says Marcelo Mindlin, President of Pampa Energía – a shell company a decade ago and now one of the prime energy players in the country.

“Pampa has been one of the greatest Argentine examples in investment: not only in buying companies such as Petrobras Ar-gentina and IECSA (a local lead-ing infrastructure company), but also in our investments in produc-ing 300 MW more gas this year, and our property developments.

“It is an excellent opportunity because this is the first time in

15 years that we can go to the international capital markets to raise funds. In January, Pampa attempted to raise $500 mil-lion, yet we received offers for $4 billion.”

The boost in private domestic investment is not limited to the energy sector. IRSA Group, Ar-gentina’s largest real estate de-velopment firm, has been more active this year than in any other year in the past decade, says the company’s president, Eduardo Elsztain.

“We think this is a moment of great opportunity. We are devel-oping more square feet now than we were before. For example, our new technological center devel-opment, with Mercado Libre (the region’s e-commerce giant) as our anchor tenant, was our biggest acquisition in the last 25 years. We are also doubling the rental size of Alto Palermo (the company’s major shopping mall in Buenos Aires).

“We used to have no access to equity or credit for more than ten years, and were financing our projects with our own capital, but we now have regained ac-cess to credit and to equity. This is very positive for our business, because it means we can grow faster.”

The government of Argentina has confidently announced that it expects to double 2016’s ac-tual FDI total by the end of this year, largely due to upcoming tenders for renewable and non-renewable energy projects. U.S. firms alone are set to invest $2.3 billion in Argentina during 2017, including more than $100 million each from General Motors, Dow Chemical, AES Corp and Ford Motor Company.

And while some companies will want to wait to see a true reac-tivation of the economy before taking the plunge with major investments, Mr. Procaccini is confident that the reforms im-plemented have set the founda-tion for long-term growth and that this has been confirmed by the active investors, “they know [the economic problems] will be fixed, especially those who are

already here and know Argentina has changed.”

Demonstrating Argentina’s change will be vital as Argentina moves forward and presents the results of its reform agenda both to foreign investors and the local electorate, according to Carlos Giovanelli, a partner at Inverlat, one of Latin America’s largest pri-vate investment companies, and president of the food production giant Havanna SA. Stressing the long-term vision of the Macri ad-

ministration, he adds: “In terms of the magnitude of change, the government is managing well so far, President Macri accepts that he has to make changes within a framework of stability, and the government is respecting this and making them gradually.

“Much progress has been made, especially on the macro-economic front, but there is still a long journey ahead, because the path towards consolidation of growth is slow to reach.”

IT TAKES TWO TO TANGOThe government has outlined $260 billion worth of potential investment projects. After passing market-friendly reforms, the country is counting on local investors to invest and set the tone for foreigners to do the same

“Local business people must take the first step. It is an excellent opportunity because this is the first time in 15 years that we can go to the international capital markets to raise funds”

Marcelo MiNDliN, President, Pampa Energía

“This is a moment of op-portunity. We have been more active this year than in any other year in the past decade. We are developing more real estate now than ever before”

eDuarDo elsztaiN, President, IRSA Group and Banco Hipotecario

“Investors know [the economic problems] will be fixed, especially those who are already here and know Argentina has changed”

juaN ProcacciNi, President, Argentina Investment and Trade Promotion Agency

Buenos Aires has the distinction as the origin of more unicorn companies (startups that now make $1 billion) than any other city in Latin America.

The city’s unicorn entrepreneurs have brought their companies to dominate their region, and in some cases, the world. While the headquarters of Globant, Mercado Libre, OLX, and Despegar may resemble Silicon Valley over Buenos Aires, their

success is a testament to the Argentine excellence in the tech sector which has been a driver for the internationalization of the economy, and their success has not gone without notice.

Recognizing the potential, the city government has begun to invest in its technology district to spur more tech startups. “More than 210 companies have already settled. This has resulted in employment for more

than 10,000 people,” boasts Mayor Horacio Rodríguez Larreta.

The relationship appears to be symbiotic, according to Globant CEO Martín Migoya: “[the government’s support] shows that there is a new generation of businesspeople that, in spite of the headwinds and adversity, can build companies that grow in the long and are globally competitive.”

BUENOS AIRES’ UNICORNS

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For Argentina’s bankers, the last two decades have been a wild ride indeed. A 2001 run on all banks in the system, a freeze in deposits, and a currency devalua-tion devastated local players and drove some foreign institutions from the country. Later, under the Kirchner presidencies, the Central Bank endured frequent executive interventions. “The Central Bank’s independence has been eroded over the last decade. Upon taking office we started working on making it independ-ent and stronger again,” remarks Demian Reidel, the Central Bank’s current vice president.

The financial sector has a long way to go when compared to the region. Argentina’s banking penetration accounts for just 15 percent of GDP compared to 68 percent and 63 percent in Brazil and Chile respectively. Private sector lending represents just 12 percent of GDP, versus an aver-age of 52 percent in the rest of Latin America and 89.6 percent in other emerging markets. Sav-ings have been negligible due to capital flight, and mortgages are extremely hard to come by, with most Argentines obliged to pay for their homes upfront, often in dollars because of the historic instability of the peso. Giving autonomy to the Central Bank, Argentina’s return to the international capital markets and a tax amnesty law which will allow Argentines to bring back money stashed overseas is slowly bringing back confidence in the banking system.

“Argentina is a great place to invest in because it has what an investor is looking for. The only exception is confidence, which has been lost due to economic mismanagement over time. As William Pitt puts it, ‘Confidence is a plant of slow growth’,” says Eduardo Escasany, President of Grupo Financiero Galicia, the country’s largest private sector commercial bank ranked by de-posits, assets or loans.

“We used to have an illogical economic policy, with no refer-ence prices which made it very difficult to valuate salaries, or companies, or anything. We now have prices and economic stabil-ity, thanks to the reforms made during 2016. There are still many issues that need to be solved, though this is a marathon, not a sprint,” says Gabriel Martino, President of HSBC Argentina.

Trust here is the key word. In order to build up its banking

sector, Argentina must convince its customers that keeping their money in banks is safe – no small feat given the ‘corralito’ of 2001 is still fresh in the minds of many. Its large informal sector is also an issue, and initiatives need to be put in place to bank the un-banked. “The informal economy is quite large in Argentina, and small shops avoid paying taxes because they would be forced to shut down if they did not do so,” says Mr. Escasany.

Patricio Supervielle, President of Grupo Supervielle, adds that “Argentina has such a low credit penetration and such a modest financial system because sav-ings were penalized. Under the new government, and an autono-mous Central Bank, they have put forth the policy that savings must be rewarded in real terms. As long as the government con-tinues to deepen this policy, sav-ings will stay in Argentina.”

As Delfín Jorge Ezequiel Car-ballo, Vice President of Banco Macro, points out, Argentine entrepreneurs have shown themselves to be able to adapt to changing circumstances in a way that is not seen elsewhere around the world. “This new gov-ernment has to convince them that this time, the model will not go under, and that it is a good idea to invest. The private sector is naturally skeptical. The government has to play a strong role in communicating the direc-tion it is taking and its reasons.”

Banco Macro is putting in place an aggressive expansion plan to take advantage of the new economic reality. “Banco Macro is a large bank, but we understand that we clearly have to grow geographically. Argen-tine banks are mainly focused on the consumer side, but we know that the big opportunities are in corporate banking, which will see enormous growth,” says Mr. Carballo.

Foreign players are also in-creasingly eyeing the potential of Argentina’s domestic market for financial services, as demon-strated by the recent entry into American online payments giant Paypal, whose link-up with local bank Banco Comafi will allow Ar-gentine SME exporters to receive and withdraw foreign payments in pesos or dollars.

Recovery of the home mortgage marketOne of the goals of Macri is to reduce the housing deficit. For

BANKS POISEd TO PLAY GREATER ROLE IN NEW ECONOMIC ERAMoody’s Investors Service has kept Argentina’s banking system outlook at stable, citing the country’s strengthening economy and the creation of new opportunities for businesses and banks

“The bank holds 28 per-cent of all deposits and 11 percent of loans, but despite its financial solidity, it’s still far from reaching its objec-tive. It is my mission to put Banco Nación at the service of productive activity and real estate sector growth”

javier GoNzález FraGa,President, Banco Nación

“Under the new govern-ment, and an autonomous Central Bank, they have put forth the policy that sav-ings must be rewarded in real terms. As long as the government continues to deepen this policy, savings will stay in Argentina”

Patricio suPervielle, President, Grupo Supervielle

“Argentina is a great place to invest in because it has what an investor is look-ing for. The only exception is confidence, which has been lost due to economic mismanagement over time”

eDuarDo j. escasaNy, President, Grupo Financiero Galicia

that reason, the Central Bank has launched an index-linked loan to transform the mortgage market. “Our mortgage market is almost inexisten, which is why we have created an infla-tion index currency called UVA (unidad de valor adquisitivo, a coefficient which adjusts both the quotas and the capital to inflation), so that people can obtain real loans and hopefully incentivize the growth of the mortgage market here,” says Mr. Reidel. The newly-announced continuation of the Plan PRO-CREAR by President Macri, a social housing program enacted by the previous government and expanded last year, means a fur-ther $3 billion will be earmarked to help Argentines buy their own

homes. Banco Nación, the larg-est state-owned bank, is playing a central role in the roll-out of this initiative, having already put in 30 billion pesos ($2 billion) to the plan, and with a further 30 billion pesos set aside for vari-ous real estate investment plans set out by the government.

Javier González Fraga, the bank’s president, points out that this is just the beginning. “The bank holds 28 percent of all de-posits and 11 percent of loans, but despite its financial solidity, it’s still far from reaching its ob-jective. It is my mission to put Banco Nación at the service of productive activity and real es-tate sector growth.”

He adds that the bank aims to double or even triple its loan

book, putting its balance sheet to work on closing the hous-ing gap in the country. This is something of a step change for the state-owned bank; in the past, its lending profile has been more oriented toward the public sector rather than SME or mortgage lending. And where Banco Nación goes, the rest of Argentina’s banks swiftly follow.

“We will deliberately direct an increasing percentage of our loans to mortgages,” says Juan Curutchet, President of Banco Provincia - the second largest bank in the nation by value and deposits which is publicly owned by the province of Buenos Aires government. “Only 3 percent of our total loans are in mortgages. We are planning to actively ad-dress the people who want to buy a house.” In 2015, Banco Provincia had only approved a total of 300 mortgages, but it expects to triple this figure this year. “This is not much, but it is still a big change. People will start asking about mortgages and comparing prices between banks. I expect Banco Provincia to play an increasing role in the market.”

For Banco Hipotecario, the country’s foremost mortgage lender, new opportunities are opening up in property lending. “The banking sector is very dy-namic at the moment. We have a low credit to GDP ratio when compared to our neighbors, but it will go up as inflation con-tinues decelerating and confi-dence makes Argentines bring their savings back to the coun-try,” says Eduardo Elsztain, the bank’s president, who is also president of IRSA Group.

Banco Hipotecario’s project to buy up unused land and obtain finance to develop properties upon it became the motor of the PROCREAR program. “The deliv-ery of the solution of housing has

been very positive. Argentines bestow great value on owning their homes, and the demand is still very large; many people want to have access to their first home. The access to financing will come when Argentines start trusting our own currency.”

Renewed interest in capital marketsThe new climate is gradually bringing confidence back. “Un-der the previous administration, there weren’t as many incen-tives. The current government has put more focus on invest-ment, and entrepreneurship is less stigmatized today. There is more appetite for generat-ing investment, and it shows,” says Carlos Giovanelli, President of Havanna SA, which recently raised 158 million pesos ($11 million) in the country’s first local IPO since 2013.

Another IPO, this time for Grupo Supervielle, brought in both local and foreign inves-tors, showing that for many, Argentina’s banking sector is a safe bet once again. “This is very good news for the country and means a complete change of plans and corporate govern-ance. Our leadership has become multifaceted as we bring in in-vestors and give them a voice,” says Mr. Supervielle.

The next step for Argentina is to expand its local capital mar-kets offering, which is part of the plan already underway by BYMA, the newly-consolidat-ed stock exchange. “We hope to integrate all of Argentina’s markets in order to be able to compete with the North Ameri-can exchanges,” says Ernesto Allaria, President of BYMA. The bourse, which is basing its business model around that of Brazil’s Bovespa, wants the na-tion’s strongest companies to list on the market and attract top-quality foreign capital.

“The Argentine capital mar-ket could be 20 times bigger than what it is. Brazil’s GDP is three times that of Argentina, but Brazil trades $2 billion on its market, while Argentina trades around $20 million,” adds Mr. Allaria. One recur-rent theme unites every area of the financial sector in Ar-gentina: there is a lot of room for growth. And thus far, all indications are that the finan-cial sector in the country has an unprecedented opportunity to reach its full potential.

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Ranked a paltry 87th out of 140 countries in the world by the World Economic Forum for competitive-ness in infrastructure – behind Ivory Coast and just ahead of Albania – Argentina’s creaking infrastructure, from unreliable power distribution to poor transport links, is holding it back. Meanwhile, Chile and Brazil rank 45th and 74th respectively, demonstrating the extent to which Argentina lost out to its neighbors in terms of foreign direct invest-ment under the mismanagement of previous administrations.

The country’s infrastructure woes are multiple: during harvest time, Ar-gentine farmers struggle to get their crops to market along clogged roads. Getting products out to export mar-kets is an exercise in patience, given cargo trains are both unreliable and limited, and international links via air and land are less than optimal. Meanwhile, the country’s natural gas pipelines have no more capacity as demand outpaces domestic produc-tion. Power outages have become a fact of life, particularly during the summer months. Unless Argentina addresses its infrastructure deficit, it will be unable to reach its full eco-nomic potential.

“The infrastructure deficit ham-pers the productive development of the country. We see that for the first time in many years there is a govern-ment that wants to improve the pro-ductivity and competitivness of the economy by investing in infrastruc-ture and not through means such as manipulating monetary policy,” remarks Francisco Ortega, Director of McKinsey Argentina.

“The most difficult part of the job has been done,” says Horacio Reyser, Secretary of International Economic Relations at the Foreign Ministry, referring to Argentina’s progress in boosting competitive-ness through measures including freeing capital controls and lower-ing subsidies to curb inflation and cut the fiscal deficit. The next step is to close the infrastructure gap.

Realizing that tackling the issue will require an enormous amount of investment which can only be met by tapping all possible sources, Presi-dent Macri launched the National Transport Plan, which aims to in-vest $33.2 billion in infrastructure between 2016 and 2019. This will include a large contribution from the private sector. Projects range from airport upgrades to new roads and railway lines, as well as tunnels through the Andes to create transport links with Chile. And with new legislation in place, optimism abounds about the chance of com-pleting all the work needed.

“The public-private partnership law is quite important for boost-ing long-term investment from the private sector,” says Mr. Rey-ser. “Argentina has almost zero participation from the private sector in infrastructure, as op-posed to countries like Colombia that have $30-40 billion destined to finance infrastructure. This is a level that Argentina could cer-tainly achieve with this PPP law.” The government’s objective is to attract more than $5 billion a year in investments through these part-nerships, which are widely seen as more attractive to investors than the previous system in Argentina, which managed private participa-tion in public projects through a concession scheme.

For Minister of Transport Guill-ermo Dietrich, who is leading the president’s ambitious plan, the po-tential is enormous. “We are con-necting the whole country with highways, railways and airports,” he explains. “There are over 1,116 kms (693 miles) of highways cur-rently under construction, however we target to build a grand total of 2,800 kilometers (1,739 miles) across the country by 2019. This is the most ambitious road plan in the history of Argentina.”

While Minister Dietrich feels the palpable interest in the scope and speed of his projects, inves-tors and observers know that historically, public works projects have been a cesspool of corrup-tion and inefficiency. In response, Mr. Dietrich is outlining his new case for transparency.

“We are working every single day in order to rebuild trust,” he says, adding that the government has changed completely the way in which tenders are held. “They are now published online, so everyone has access to them. Rules are now the same for everyone, and all stake holders have access to the condi-tions for any tender.”

For the neglected North of Ar-gentina, there is a special program which aims to tackle the geographic inequity which has plagued the coun-try – and threatened stability – for so long. “Despite the North’s integral role in the foundation of our country, it has consistently been neglected by all governments ever since. This is why we have gotten to work on Plan Belgrano,” said President Macri while visiting Salta province.

Plan Belgrano includes $16 bil-lion of infrastructure investment over the next decade. The idea is to bring roads, railways and air routes up to international standards as well as invest in water and sanitation. The

World Bank has recently approved a $125 million loan as part of the initiative, to which the government is adding a further $25 million. This will be used to build new and rehabil-itate existing water infrastructure. The private sector has reacted to the government’s opening to investment. “We also have large investments and continuous improvements in Tucumán, Iguazú, and Jujuy. In the medium term, our idea is to focus on Formosa and Catamarca,” says Matías Patanian, CEO of Aeropuer-tos Argentina 2000 (AA2000), the country’s largest airport operator.

Meanwhile, in a bid to put Argen-tina firmly back on the trade map as a link between Mercosur and the Pacific Alliance, the country is set to start work on the Agua Negra cross-border tunnel project to Chile. The project, which will connect Ar-gentina’s San Juan province to Co-quimbo in Chile, will open up a new trade corridor between the Atlantic town of Porto Alegre in Brazil and the Pacific port of Coquimbo.

Sergio Uñac, Governor of San Juan, sees enormous economic po-tential for Argentina’s producers as a result. “Chile has free trade agree-ments with various countries. Those agreements cover 7,000 products, while at the moment they are only exporting 4,000. Through the tun-nel, we can provide them the 3,000 remaining products for re-export,” adds Mr. Uñac.

Benefits to AgribusinessPerhaps the largest beneficiaries of Argentina’s renewed focus on infrastructure development will be its farmers. “Historically, Argentina has been a champion for food pro-duction. However, due to the lack of investment, the sector has lost its

competitive edge. Our infrastructure investments are aimed at recovering our competitiveness and achieving the objective of feeding 600 mil-lion people by 2019,” says Ricardo Buryaile, Minister of Agribusiness.

Last year’s floods devastated vast tracts of farmland, leading to a surge in the price of soybeans, and were widely attributed to the building of clandestine irrigation canals in the absence of proper water infrastructure. The govern-ment’s plans to invest $10 billion over four years in projects including canals, storm drains and warning systems should mitigate the impact of floods in the future. What’s more, better road, rail and air infrastruc-ture linking farms not only with the rest of Argentina but to the rest of the world, mean more farmers can export their goods.

Today, the country is estimated to produce around 100 million metric tons of soybeans, corn, wheat, and related crops. Analysts predict that the combination of cuts in export taxes and other economic measures coupled with better infrastructure in the northern provinces will see this figure jump to 160 million metric tons by 2025.

Little by little, public reforms are opening the way for private sector investment in agribusiness. Roberto Urquía, Director of Aceitera General Deheza (AGD), one of the country’s most prominent value-added agri-businesses, says, “We are working on the logistics aspect, as it is a significant proportion of the final cost of our production. As a con-sequence of the reduction of taxes on maize exports, we are building and inland elevator in Pampa del Infierno, in Chaco province. Since taxes on soybean and its derivatives

were lowered but not eliminated, there will be a larger production of maize which has come down to zero export tax. One hectare of land produces 6,600 pounds of soybean but 17,600 pounds of maize.”

Aviation Sector GrowthBoosting air transport is a major fac-tor of the country-wide infrastruc-ture development plan. “Argentina is a remote country, away from the normal routes of connectivity. For our own development, it is vital that we develop our domestic connectivity, as well as our links to the region and the world. Currently, Argentines fly much less than our neighbors, even with a larger population. Argentina does not have a strong network,” says Mario Dell’Acqua, President of national flag carrier Aerolíneas Ar-gentinas. The airline is currently go-ing through a major transformation by putting in place professional man-agement and establishing processes in order to reduce its dependence from government subsidies. While the Macri-era leadership has been able to cut the airline’s budget deficit in half in the first year, Aerolíneas Argentinas will still cost local tax-payers around $180 million in 2017, according to local press. However, the government is confident that with the new management they can turn the company around.

He adds that Argentines drive three times longer distances than people in other countries in the region, with all of the consequenc-es that that brings – from lost working time to higher risks of accidents. But as a result of the new government’s deregulation of air transport, which brought with it the entrance of low cost airlines, and the massive invest-

ments in airports across the coun-try, Argentines are set to take to the skies.

“Brazil used to have just one main airline, but after they opened up to competition, the network became stronger. Brazilians who were not used to flying started doing so, and the Brazilian market more than dou-bled within 10 years. Our vision is to be the leader in the market in a five-year period, losing market share but in a market that is twice the size. Instead of having 80 percent of our current eight million passengers per year market, we would rather have 60 percent share of a 15 million pas-senger market,” says Mr. Dell’Acqua.

Minister Dietrich adds that inter-national airlines have already started to react positively to the changes in Argentina’s aviation sector. “They are showing it by improving frequency. They are all analyzing how to improve their business in the country.”

Righting past wrongs is key for the air transport sector. Mr. Dell’Acqua recalls that during the previous administration, the desti-nation of Córdoba was ignored due to political differences between the national and provincial lead-ership. The result left Argentina’s second-largest city without an air hub, instead concentrating flights in and out of Buenos Aires. “When Aerolíneas Argentinas started in-creasing the flight frequency to Córdoba, the city responded quite well. We doubled both the flight frequency and passenger num-bers,” adds Mr. Dell’Acqua.

New investments from AA2000 will see further expansion. “We are making large investments in airports such as Córdoba and Mendoza, and we want to see new companies set-ting up there, as well as in [the Bue-nos Aires airports of] Aeroparque and Ezeiza,” says Mr. Patanian.

These investments have been made possible by the company’s suc-cessful international debt placement on the capital markets of $400 mil-lion at a rate of 6.95 percent, the low-est interest rate achieved recently by any Argentine corporation to date. “There was an enormous amount of investor interest and the placement was oversubscribed to the extent that for a placement of up to $400 million, $2.6 billion in offers were received,” says Mr. Patanian.

Of course, the focus is not solely upon opening up new routes for the country’s flag carrier. AA2000 plans to open up a purpose-built terminal at Ezeiza airport for low-cost airlines, and also aims to keep on investing in the capital’s airports to bring in more international and regional players.

Minister of Transport Guillermo Dietrich and President of Argentine Freight Trains Ezequiel Lemos over-see the arrival of new locomotives for the reactivated Belgrano Freight Line

$33.2 BILLION FOR TRANSPORT INFRASTRUCTURE THROUGH 2019The new National Transport Plan aims to close Argentina’s infrastructure gap to make the economy regionally and globally competitive.

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As the world’s eighth-largest coun-try, Argentina is as varied as it is vast. This land of many contrasts has terrain spanning Pampas grassland, rainforests, the Andes mountain range and glacial lakes, and each of its 23 provinces – and autono-mous city, Buenos Aires – boasts its own unique identity. While the provinces and the capital have their own constitutions, they exist under a federal system, and the relation-ship between them and the central government has often been frac-tious. But under President Macri’s administration, a new focus on es-tablishing an open dialogue between the national government and the provinces has been made a priority in order to ensure the development of Argentina’s regional economies.

“This is a federal country,” points out Rogelio Frigerio, Minister of the Interior, who is charged with repre-senting the national government in its relations with the provinces. “In recent years, this had been forgotten and Argentina has in-effect become a unitary state with power concen-trated in the central government in order to subdue politically those ju-risdictions with which it disagreed.” As only five of the 23 provinces are governed by the Cambiemos (Let’s Change) coalition, building political consensus around the country is key to maintaining stability.

Miguel Lifschitz, the governor of Santa Fe province, who is not a member of Cambiemos, explains that, “we have political differences with the government, but we be-lieve that that cannot be in any way an obstacle when it comes to coordinating policies with the state and when it comes to us having a cordial and respectful relationship.”

Today, the government is working to recover the principle of federal-ism. “Part of this recovery comes about because the provinces have greater autonomy and a direct link with the rest of the world,” says Minister Frigerio. For him, greater autonomy comes with greater re-sponsibility. “We have brought back a very important instrument, the fiscal responsibility law, where the provinces commit themselves to gradually decrease the deficit along with the national government.”

Little by little, the central govern-ment is devolving powers to the sub-national governments, enabling Ar-gentina’s regions to make decisions in their own best interests. “One of the first decisions President Macri made after being elected is the transfer of the management of the Federal Police to the City of Bue-

nos Aires,” says Horacio Rodríguez Larreta, the city’s mayor. “This is a huge challenge and opportunity for us.” Security has long been one of the most contentious issues for the city, and the citizens of Buenos Aires eagerly received this move. Coopera-tion with the national government has also granted Mayor Larreta greater authority through the trans-fer of previously federal land, untying his hands to develop infrastructure projects, and urbanize city slums.

The country’s largest province, Buenos Aires, home to 40 percent of Argentina’s population, was on the verge of bankruptcy when cur-rent Governor María Eugenia Vidal came into office. Her daunting task of fighting organized crime, clean-ing house in the government, and building much-needed infrastruc-ture has been one of the most watched political stories of the new administration. Previously deputy mayor of the city of Bue-nos Aires and a trusted confidant of Mauricio Macri, Vidal is the first

non-Peronist to govern the province in a generation. “For the first time in 25 years, the national government has started to work as a team with the provincial government. They no longer see us as political adversar-ies and are working alongside us toward common goals. This gives the Province of Buenos Aires an enormous potential,” says Ms. Vid-al. Through coordination with the national government, the Buenos Aires has been able to issue $4.5 billion in foreign debt to finance public projects province-wide.

All of these decisions are helping Argentina to combat the inequities brought about by its geographical divide. The country, which simplis-tically speaking is made up of a poor, moderately populated north, a middle-income, densely populated center, and a wealthy and lightly populated south “boasts very strong natural resources across various sec-tors – from mining to agribusiness to energy – however has been very under-penetrated in terms of invest-ment over the past ten years,” as Juan Procaccini, President of the Argentina Investment and Trade Promotion Agency points out.

“The result is a relatively new market, which at the moment has less competition. Very few coun-tries can compete with such bullet points for investment.” By driving regional economic development, the country hopes to lift more peo-ple out of poverty and boost trade.

“As 75 percent of the population in Argentina is concentrated into five cities, this leaves the ‘interior’ of the country anemic. We must popu-

late the cities in the countryside to offset this imbalance. If the agricul-tural sector grows, this is positive for the whole country as it stops the flow of people migrating to the big cities,” says Roberto Urquía, Di-rector of AGD, one of the country’s largest value-added agribusinesses.

One example of agricultural de-velopment is that of Grupo Lucci. Based in Tucuman, long amongst the most underdeveloped Argentine provinces, Lucci has become one of the largest producers of lemons in the world. Currently 80% of the world’s lemons originate from this province, putting it on the global investment map for global executives like Muhtar Kent of Coca-Cola, who visited in 2016, and later followed up with a $1 billion investment. The company is currently going through a diversi-fication process contributing to the development of other provinces in the North of the country. “Because of the inelasticity of lemon demand, it was not easy for us to continue to grow in Tucumán, says Daniel Lucci, Director of the company. “We have diversified, but in keeping with the typical activities of the region. We started with sugarcane in Tucumán and then went on into livestock in Santiago del Estero and Catamarca. In parallel, we developed agriculture: soy, wheat and corn. Undoubtedly with this government it has become easier to reach the U.S. market, which is our objective.”

In the southernmost province of Tierra del Fuego, economic diversi-fication has become the new norm. “We have consolidated a strong industrial hub which enables us

to produce products for the rest of the country and for exports as well. We are working on regional and sectorial growth, complement-ing other sectors of the country, and integrating our producers in the value chains,” says Governor Rosana Bertone.

With ever-strengthening ties be-tween the provincial and national governments, the economic devel-opment of the “new” Argentina is set to reach every corner of the country.

San Juan Located in the Cuyo Region in the west of Argentina, the min-ing province of San Juan shares a long border with Chile. As one of the few provinces to have fully approved open pit mining, San Juan is a major draw for extrac-tive industries investors, although as Governor Sergio Uñac is keen to point out, San Juan doesn’t accept just any mining company. “We do not tolerate irresponsible mining. Our government is present in the sector and we ensure that regulations are implemented.” On more than one occasion, provincial authorities have halted production when informed of cyanide leakage to ensure public safety.

San Juan celebrated when, late last year, the national government moved to unify mining regulations under a proposed federal law as part of an effort to jump-start in-vestment in the sector. The regu-lations included the elimination of foreign export tax on minerals that rendered projects in other countries more attractive.

However, a proposal by the op-position party, of which Mr. Uñac is a member, to reinstate mining taxes and export duties, looked set to dampen investor enthusiasm for Argentina’s mines, potentially setting San Juan back. In a move widely seen as indicative of the new Argentine ethos of respect for the rule of law and open dialogue, Mr. Uñac went to the central govern-ment, bringing in his party and other stakeholders, and was successful in pushing the Upper Chamber to de-cline the opposition’s proposal. “The role of the provinces is transcenden-tal. We live in a federal country, as established by the Constitution, but nonetheless we have to make this a reality.”

San Juan stands out among Ar-gentine provinces in that it has been running a fiscal balance for the past several years, with numbers for the first quarter of 2017 its best yet. As a result, it is not looking to the inter-national capital markets to help with further growth. “In principle, given that we have a balanced budget, we are not considering issuing bonds,” says Mr. Uñac.

It is, however, receiving foreign in-vestment in its transformative infra-structure projects. “We are currently undertaking the bidding process for an energy generation project, where dual-purpose dykes will be built to irrigate our agricultural land and generate energy for the province.” The province will also be home to the Agua Negra Tunnel, which will connect Argentina with the Chilean coast via the Coquimbo Port, joining the Atlantic and the Pacific trade routes. As Mercosur moves closer to signing a free trade agreement with the Pacific Alliance, this $1.6 billion investment by the IDB will revolu-tionize commerce in the region, with benefits reaching as far as Brazil, Paraguay and Uruguay.

“The Agua Negra Tunnel and the Port of Coquimbo will enable us to reach the Asian market, which is growing both in population and

The Minister of the Interior and six provincial governors from various political parties present investment

opportunities and the new cooperation between the two levels of government

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RESETTING RELATIONSWITH THE PROvINCESBuenos Aires works with the governors to fulfill the constitutional promise of federalism and develop regional economies

“For the first time in 25 years, the national govern-ment has started to work as a team with the provin-cial government. They no longer see us as political adversaries”

María euGeNia viDal, Governor, Buenos Aires Province

“The role of the provinces is transcendental. We live in a federal country, as estab-lished by the Constitution, but nonetheless we have to make this a reality”

serGio uñac, Governor, San Juan Province

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purchasing power. As a result of this tunnel, San Juan is going to undergo substantial changes,” says Mr. Uñac, adding that the in-creased goods transport through the province will bring with it em-ployment and investment.

But beyond mining and infra-structure, this province, dotted with vineyards, has diversified its economy into tourism and agroin-dustry. “San Juan has a lot to offer. Tourism is still underexploited, and there is the potential to double the growth it has had so far,” says Mr. Uñac. And with a world-class uni-versity with over 15,000 students studying degrees from engineer-ing to the Arts, architecture and social sciences, San Juan’s human resources are among the best in the country, making it an obvious choice for investors.

Chaco In the north of the country, the province of Chaco seeks to inject foreign and domestic capital to grow its economy, with its gov-ernor Domingo Peppo prioritizing development over politics. While a member of the Peronist opposition to the President’s Cambiemos coa-lition, Mr. Peppo is cooperating to attract private investment, which he hopes will be lured to Chaco by the public investment he has put in infrastructure to make the econ-omy more competitive, as well as the province’s natural advantages for logistics.

“The province has numerous strengths,” says Mr. Peppo. “First, a strategic location with respect to Mercosur and great accessibility to the Paraná-Paraguay Waterway. We have two fully operational ports: Barranquera and Las Pal-mas, the latter of which we have recently renovated in an infrastruc-ture overhaul. Second is our human capital, with our three universities that attract students from outside the province and the region. Finally, our government’s commitment to accompany private investments with our support.”

With Argentina’s aperture to global capital markets and federal reforms granting greater autonomy to the provinces, the international investor faces a palette of opportu-nities. “The perception of Argentina is positive. Argentina was closed, but it has now opened up to the world. We are conscious that we need to maintain our identity and our autonomy in order to benefit,”

says Mr. Peppo. In 2016, Chaco went to the debt market for the first time, taking out a $250 loan at 9.5 percent. Governor Peppo’s successful execution of his public works projects will be key if the province wants better rates in the future. While the difficult task will take time, light began to show in March, when Moody’s upgraded the provinces investment rating from Caa3 to B3. Still an unfavorable rat-ing, but Mr. Peppo is quick to point out that Chaco was the only prov-ince to receive such an upgrade, and outlines his plan. “Our foreign debt will be used to finance public infrastructure projects to ensure long-term growth, not to cover ad-ministrational costs such as paying employee salaries.” Currently, there are 200 infrastructure projects un-derway throughout the province to install basic services to fill the gaps for citizens and businesses alike.

Primarily known for producing cotton, this is one sector where Chaco has been able to create a ful-ly integrated value chain: from the design to the finished product. The Governor now wants to emulate the success with other products. “Our objective is to incorporate added value and transform raw materials into products that can be sold domestically or exported,” he says, adding that his govern-ment is putting in place training programs to improve the level of human resources to meet the needs of investors. For him, Chaco’s strength comes from its plurality. Regional and national migrations of workers and families have given the province a unique character, made up of a mix of cultures, from Spanish to Italian, Paraguayan and native peoples.

Although officially opposed to Mr. Macri’s party, Mr. Peppo has argued for working with the na-tional government to achieve com-mon goals, and believes that “the possibility of creating dialogue and building relationships with the na-tional government has permitted to some extent the implementa-tion of a program of activities of which we can meet achieve com-mon ground. I believe in a tripartite partnership: the public sector, the private sector, and the education and knowledge institutions. The re-lationship between the three parts has to be fluid in order to generate opportunities.”

Misiones One of Argentina’s smallest prov-inces, Misiones is arguably its most international, with 91 percent of its territory bordering Brazil and Paraguay. As a result, as Hugo Pas-salacqua, the province’s governor, points out, Argentina’s newfound focus on external relations is very much in Misiones’ interest. “Although Argentina itself is a cocktail of ethnicities, Misiones is unusual. It’s a large confluence of diverse ethnic realities. We under-stand very well what international relations mean.”

Mr. Passalacqua has played an active role in Argentina’s recent for-ays into international relationship-building, accompanying President Macri on his state visit to Brazil in February and travelling with Minis-ter Rogelio Frigerio to Washington D.C. as part of the IDB meetings.

“We have travelled to vari-ous countries around the world showing them the opportunities Misiones has to offer. For example, we have managed to get a Polish company to come and invest here, creating employment for the peo-ple of Misiones. We will keep on travelling and demonstrating the favorable conditions of Misiones in order to attract more investment and more and better jobs,” says Mr. Passalacqua.

For him, attracting foreign in-vestment is now easier because the nation is opening up to the world, but he cautions that the public sector now needs to work quickly to put in place the right infrastructure and security envi-ronment to smooth the path for new business. “We need to work together,” he says. “I believe that the President has a historic oppor-tunity to finally unify Argentina.”

The economy of Misiones is based around agriculture and tour-ism. Indeed, the province is home to fully half of Argentina’s biodi-versity, which the government sees as an important responsibility. Its star attraction is the world-famous Iguazú Falls, and with the dereg-ulation of air transport, Misiones hopes to see an increase in local and international tourists. “We have always dreamed of being able to increase the connectivity of our province; therefore, we got started working with the national government on in this initiative in March 2016. Now that it has been passed, we are very satisfied this is the key for the tourism sector and to generate jobs for the people of Misiones,” says Mr. Passalacqua. Misiones will increase the number of flights from 11 to 24 including low-cost airlines. Nonetheless, the plan now is for Misiones to diver-sify its economy into industry. “We have recently put out a tender for the port, which is going to be very important for the south of Brazil. We have a 100-hectare industrial park and we are expecting to see foreign investment there,” adds Mr. Passalacqua. “Our aim is to work in conjunction with the public and private sectors, as two parts of the same society.”

In Argentina, whose resources of conventional oil and gas pale in comparison to its neighbors like Brazil and Venezuela, one of the top priorities for the administration of President Mauricio Macri is secur-ing future energy self-sufficiency – and crucial to that goal is the Vaca Muerta (“Dead Cow”) basin in Neuquén province.

Containing some of the world’s largest shale deposits, Vaca Muer-ta’s estimated reserves are at 308 trillion cubic feet of gas and 16 billion barrels of oil. Among the companies vying for a piece of the meat in Neuquén are ExxonMobil, Chevron, Total, Petrobras, and Win-tershall.

Vaca Muerta failed to take off under the previous administration of Cristina Kirchner. But efforts by President Macri to resurrect the “dead cow” appear to have paid off. Due to the high cost and complexi-ties of extracting unconventional oil and gas, technology and productiv-ity was critical to success. The latter came in February’s landmark deal between the national and provincial governments together with the la-bor unions and energy companies. This finally unlocked the door as companies became convinced of the conditions in place, with a number of them announcing a fresh wave of investments in the basin. These include Shell, which announced a $300 million joint venture with Ar-gentine national oil company YPF, and Argentina’s Tecpetrol, part of the Techint Group, which said in March that it would invest $2.3 bil-lion in the Vaca Muerta shale fields through 2019. “There are companies that don’t even operate in Argen-tina that want to come here now because we have been able to put Vaca Muerta back on the invest-ment map by reducing production costs to $40 a barrel,” claims Miguel Gutiérrez, President of YPF.

“Argentina has large reserves of unconventional hydrocarbons and this is an attractive invest-ment opportunity,” says Alejandro Bulgheroni, Honorary Chairman of Pan American Energy (PAE). “Com-panies will start bringing new tech-nology and equipment. Once one or two start doing this, the others will follow very fast.”

In March, PAE announced that it had re-entered the Vaca Muerta shale formation after mobilizing a drilling rig. Once drilling has been completed, PAE will mobilize sup-plies, services and equipment for its partner, Canadian-based Madalena Energy, to complete the well in 19 stages of hydraulic fracks.

Since 2001, Pan American En-ergy has increased its conventional oil and gas production in Argentina from 8 percent to 18 percent, ac-

cording to Mr. Bulgheroni. “This is because we invested when no one else did. Because of this, we also have the largest oil reserve in the country. Our investing partners fol-low our advice because we are also risking our own money in a country in which we have a lot at stake.”

While Argentina’s largest energy player YPF is state-controlled, its President Miguel Gutiérrez is quick to point out that, unlike other NOCs in the region, 49 percent of YPF is held by private investors, and is listed on the New York Stock Ex-change.

“We make up approximately 50 percent of the market, so changes in the industry directly affect us, such as the price fluctuations. While 2016 has been a year of transition, we believe that the future will be much better as we can move for-ward with a much clearer horizon in the regulatory environment.”

Renewable EnergyAside from shale oil and gas, invest-ment in renewable energy is also a key priority for the government of Mauricio Macri. Last year President Macri launched the first phase of Plan Renovar, the program that will put in place the national promise set out by the Renewable Energy Law, mandating for 20 percent of Ar-

gentina’s energy production coming from renewable sources, by 2025. For this to happen, the government needs to attract around $20 billion in investment in renewables over the next decade.

Argentina’s potential in wind and solar is huge, but until now very lit-tle investment has been made due to the unfavorable business climate under previous administrations.

However, thanks to the improv-ing regulatory environment under the Macri administration, renew-able energy has been identified by the World Bank as one of the most attractive sectors for investment.

“The regulatory framework which Macri’s administration has implemented was overdue for many years, and has provided normalcy for the sector,” says President of Pampa Energía, Marcelo Mindlin. “Last year the government success-fully tendered projects in thermal and renewable energy. Over this year and the next, the private sec-tor will be investing in 6,000 MW – half renewable and half thermal. It is clear that the private sector is leading the drive in clean energy. Pampa Energía was awarded 400 MW of projects in Plan Renovar Phase 1. It gives us the opportunity to later go to the next round of Plan Renovar with more strength.”

Last year, Pampa Energía bought up Brazilian oil giant Petrobras’ Argentinean business, making it now one of the largest energy companies in Argentina. In Janu-ary, Pampa was Argentina’s second company of the year to issue a for-eign bond in 2017, which was eight times oversubscribed.

“After covering our acquisition of Petrobras Argentina, we will care-fully invest the remaining $600 million in capital in production of natural gas and new generation,” adds Mr. Mindlin. “By using this money wisely, we will grow our market value and strengthen our possibilities of doing a new round of financing for more growth.”

YPF, which previously invested nothing in renewables, is now in-vesting in wind power in Chubut Province, and is exploring new pro-jects in solar and thermal power generation to diversify its energy portfolio.

A former YPF Vice President before she started her own re-newable energy consultancy com-pany, Luft Energia, Doris Capurro agrees, “As the country’s leading energy company, YPF can be the example for renewables, and di-versify its own energy mix. They can generate their own power for their facilities to operate below the ground with the above-the-ground energy. There is good wind on top of Vaca Muerta!”

RESURRECTING ‘THE dEAd COW’Argentina looks to secure its energy self-sufficiency through billion-dollar investments in the Vaca Muerta basin, Latin America’s largest shale development, and in renewable energies such as wind and solar power

“We will keep on travelling and demonstrating the favorable conditions of Misiones in order to attract more investment and more and better jobs”

HuGo Passalacqua, Governor, Misiones Province

MiGuel Gutiérrez, President , YPF

alejaNDro bulGHeroNi, Honorary Chairman, Pan American Energy

“The province has nu-merous strengths ... Our objective is to incorporate added value and trans-form raw materials into products that can be sold domestically or exported”

DoMiNGo PePPo, Governor, Chaco Province

THE WORLDFOLIOFriday, April 28, 201708AN ADVERTISING SUPPLEMENT TO THE WASHINGTON POST

Between 2013 and 2015, the loss of 3.1 million domestic tourists and the slump in arrivals from Brazil, its largest source market, hit Argen-tina hard. But after some difficult years, Argentina’s tourism industry looks to be on the rise again.

Fresh impetus was given to the sector when President Mauricio Macri unveiled the National Tour-ism Plan last May, which aims to boost foreign tourists to 9 million, foreign tourism receipts to $8 bil-lion, and domestic tourists to 70 million by the end of 2019.

Hitting these targets will raise tourism employment by 28 per-cent by generating “300,000 new jobs during the four years across the entire value chain of the tour-ism industry: innovating, applying

new technologies, incentivizing entrepreneurs and promoting the training and quality in every Ar-gentine destination,” says Tourism Minister Gustavo Santos.

The increases can partly be at-tributed to an important measure

adopted by the government of President Macri in 2016, which has made a stay in Argentina consider-ably cheaper for foreign visitors. In September, Mr. Macri signed a de-cree to remove the 21 percent VAT charge on all accommodation ser-

vices for foreign guests. The gov-ernment expects the measure to help attract 95,000 new tourists in the first year, who would spend around $70 million and would help to create 8,000 new jobs. This is estimated to increase by 2019 to 120,000 tourists, spending $90 million. U.S. travelers can enjoy fur-ther savings thanks to the removal of the $160 visa fee, which came into permanent effect in August.

Key to the government’s 2019 targets will be promotion and marketing. As well as marketing already-popular destinations such as Buenos Aires, Patagonia and the wine region of Mendoza, the govern-ment wants to promote and develop lesser-known regions in the North, as part of its drive to boost regional

economic growth. There is a plan to create an eco-tourism corridor along the littoral region of Misiones, Chaco, Formosa, and Corrientes, which will see the construction of new hotels, roads and other infrastructure. A thriving tourism industry would pro-vide vital employment opportunities for these poorer regions, whose potential for tourism development lies in their wealth of biodiversity, natural beauty and ancient cultural heritage.

Another key factor will be im-proving international and domes-tic connectivity. The arrival of low-cost carriers is set to give a major boost to the tourism indus-try. In February, The National Civil Aviation Administration (ANAC) approved a total of 41 new air

routes for three airlines: Alas del Sur, American Jet, and Andes.

Meanwhile, Europe’s number one low-cost airline Ryanair has announced that “it is only a mat-ter of time” before it starts oper-ating in the country. The arrival of these low-cost airlines is a signal of their confidence in the potential of Argentina’s tourism industry.

“International airlines are op-timistic about the process Ar-gentina is undergoing, and they are showing it by improving fre-quency. They are all analyzing how to improve their business in the country,” says Transport Minister Guillermo Dietrich, who adds that, “We are connecting the whole country with highways, trains and airports.”

SkiinG And GlAciAl wonderS in PAtAGoniA

“Foreign investors should be encouraged by our local example, with Argentine companies having already invested $1 billion in 2016”

Gustavo saNtos, Minister of Tourism

TOURISM INdUSTRY LOOKS SET TO REACH NEW HEIGHTSThe government of Mauricio Macri has prioritized the development of tourism as a key driver of economic growth and job creation, and is adopting a number of important measures in order to reach its target of 9 million foreign visitors by the end of 2019

TAKING A TRIP TO ARGENTINA IN WINTER

Ruggedly beautiful Patagonia is a trek to explore in winter, but prepare to bundle up. Patagonia offers some of the best skiing in South America. One of most popular ski resorts is Cerro Catedral in Bariloche, which is situated in Northern Patagonia. Here you can ski down the mountain at your leisure (Cerro is perfect for beginner and advanced skiers), while taking in breathtaking views of Lake Nahuel Huapi and the cathedral located in the beautiful village at the bottom. Millions of dollars have been spent in recent years on infrastructure to turn Cerro Catedral into a modern, world-class ski resort.A Patagonian highlight includes Perito Moreno Glacier. A UNESCO World Heritage Site, the glacier is one of Argentina’s natural wonders and contrary to the vast majority of the world’s glaciers, Perito Moreno not only does not recede, but expands yearly. The glacier is best experienced in the summer months, accessed via the town of El Calafate. After a short boat ride across the bay, experience an ice-trekking excursion on the majestic iceform crossing towering ice peaks, huge crevasses, turquoise blue creeks and icy lagoons. Later, visit the spectacular catwalks and balconies which offer breathtaking views of the panorama.

Winter in the southern hemisphere is from June to September. In winter, Argentina has varying climates, from mild temperatures in the north to snow and ice in the south, giving visitors a varied choice of things to see and do, from skiing and glacier sightseeing to wine tasting and jungle trekking.

winter wine tAStinG in MendozA

Mendoza is one of Argentina’s most important wine regions, accounting for nearly two-thirds of the country’s entire wine production, which makes it a hotspot for wine tourism. The upside of taking a trip here in winter is avoiding the summer crowds, meaning visitors can get some great deals on wine tours and accommodation. You can still visit any winery in winter in Mendoza and many put together winter activities especially for visitors at this time of year, whom, because of the smaller numbers, they can give that extra bit of personal attention.If you are looking for a nice change from the standard winery tour and tasting, Bodegas Norton, established in 1895, offers several activities such as “creciendo junto al vino” (growing up with wine), where you will be able to taste wines from fermentation tanks or oak barrels. Another activity offered is “enólogo por un día” (winemaker for a day), where you can make your own wine and design your label, and then, a judge from the winery will choose the best wine.

A troPicAl winter At iGuAzu FAllS

Once you’re done skiing and taking in the glaciers in Patagonia, and sipping Malbec in Mendoza, finish your adventure at one of the natural wonders of the entire world: Iguazu Falls. “Poor Niagra,” were the first words of Eleanor Roosevelt when she first laid eyes on the masterpiece of nature.Named a UNESCO World Heritage site in 1984, the 275 individual cascades come together to produce vast sprays of water in a dazzling array of roaring white foam and rainbows.The surrounding subtropical rainforest has over 2,000 species of vascular plants and is home to the typical wildlife of the region: tapirs, giant anteaters, howler monkeys, ocelots, jaguars and caymans, making this an ideal trip for nature and wildlife enthusiasts. The littoral region where Iguazu Falls National Park is situated has a jungle climate, which means that the winter is less hot than the rest of the year and therefore a great time for a visit if you’re looking to avoid the summer heat. In addition to less heat, during the winter you will also find smaller crowds at Iguazu.

Located in Neuquén Province, Villa La Angostura is one of Patagonia’s loveliest spots