ARGENTINA’S NEW ECONOMIC & FOREIGN POLICIES Associates Menas >>> January 2016 Menas Associates – 31 Southampton Row, London, WC1B 5HJ | +44 (0)20 3585 1401 | [email protected] Argentina – New Foreign and Economic Policies 2 Table of Contents New Authorities in the Ministry of Energy and Mining......................................................... 3 YPF’s Future ................................................................................................................................ 3 Perspectives for the Oil-and-Gas Sector ................................................................................. 3 Perspectives on the Mining Industry....................................................................................... 4 Perspectives on Electric Power Utilities .................................................................................. 5 Macri divides the Ministry of Economy ................................................................................... 5 Alfonso Prat Gay becomes Minister of Treasury and Finance ............................................. 5 Important measures immediately effected ........................................................................... 5 Foreign exchange market ...................................................................................................................................5 Exports .................................................................................................................................................................6 Imports .................................................................................................................................................................6 Macroeconomic Programme .................................................................................................... 6 Macri chooses a gradualist policy over a shock policy to address Argentina’s economic problems ........6 Fiscal policy .........................................................................................................................................................6 Associates Inflation ................................................................................................................................................................7 Menas The change of Government leads to a different approach to international relations, >>> trade, and financial markets .................................................................................................... 7 Mercosur and other free trade agreements ...................................................................................................7 Return to international financial markets.......................................................................................................7 Macri goes to Davos and invites Massa to accompany him ..........................................................................8 Trustworthy statistics and indices – one of the Administration’s top priorities .............. 8 Changed business climate attracts attention of international companies ....................... 9 www.menas.co.uk Image source: Hernán Piñera, Buenos Aires, la ciudad contada Argentina – New Foreign and Economic Policies 3 ARGENTINA’S NEW ECONOMIC & FOREIGN POLICIES Carlos María Regúnaga Menas de Argentina S.A. On 10 December 2015, Mauricio Macri was inaugurated as President of Argentina. After twelve years of populist policies under presidents Néstor and Cristina Kirchner, characterised by the takeover by the state of some private companies and excessive regulations of economic activities, Argentina elected a former businessman with clear pro-business, pro-market views. In Macri’s first 45 days in office, the appointment of cabinet members, the nature of the first measures adopted, and his attitudes in the international arena, are a stronger confirmation of his posture than the electoral campaign promises and the announcement of future programmes. New Authorities in the Ministry of Energy and Mining President Macri appointed Juan José Aranguren as Corporation (CNOOC) as minority shareholders — where Minister of Energy and Mining. Aranguren is a chemical he spent his entire professional life. engineer who was president of the Argentine branch of Royal Dutch Shell. From this position, he gained fame as The new mining authorities inside the Ministry of Energy and one of the very few business executives who faced up to Mining are the Secretary of Mining, Daniel Meilán, and the the Kirchners and refused to bow down to their demands under-secretaries of Mining Development, Mario Capello; Associates and policies. Mining Policy, Santiago Dondo; and Legal Affairs, Juan Biset. Menas Another former oil-and-gas executive, José Luis Sureda, Meilán was Under-Secretary of Mining in former president >>> is the new Secretary of Fuels under Aranguren. Sureda Carlos Menem’s (1989-1999) administration. At that time, is a former executive of Pan American Energy — the modern legislation was enacted to create Argentina’ss Argentine company controlled by BP with the local first adequate legal framework for the operation of large Bridas Corporation and the China National Offshore Oil international mining companies. YPF’s Future Minister Aranguren is said to seek a new management Cristina Kirchner’s appointee, Miguel Galuccio, is currently for the vertically integrated YPF. The company is still a both Chairman of the Board and CEO but Aranguren private corporation quoted on the Buenos Aires and New believes that the two roles should be split. Unless Galuccio York stock exchanges and has many Argentinean and resigns, the new organisation chart will probably be international shareholders. The majority 51% of its stock approved by a shareholders meeting in March 2016. is, however, owned by the Argentine State and by several hydrocarbon-rich provinces. It is also controlled by the national government. Perspectives for the Oil-and-Gas Sector The oil-and-gas sector is in a strange situation. Argentina was self-sufficient in energy, began importing ever-greater has one of the world’s largest reserves of shale oil and, quantities of hydrocarbon fuels. www.menas.co.uk particularly, shale gas. When oil and gas were at record- high prices, the low maximum prices set by the Kirchners As a result, Cristina Kirchner reversed her policy and set discouraged exploration and production. Argentina, which domestic prices at levels higher than international ones, Argentina – New Foreign and Economic Policies 4 which by that time had fallen drastically. The result is that The previous government established a price of US$7.5 per domestic oil and gas producers currently enjoy prices million British Thermal Units (MBTU) for “new” natural gas that are substantially higher than those prevailing in from new fields or increased production from old fields. international markets. At the same time, existing production at the time the regulations were enacted is sold at a variety of prices that The price of Escalante grade oil, which is mainly produced result in an average price of US$3 per MBTU. Prices also in the Chubut Province, was set at US$55 a barrel, while the vary according to who purchases the gas with industrial better quality Medanito grade oil, produced in Neuquén plants pay about US$4 per MBTU while homes pay an Province, is sold at US$67.50 a barrel. average of only US$1 per MBTU. The overall picture is, however, more complicated, because The new administration will seek to eliminate consumer petroleum extracted from one field may have very different subsidies and will maintain higher prices for producers, characteristics (density, sulphur content, etc.) when in an attempt to reduce demand and increase supply, and compared to another. Therefore, in spite of Argentina’s thereby move to eliminate the energy deficit. total energy deficit, some crude must be exported because it cannot be processed in the country’s domestic refineries. Aranguren is also convinced that oil and gas should have This limitation affects the Escalante type crude and the only one price and that it should gradually fall into line with companies that produce it. international prices. Perspectives on the Mining Industry When he presented his new team, Aranguren said, “The With the new measures, the exchange rate has fluctuated Associates challenge we face is the need to make people fall in love between AP13-AP14 and there are no duties to be deducted. with mining. To achieve this goal, we have to work together This has an instantaneous impact on exporters’ income. Menas to return to common-sense, foreseeable attitudes and Furthermore, the exchange rate is now freely determined >>> policies and, thereby, regain the society’s confidence.” by the market which means that it will naturally adjust for inflation. This is important because inflation will remain According to a report by the Ecolatina y Key Market much higher in Argentina than in the United States for consultancy company, mining should be one of the sectors several years. From now on adjustments of the exchange to benefit most from the new government’s decision to rate will not depend on the arbitrary decisions by the stimulate exports through the floatation of the exchange Central Bank. rate and the elimination of export duties. The report’s authors believe that metallurgic mining — which already These measures benefit all exporters but metallurgical represents two thirds of Argentina’s mineral production — mining is the sector that exports the highest