ON 10 DECEMBER, MAURICIO MACRI OFFICIALLY TOOK OVER AS PRESIDENT AFTER 12 YEARS UNDER THE KIRCHNER GOVERNMENT. IN HIS FIRST MONTH IN OFFICE, THE ARGENTINA´S NEW PRESIDENT LIFTED MOST TRADE RESTRICTIONS, DEVALUED THE LOCAL CURRENCY "PESO" AND HAS ALREADY INITIATE THE NEGOTIATIONS WITH HEDGE FUND CREDITORS TO SETTLE A LONG-RUNNING DISPUTE.
One of the first impact of Mauricio Macri having been elected president has been Moody's upgrading Argentina's 'Caa1' issuer rating to positive from stable, citing his likelihood to resolve the country's ongoing debt dispute with holdout creditors in the US.
The new president has made a commitment to approve measures to reignite Argentina's economy, including tackling double-digit inflation and resolving the standoff with bond holdouts, among a host of other economic tasks.
The new government wants to create a new image of the country to the global markets and attract foreign investments around 20 billion in 2016 to finance and construct roads, ports, waterways, trains, shale gas and renewables projects.
THE MAJOR CHALLENGES FACING THE DIFFERENT SECTORS
The new president did not make many references to the mining sector during his electoral campaign, but he acknowledged the importance of the industry to some of the country's provinces and said the mining industry should aspire to have the same profile as that of Australia or Chile.
One key aspect that benefits the mining sector is the lifting of currency controls and export rights, which have impacted the mineral industry even though 100% of exports are exported.
As Argentina has bountiful copper and gold deposits, the Energy Minister, Juan Jose Aranguren (a former Royal Dutch Shell), will need to convince investors that regional authorities won't impose arbitrary tax changes mid-way through a mine's investment cycle that has historically deterred mining development.
During the campaign, Macri emphasised that energy should be a key factor in the government's program and that a long-term policy to address the country's energy crisis was needed.
Argentina has the potential to be a regional and global energy leader, the energy sector has the potential to become a significant driver of future economic growth. The opportunity in the energy sector should be to diversify Argentina’s energy outlook beyond hydrocarbons, also developing the country’s renewable energy sector.
The Energy Minister is publicly committed to improving investor confidence and fostering an increase in domestic production through a more unified and stable regulatory system for conventional and unconventional resources (including shale, offshore deposits and tight oil and gas) to guarantee legal certainty.
Different challenges regarding the energy sector:
- Energy subsidies: The country is ending with the energy subsidies, has started on electricity bills and also is looking into cutting subsidies for gas consumption, the objective is cutting gradually the complex web of subsidies and incentives, onerous regulations for foreign operators and a generally challenging macroeconomic scenario.
- The future of YPF, Argentina's state-owned oil & Gas Company: The Energy Minister said that the shareholder composition of YPF will remain as is and they will seek to consolidate its leadership role in the market with a transparent and professional management. According to him, the Government will send a bill to Congress “to stimulate the exploration activities in offshore and non-conventional risky areas.” Miguel Galuccio (currently the YPF´s president), appointed by the previous government, will continue in his role until April, when the shareholders meeting are due to be held.
- Develop shale gas reserves: The Minister is publicly committed to improving investor confidence and fostering an increase in domestic production through a more unified and stable regulatory system for conventional and unconventional resources (including shale, offshore deposits and tight oil and gas) to guarantee legal certainty. Argentina is home to the second-largest shale gas reserves and the fourth-largest shale oil reserves in the world and the only in Latin America. It has excellent resources in place along with the knowhow to extract shale oil and gas. Argentina - with its Vaca Muerta resource in Neuquén province - is the country best poised to repeat the North American "shale revolution". The new president presented a plan for the next phase in the exploitation of the gas field, part of the Vaca Muerta shale gas formation in the southern province of Neuquén. The aim is to triple gas production by the end of 2016 to 2 million cubic metres per day. It will require US$150 billion of capex over the next two decades to become viable.
- Renewables energies: The original renewable energy law of 2006 establishes a target of 8% renewable energy production over 10 years. We are already in 2016 and the percentage of renewables in the energy matrix is less than 2%. On October 2015 a new renewables law was enacted to push the 8 % target back a year. It has been announced that the renewable energy is a priority and will be included in the energy matrix to reduce dependence on hydrocarbons, but for that to happen Argentina has to create the complementary legislation for new investment schemes and attract foreign investment.
The country's infrastructure was ranked 104th out of 144 economies, putting Latin America's fourth largest economy ahead only of Bolivia (105), Paraguay (120), and Venezuela (131) in the region. One of the most important challenges for the new government is to reduce the gap in the infrastructure sector. The country has ground to make up in the infrastructure sector.
The following key infrastructure projects should move forward:
- Paraná – Paraguay Navigability project: With the main objective being to establish year-round navigability across the rivers network, spanning in excess of 3,440 km.
- Agua Negra tunnel project: This is one of the most dynamic projects under development and would spur the region's tradable sectors. The project entails building a tunnel through the Andes mountain range to connect Argentina's San Juan province with Chile's Coquimbo region (IV).
- General Belgrano rail line: Argentina has sought to revive its once-prized rail network, with recent projects targeting commercial passenger services, including the reestablishment of the Buenos Aires-Rosario line.
- Public transportation - Metro: There is a plan to construct a new underground subway line that would link all modes of the Buenos Aires public transport network.