ARGENTINA Country Profile

General Information

The Political Climate


The Argentine economy has been steadily improving since it slid into recession in the late 1990s, which culminated with a deep financial, political and social crisis at the end of 2001. Due to record unemployment levels and a highly overvalued and inflexible currency, the crisis rapidly plunged more than half of the population into poverty while foreign investors suffered substantial losses. However, in the years following the crisis, impressive growth rates have been sustained and the political climate has been stabilised. The country has made good progress in restoring investor confidence and observers now agree that Argentina once again represents an attractive destination for foreign investors. President Cristina Fernández de Kirchner, whose husband is the former President Néstor Kirchner, won a clear-cut victory at the presidential elections of November 2007. The victory was helped by a fragmented political opposition, strong growth rates as well as the popularity of her husband. In contrast to her husband, President Cristina Kirchner has not been very outspoken concerning corruption, and anti-corruption policies have not been at the forefront of her administration's agenda. Although her husband's administration introduced various anti-corruption initiatives, it is generally agreed that corruption and graft have remained widespread and political patronage systems deep-rooted.

Various legal measures have been enacted and institutions established in order to curb corruption. However, the effects of these initiatives are severely hampered by problematic factors, such as a politicised judiciary, which is itself continuously cited as being riddled with corruption. Key laws and institutions reportedly face major implementation and enforcement shortcomings, leaving them largely ineffective. According to the Bertelsmann Foundation 2010, abuse of office by elected officials usually goes unpunished, and the political and administrative system as a whole lacks transparency, efficiency and neutrality. Until recently, the Kirchners' centre-left party, the Justicialist Party (commonly known as the Peronist Party), dominated both Houses of Parliament and held the majority of governorships. However, while being very popular in the beginning of her term in office, the popularity of President Kirchner has slowly decreased and her party lost its comfortable congressional majority in June 2009. Seen together, as they often are by analysts, the Kirchners have been criticised for monopolising decision-making power in the presidency and bills approved during their time in office have strengthened the position of the President by allowing for easier introduction of 'emergency' decrees and by increasing the President's budgetary control.

The problem of political corruption in Argentina is confirmed by Transparency International's Global Corruption Barometer 2009, where political parties are ranked the most corrupt body in Argentina, followed by public officials, parliament and the judiciary. The same survey also reveals that 81% of the respondents consider the government's efforts in fighting corruption as 'ineffective'. This information is backed by the Latinobarómetro 2008 (see English version), which reveals that public distrust in the political system is very high. For example, public opinion respondents believe that on average 76% of public officials in Argentina are corrupt, and the majority believe that the occurrence of corruption is more prevalent within the political system than in the general society. Moreover, Argentina is among the Latin American countries included in the survey where least respondents believe that there has been progress in fighting corruption. Cases of corruption include the Minister of Economy who had to resign in July 2007 after a suitcase packed with public funds was found hidden in her office bathroom, as reported by Deutche Presse-Argentur 2007. Also, in that same month, according to the Spanish newspaper El Pais 2007, the Minister of Defence resigned after Argentinean customs officials uncovered a suspect shipment of arms that had been approved by the Ministry of Defence. It is cases like these that continue to cultivate Argentinean's distrust in their political institutions and elected officials.

Business and Corruption

Companies operating in Argentina are affected by both public and private sector corruption. Transparency International Global Corruption Barometer 2009 reveals that the general public considers corruption to have a major impact on the business environment. When respondents were asked which sectors they perceived to be affected by corruption, the private sector scored 3.7 on a 5-point scale (1 being 'not at all corrupt' and 5 'extremely corrupt'). This perception is confirmed by the World Bank & IFC Enterprise Surveys 2006, in which 19% of responding companies expected to pay bribes to public officials in order 'to get things done'. According to the surveyed companies, the value of gifts expected to secure a government contract is equal to approximately 2.5% of that contract. The same report reveals that a total of 60% of the companies identified corruption as a major constraint to doing business in Argentina. In the World Economic Forum Global Competitiveness Report 2009-2010, companies ranked corruption as the third most problematic factor for doing business in Argentina. Interacting with public agencies is necessary for establishing or maintaining business operations in Argentina, like everywhere else. However, according to the reports cited above, this interaction in Argentina frequently entails unethical behaviour, including corruption. Investors are therefore advised to be prepared to deal with demands for bribes and other forms of corruption by strengthening and developing internal policies, codes of conduct, procedures and instructions (see Integrity System for practical tools). It is also recommended that companies conduct extensive due diligence when planning to invest or already doing business in Argentina.

According to the World Bank & IFC Enterprise Surveys 2006, companies report that bribes or gifts are expected when interacting with tax inspectors, when bidding on public tenders and when applying for various licences and permits. There are indications that a close relationship exists between the high levels of corruption within the political and administrative system and bribery by the private sector. According to the Bertelsmann Foundation 2010, all political and administrative levels are vulnerable to corruption and political influences. Corruption continues to permeate in both the government and the private sector. An area of special concern for companies is bidding on public tenders. According to the same survey mentioned above, nearly 26% of the surveyed companies expect to give gifts to secure a government contract. In order to best reduce the risk of extortion and demands for bribes in the procurement process, investors considering bidding on public tenders in Argentina are advised to use a specialised due diligence tool on public procurement.

According to the Bertelsmann Foundation 2010, organised labour plays a strong role in Argentina, but trade unions are frequently accused of being controlled by the government, which has influenced sector-specific negotiations between unions and industry. The same source also reports that trade union leaders are frequently regarded as part of the political establishment and are therefore often mistrusted by workers. Established trade unions are widely associated with high levels of corruption. According to Global Integrity 2006, the close, at times opaque, relationship between politicians and unions is illustrated by the case of Secretary of Transportation, Ricardo Jaime, who approved an advance subsidy of USD 5.5 million beginning in 2003 to the union of truck drivers, which supports a close ally of President Kirchner. The US Department of State 2009 reports that Ricardo was facing at least 25 different reported charges of corruption during his tenure as Secretary of Transportation, before finally resiging from his position in July 2009.

Regulatory Environment

Even though Argentina remains open to foreign investment and foreign companies can invest in the country on the same conditions as national companies, complicated and time-consuming regulations continue to pose an obstacle to doing business in Argentina. The World Bank & IFC Enterprise Surveys 2006 reveals that senior managers spend nearly 16% of their time dealing with the requirements of government regulations. According to the World Economic Forum Global Competitiveness Report 2009-2010, policy instability is ranked as the most problematic factor for doing business in Argentina by companies. According to the same report, government policy-making is highly non-transparent in Argentina. Combined with frequent changes in policies in some sectors, companies find themselves subject to considerable uncertainty in relation to unpredictable and inconsistent interpretations of relevant regulations by government officials. Although foreign trade has been liberalised, a number of administrative barriers remain. According to the World Bank & IFC Doing Business 2010, Argentina performs poorly in the area of starting a business, and in dealing with licences and paying taxes. Although business activities related to dealing with taxes were facilitated between 2008 and 2009, both time and costs related to paying taxes are still above the South American regional and OECD averages.

Several observers, as well as business and public perception surveys, including the World Economic Forum Global Competitiveness Report 2009-2010, describe the Argentinean judiciary as severely politicised and plagued by corruption. The US Department of State 2009 notes that public confidence in the judiciary is weak, but domestic investment dispute resolution is nevertheless available through local courts or administrative procedures. According to the International Trade Centre 2004, to deal with the problem of Argentina's many arbitration centres competing against one another, 25 arbitration centres in Argentina adopted a harmonisation approach, agreeing to use the same procedural rules and to conduct a cooperative branding campaign to raise awareness domestically and internationally. Gabriele Tondl writes in Trade, integration and economic development 2008 that two agencies, the Amicable Negotiations Federal Council and the Amicable Negotiations Proceedings Body, were created by the government in 2003 as alternatives to international arbitration to conduct amicable negotiations under the provisions of bilateral investment treaties. Companies that seek recourse through Argentinean courts, however, cannot dually pursue recourse through international arbitration. International arbitration of investment disputes is available for those disputes that cannot be settled through amicable consultation and negotiation between the parties. Many foreign companies prefer to include provisions for private or international arbitration in their contracts rather than deal with Argentina's courts. Argentina accepts the principle of international arbitration and is a party to the International Centre for Settlement of Investment Disputes (ICSID), the New York Convention 1958 (UNCITRAL), and the World Bank's Multilateral Investment Guarantee Agency (MIGA).

Investment incentives aimed at attracting foreign investors are promoted through a number of government-run investment programmes. These programmes provide a range of benefits for investors, including VAT refunds and access to free trade zones. The investment promotion programmes are explored further on the websites of Subsecretaría de Industría (in Spanish) and of the National Investment Development Agency. Relevant information for small and medium-sized companies can be found at the website of the Subsecretaría de la Pequeña y Mediana Empresa y Desarrollo Regional (SEPYME, in Spanish), which also runs ProArgentina (in Spanish), a portal containing export-related information for and about small and medium-sized companies in Argentina. Companies can also access the Lexadin World Law Guide for a collection of legislation in Argentina.