Argentina Country Profile
General Information
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, the years following the crisis saw impressive economic growth rates and a stabilised political climate. 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 with its abundance of natural resources, a well-educated population as well as a relatively diversified industrial base. President Cristina Fernández de Kirchner, wife to recently deceased 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 economic growth rates as well as the popularity of her husband. In contrast to her late 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. As an example of this, the US Department of State 2010 confirms that public officials at every governmental level frequently engage in corrupt practices, and that anti-corruption laws are not effective. On a more positive note, Global Integrity 2010 report notes that improvements in the fight against corruption have been recorded since the last report released in 2008. These improvements were demonstrated in diminishing the gap between regulation and implementation.
According to Freedom House 2010, a lack of independence from the executive branch has largely hampered several anti-corruption agencies from carrying out their roles effectively. A lack of political will means that corrupt officials are not fully subjected to Argentine anti-corruption laws. 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, 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 were by analysts, the Kirchners were 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 2010, where political parties are ranked the most corrupt body in Argentina, closely followed by public officials, parliament, the police and judiciary. The same survey also reveals that 77% of the household respondents consider the government's efforts in fighting corruption as 'ineffective'. This information is backed by the Latinobarómetro 2008 (see English version), in which the public 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. According to the Latinobarómetro 2009, only 35% of the surveyed public respondents believe that elections have been ‘clean’ in Argentina in the past, and in Latinobarómetro 2010, only 21% of households believe that there has progress in fighting corruption over the last two years. Moreover, Argentina is among the Latin American countries included in both surveys where the least respondents believe that there has been progress in fighting corruption. Distrust in political parties is not only prevalent amongst the general public, but also the businesses executives surveyed in the World Economic Forum Global Competitiveness Report 2010-2011 give a score of 1.4 on a 7-point scale to the level of public trust in the ethical standards of Argentinean politicians (1 being ‘very low’ and 7’very high’). 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 Freedom House 2010, the Argentine customs officers uncovered a suitcase with USD 800,000 worth in cash, carried by a Venezuelan businessman, who claimed that the money was Venezuelan government funds to support Cristina Fernández's presidential campaign. This led to the resignation of the director of the agency that is responsible for privatised highway concessions, and who had also been on the same flight. It is cases like these that continue to cultivate Argentinean citizen's distrust in their political institutions and elected officials.
Business and Corruption
Foreign companies do not need prior government approval or to register in order to invest in Argentina, yet companies operating in Argentina are affected by both public and private sector corruption. Transparency International Global Corruption Barometer 2010 reveals that the general public consider 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 3.2 on a 5-point scale (1 being 'not at all corrupt' and 5 'extremely corrupt'). According to the World Economic Forum Global Competitiveness Report 2010-2011, it is common for companies to make irregular payments or bribes connected with imports and exports, public utilities, annual tax payment and awarding of public contracts and licences. Moreover, corruption is ranked as the fourth most problematic factor for doing business in Argentina, after policy instability, inflation and access to finance. 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 strong links exist 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 both the government and the private sector. An area of special concern for companies is bidding on public tenders. According to Enterprise Surveys 2006, nearly 26% of the surveyed companies expect to give gifts to secure a government contract. In order to effectively 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. An April 2010 case, reported by the US Department of State, revolves around Argentine companies that were paying bribes to officials in the Argentine Planning Ministry in exchange for an allowance to export farm equipment to Venezuela. The case was reported by the Argentine ambassador to Venezuela and the investigation is on-going.
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. Freedom House 2010 reports that Ricardo Jaime was forced to resign from his position due to 25 different charges of alleged corruption.
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 2010-2011, policy instability is ranked as the most problematic factor for doing business in Argentina by companies and that government policy-making is highly non-transparent. According to the US Department of State 2011, investors are concerned about the abrupt changes that occur in sector-specific regulatory regimes as they decrease the level of transparency and increase investor uncertainty. 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 2011, Argentina performs poorly in the area of starting a business, and in dealing with licences and paying taxes.
Several observers, as well as business and public perception surveys, including the World Economic Forum Global Competitiveness Report 2010-2011, describe the Argentinean judiciary as severely politicised and plagued by corruption. The US Department of State 2011 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.
