October 9, 2015

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Argentina: Back to the World ?!

No doubt the first round of voting last Sunday October 25, for the election of a new President in Argentina, clearly shows a positive change of direction and provides fresh air to our still young democracy.

All is not yet said, but little more than two days after the election, it is clear that the modern and at the same time conservative candidate, Mauricio Macri, is who now has the clearest chance of being elected President next November 22. It is then when the runoff will be held against Daniel Scioli, candidate which the Populist Kirchnerism proposed without much conviction. Whether Scioli will break with Cristina Kirchner in order to have chances to beat Macri, it is something to be defined soon. Similarly, it seems that the last train to London has already departed for Scioli, together with several Kirchner-party candidates, both at a national and provincial level.

Both Macri and his candidate to govern the Province of Buenos Aires (the country’s largest territory which gathers 38% of voters), María Eugenia Vidal, surprised most Argentines and the world. With Mrs. Vidal now confirmed as governor, Kirchnerism lost much more than an election and Cristina Fernandez de Kirchner will now have to leave the presidency and certainly her abusive use of power. It is also possible that she faces serious criminal charges in the near future.

Populism -the true political evil of the 21st Century- seems now to have reached a limit in our country, which means that many Argentines ultimately fearing censorship threats, as well as suffering increasing attacks on civil liberties, are expected to regain access to free speech and freedoms granted since 1853. In only two days, a climate of optimism is being remarkably perceived in the streets all along the country, from Salta to Ushuaia.

If victorious in the runoff, Macri will very possibly form a government of national coalition, including sectors of Peronism and other political factions that are not among his current allies. It is enough to look at the relevant political figures which today accompany the successful Mayor of Buenos Aires and former president of Boca Juniors Club, whose great sports management catapulted him into politics over 10 years ago. Along with him, many recognized politicians and traditional parties such as Radicalism, have committed together to outline and enforce clear State policies, thus recovering the basic consensus of a mature nation which knew, in former times, to be among the five big economies of the world. Other political parties and factions who oppose to Scioli’s proximity to Kirchnerism are expected to support Macri’s Cambiemos party in the forthcoming days.

It seems that the return to observance and commitment to obligations towards the world -e.g. investors and lenders- or, as commonly said,the full respect to the Rule of Law, is more than a priority and constitutes the essence of Macri’s plan -which has shown to those who inhabit the capital city, Buenos Aires, that we can live much better. So it seems that the optimistic contagion has reached the rest of the country.

It is worth emphasizing the great contribution and heroic resistance from institutions like the independent press, the Catholic Church, the Jewish Community, the agricultural sector, part of the local business establishment, and more recently our Judiciary -all sectors which, by different means and at a high price, put a limit to populist authoritarism.

Recent court rulings which forced to respect obligations clearly and freely assumed in foreign currency (i.e. in US dollars), and which also recognized as lawful the access to the capital markets by those who merely wished to transfer foreign currency from and also into the country, are a clear demonstration of the positive trend.

It is so expected that if Macri results victorious in the runoff, many anti business laws and regulations may be repelled by early 2016 -e.g. those which regulate both domestic and foreign trade, cumbersome and complex filings for foreign entities, as well as absurd and costly exchange controls. Certainly our Central Bank will also regain its autonomy and founding purpose, no longer operating as a cash cow for the whims of the Executive; the same may happen with the newly entered into force Civil and Commercial Code, which is expected to lose some of its last-moment patches, imbued with undisguised ideology against what we expected, in good faith, to become a transcendental legislative event and an example to several civil law jurisdictions.

Assuming that a new path with no return began last Sunday night, the challenge will be to get reincorporated as soon as possible in the world, normalizing foreign relations with Europe, the United States and our own neighbors from which Argentina was also isolated.

It is unfortunately true that Argentina will no longer have the tailwind which brought about, during the last decade, high prices for the main commodities that our country produces and exports, and that Kirchnerism squandered for electoral purposes, if not corruption. The Chinese demand decrease and the recent currency devaluation of our always main trading partner, Brazil, may not allow much room for error to the new government.

Nevertheless, the main referents of the opposition all agree on the possibility that Argentina, by its unique wealth, will sooner than later attract foreign investment back in quantity and quality, although everybody seems to acknowledge that as precondition to go back to the world, we need to remedy our default status, sitting at the table with holdouts, and to combat high inflation. This in turn is to surely allow Argentina to recover valuable and so far elusive access to credit markets.

We so expect a world eager to resume business with and in Argentina after so long. No doubt that, in broader terms, it is all-to-be-done regarding infrastructure. Different project finance opportunities at oil & gas, electricity, renewables, and transport levels are beginning to be observed by foreign players that in the 90’s found in our country a fertile place for investment. Thus, we may not be far from returning to a private equity and investment climate as in those years. Although a year of transition for and setting the house in order, 2016 promises to be a great time for a world eager to seek opportunities and returns in developing economies such as Argentina, in turn a member of the 300-million-consumers Mercosur block, which may be re-launched as a free trade zone after overcoming the barriers that the outgoing government implemented to the detriment of many, starting with the Argentines themselves and their needs to produce with foreign inputs.

Not counting o mais grande Brazil, the example of successful neighbors as Chile, Uruguay, Paraguay, and a little farther, Colombia and Peru, certainly will drag Argentina to generate multiples opportunities. To this we target, no doubt.

We are therefore very excited and hope that our clients and friends from abroad be caught up in the optimism that Sunday’s elections left to all of us here, and that they get prepared to seize the opportunities that Argentina will almost certainly offer again.

It is not all said, but we look forward to more good news after next November 22. The prevailing euphoria in the streets of the country, so does foresee.

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