Country risk reference rating: level 7 (7/9)
Country Risk Outlook: Negative
◆Political Risk
Due to the deterioration of the economic situation, nationwide strikes have continued to escalate, and the stability of Argentina’s social order has significantly weakened. Although the territorial dispute over the Falklands between Argentina and the United Kingdom has stirred up again, a military conflict is unlikely to break out in the near future. The 2015 Argentine presidential election is approaching, and the political struggle among various parties is becoming increasingly fierce. Fluctuations in Argentina’s political arena are inevitable, and there is rising pressure on political risks. At the same time, major international institutions have continued to lower the expected GDP growth rate of Argentina in 2014, indicating that the country’s economic growth is weak. Coupled with the high inflation rate, the possibility of nationwide strikes and demonstrations in the future has suddenly increased. This It has seriously affected the production of domestic enterprises and the lives of residents, and has become a major social and political factor threatening Argentina’s national security.
◆Business environment
Argentina implements two sets of tax systems: federal and local. The federal and provincial governments each have relatively independent tax legislation. The main taxes include income tax, value-added tax, customs duties, consumption tax, personal property tax, fuel tax, financial transaction tax, gross income tax, real estate tax, vehicle license tax, stamp duty and other service taxes. Among them, income tax, value-added tax, and personal property tax are shared by the federal government and provincial governments; gross income tax, real estate tax, and vehicle license tax are shared by provincial and municipal governments. According to the tax payment sub-indicator in the 2014 Business Environment Index released by the World Bank, Argentina ranked 153rd among 189 countries (regions), which was little changed from the 2013 ranking. According to Argentina’s Foreign Investment Law, foreign investors can invest in Argentina’s agriculture, industry, mining, trade, finance, services and other sectors without obtaining prior approval from relevant Argentine government departments; foreign investors are equivalent to domestic investors in Argentina and enjoy the The same rights and obligations as domestic investors. In short, Argentina offers many investment options to foreign investors and is relatively open.
Judging from the four indicators of taxation system, investment convenience, infrastructure and administrative efficiency, in 2014, under the very severe economic situation of Argentine society, the business environment deteriorated compared with before, but the Argentine government continued to adopt moderate expansion Fiscal policies, providing more preferential conditions to foreign-invested enterprises, and efforts to control high inflation all reflect the government’s intention to improve the business environment, actively attract foreign investment, and promote domestic economic development.
◆Economic Risk
From 2013 to 2014, Argentina’s economic situation remained severe. Problems such as high inflation, rapid exchange rate depreciation, reduced foreign exchange reserves, and widening current account deficits were still not well resolved. Although the economic growth rate rebounded slightly in 2013, reaching 4.9%, which was higher than the average level of Latin American countries, it fell sharply in 2014, with the annual GDP growth of only -0.6%. Foreign exchange reserves shrank, currency depreciation was too rapid, and foreign direct investment The sharp decline in inflows is the main source of economic risks for Argentina. In particular, the domestic production and consumption situation will be more difficult than the previous year, and may even face the risk of further stagnation. The Argentine government’s subsidy reduction and salary negotiations in January 2014 to adjust fiscal policy will also greatly affect the future macroeconomic trend.
Currently, China is Argentina’s second largest trading partner and largest agricultural export destination, and Argentina is China’s fifth largest trading partner in Latin America. After a sharp decline in bilateral trade in 2012, bilateral trade gradually picked up in 2013, and China continued to maintain a surplus. The main products exported from China to Argentina are machinery, vehicles, chemicals, knitted fabrics, etc. The main products China imports from Argentina are oil seeds, feed, mineral fuels, etc. In addition to bilateral trade, the two sides have also carried out extensive investment activities. China has become Argentina’s third largest source of foreign investment. The scope of bilateral cooperation covers many fields such as oil and gas development, rail transportation, infrastructure, energy, agriculture and manufacturing. China has always had a large trade surplus. Chinese products have impacted local industries and have been subject to anti-dumping and countervailing investigations initiated by Argentina.
The Argentine government is facing a serious economic recession crisis, hyperinflation, increasing fiscal deficit, and huge loss of foreign exchange reserves.
◆Policy suggestions
The economic situation in 2014 is still severe. In response to the weak national economy, the Argentine government has proposed a prudent investment plan. The power and energy industry will become Argentina’s new economic growth point. However, under the current high inflation level and currency depreciation pressure, Argentina’s stable economic growth faces challenges. Argentina’s business and investment environment is highly risky. Although its laws are sound, they lack enforcement and it is difficult to protect investors’ rights. As the government intervenes more deeply in the economy, foreign companies face great uncertainty about the security of their investments in Argentina.
