Fecha: 24 de febrero, 2025

FINANCIAL TIMES – FDI INTELLIGENCE – REINO UNIDO: Milei’s Argentina: from misfit to darling.

After toting a chainsaw on the campaign trail in a vow to slash funding, president Javier Milei has largely delivered on his promises and revived Argentina’s oft-troubled economy in just 14 months in office.

Nearly all goods in Argentina are dearer today than in late 2023, but public confidence and the president’s approval ratings have ticked up as annual inflation has fallen from nearly 300% in April 2024 to 117% in the following December.

In 2024, the country reported its first budget surplus in years and a record trade surplus. The World Bank now forecasts around 5% GDP growth for Argentina this year and next. Buoyed by this reversal, Milei received a warm welcome at US president Donald Trump’s inauguration and met with IMF chief Kristalina Giorgieva, who praised “Argentina’s remarkable transformation”.

South America’s second-largest economy may be shifting from outcast to belle of the ball. “More and more foreign businesses, particularly in the US, are looking to do something in Argentina,” says Mariano Sardans, CEO of Buenos Aires-based investment advisory FDI. “That’s a major change from before.”

Gas and lithium

Most are eyeing Argentina’s top two opportunities: the Vaca Muerta formation in northern Patagonia, home to the world’s second-largest non-conventional gas reserves and fourth-largest shale oil reserves; and world class lithium deposits in the so-called Lithium Triangle the country shares with Bolivia and Chile.

Both are developing rapidly, and the government’s new Incentive Regime for Large Investments (Rigi), passed in July, seeks to generate further foreign investment by cutting federal income and dividend taxes and eliminating some capital controls and trade restrictions on projects over $200m, with additional benefits for deals over $1bn.

Critics say Rigi fails to address one of the key issues weighing on the minds of foreign investors: the country’s strict currency exchange control regime, known as cepo cambiario, or cepo for short.

But Rigi has generated results already. Weeks after its passage, Malaysian firm Petronas announced Argentina’s largest-ever foreign investment, partnering with state-run oil leader YPF to build a $30bn gas liquefaction plant in Rio Negro province. Dutch oil major Shell later stepped in to replace Petronas, which faced undisclosed issues, but observers expect the deal to be finalised soon.

“It’s incredible news, nobody expected this project,” says economist Pablo Besmedrisnik, director of VDC Consulting, who sees the country undergoing an economic structural shift. “All those big projects that never had the right macro-economic conditions to be finalised and generate new opportunities for Argentina, they’re now real.”

With new tech cutting oil production costs to $36 per barrel, Vaca Muerta’s output quadrupled from 90,000 bpd in 2019 to 380,000 bpd last year. The result is Argentina’s largest energy trade surplus in nearly two decades, at $5.7bn. Despite Exxon Mobil’s looming pull-out from Vaca Muerta and growing fears that increased US drilling could drive down oil prices, the government aims to produce a million barrels per day by 2028.

This will require $10bn in infrastructure investment, according to McKinsey. In December, Argentina’s top energy firms agreed to build the $3bn Vaca Muerta Sur pipeline, expected to significantly boost export capacity. This came a few months after Norway’s Logar announced a $3bn deal with Argentina’s Pan American Energy to build a liquefaction barge in Rio Negro.

Lithium opportunity

Rigi-linked projects have also focused on Argentina’s other white-hot product, lithium, an element used in batteries for electric vehicles, smartphones and more. Global demand is expected to increase 30-fold by 2040, which is why even oil powers like Saudi Arabia are climbing aboard. Chile is the world’s top producer, but Argentina, which ranks fourth, is gaining ground. Exports more than trebled between 2018 and 2023 and the government is targeting a five-fold leap in output in the next few years.

Despite a sharp decline in the price of lithium, from $80 per kilo two years ago to around $10 today, foreign companies want in. Since 2020, Chinese firms have invested $3.4bn across seven projects, according to fDi Markets.

As Chinese officials push the “new three” of solar cells, electric vehicles and lithium batteries, Ganfeng Lithium is also nearing completion of its $600m plant in Salta and considering four more Argentina projects worth $800m each.

With lithium being at the heart of the global rush to control critical mineral resources, US companies are showing an interest too. Shortly after taking office, Mr Milei said Tesla CEO Elon Musk and the US are “extremely interested” in Argentina’s lithium. Months later, Argentina and the US agreed to deepen co-operation on critical minerals such as lithium.

Major mining companies are no exception. After laying out $6.7bn to purchase Arcadium Lithium, a US-Australian merger that oversaw two Argentine mines, UK-Australian mining major Rio Tinto committed $2.5bn in December to build a plant in Rincon de Salta.

Indian and French companies have also closed recent deals in the country’s lithium mining.

Cepo: on or off?

Despite major inbound investment, the government needs more foreign reserves to move on from currency controls. Last June, Beijing renewed a multi-billion dollar currency swap. Most analysts expect the new deal the IMF is negotiating with Argentina to include an $11bn loan for the central bank, enabling the government to float the peso.

Without those funds, a sudden lifting of cepo risks devaluation and renewed inflation, similar to what happened during the presidency of Mauricio Macri, who served one term between 2015 and 2019. In early February, Mr Milei has signalled his intention to remove the cepo from January 2026.

“Things can change very quickly in Argentina,” says Mr Besmedrisnik. “If you dismantle cepo now, you could feel pressure on exchange rates, which could imperil this government’s main asset; its success reducing inflation via normal rates.” He expects Milei to dismantle cepo after October’s mid-term elections. Until then, foreign commitments, largely confined to the reinvestment of earning surpluses that cannot leave the country, could remain small.

But in October, the IMF ranked Argentina’s investment as a share of GDP above the Latin American average for the first time in decades, underscoring greater investor confidence. And in January, JPMorgan urged clients to increase exposure to YPF, citing Vaca Muerta, a favourable energy outlook, reduced risk and growing investments in infrastructure.

Milei has vowed to seek a free trade deal with the US, despite the risk of fracture with Mercosur, the South American trade bloc. And a government initiative launched last month authorises foreign firms investing in Vaca Muerta to export 20% of their production without paying withholdings, keeping the foreign currency generated by those exports.

Big Oil has noted these developments with interest. On a recent visit to Houston, Jimena Blanco, head of Americas for risk analyst Verisk Maplecroft, spoke to multiple majors looking to invest in Argentina once its latest LNG plans move ahead. “They remain aware of potential stability issues,” she said, “but the wallets are opening.”

As Mr Trump threatens Canada, Mexico and Europe with tariffs, Argentina may spy an opportunity. “Globally, this is the only right-wing administration looking to open the economy rather than close it,” added Ms Blanco. “Milei’s providing an alternative, a very pro-investment economy rather than protectionist, as we’re seeing in the US and other places.”

David Lepeska is a freelance reporter based in Buenos Aires.

This article first appeared in the February/March 2025 print edition of fDi Intelligence

Fuente: FDI Intelligence