LatinFinance - September/October 2016 - 75

capacity, helping to diversify a natural
gas-heavy power matrix and meet pent-up
demand that has saddled the country with
blackouts and brownouts.
"Argentina is under the gun now on getting more generation installed," says Carlos
St. James, managing director of Santiago &
Sinclair, a Texas-based energy consultancy
and renewable energy project developer.
"They are trying to get everybody who
wins these bids to get the capacity up and
running by end of 2017. So the winners are
going to have a little over a year to get their
wind farms up and running."
In terms of financing, it means the winners likely will be large international players
like France's Engie, Italy's Enel and Spain's
Acciona, St. James says. They have access
to international lines of credit and can buy
solar panels and wind turbines for less than
smaller companies.
That shifts the attention for gauging investor optimism to the subsequent renewable energy tenders.
Banks are still wary of lending to projects
in Argentina, especially long-term investments like power plants. They will probably
wait a couple of years to see if the economy
revives before they begin to make loans,
which will make it harder for smaller companies to build wind farms in the contracted timeframe, according to St. James.
As a result, it is unlikely that investment
will revive until the Macri government can
chalk up a few successes, like getting wind
parks into operation from the first tender
and pulling the economy out of recession.
"As things improve, people will become less
scared of Argentina and they will start investing over the long term," St. James says.
State spending
While investments trickle in, Macri is using increasing amounts of public funds for
infrastructure projects to try to revive the
economy from the worse-than-expected
recession, says Federico MacDougall, an
economist at the University of Belgrano in
Buenos Aires.
However, the increase in public spending threatens to widen the budget deficit,
stoking inflation and keeping interest rates
high - the benchmark rate is 30%. Without
a decline in borrowing rates, it is harder
for companies to finance investments,
MacDougall says. If inflation is to come
down, Macri will have to slow the economy
further. This will put at risk his chances in a
mid-term election next year and the longevity of his conservative brand of politics - the

basis of the renewed investor confidence in
Argentina.
"To solve one problem, you have to jeopardize the other," says MacDougall. "You
have a problem with inflation, so you have
to slow the economy and keep interest rates
high. At the same time, you have a problem
with high public spending and low investment. You have to sustain the economy, but
investment isn't coming because of the high
interest rates, and reviving the economy
with public spending generates inflation.
It's a vicious circle."
Even so, a first wave of investment is
poised to come through thanks to a tax amnesty this year. The government is offering
the amnesty for residents who collectively
hold an estimated $400 billion to $500 billion in undeclared funds.
Under the amnesty, some of the funds
are expected to go into long-term invest-

FERNANDO LAGO, ARGENTINA
CHAMBER OF CONSTRUCTION

"THERE IS A BIG NEED
FOR INVESTMENT IN
WATER AND
SANITATION, AND
THERE IS A NEED FOR
INVESTMENT IN
LOGISTICS, ROADS
AND TRAINS, AND IN
THE CONNECTION
OF TRAINS WITH
PORTS SO THAT
PRODUCTION CAN
REACH THE CENTERS
OF DEMAND OR THE
PORTS FOR EXPORT"

ments in infrastructure projects, which
offer participants less of a penalty than
paying 10% of the value of the assets if they
keep them outside the country. The government is expected to bring in an estimated
$10 billion to $20 billion from the amnesty.
"It's not going to be much," MacDougall
says. "But in a country with practically zero
investment, $10 billion or whatever it will
be is a lot."
The second wave of investment may
come after the October 2017 legislative
elections if Macri's coalition has a successful
showing.
"The real investment will come after
the elections if people see the economy
is recovering thanks to the new reforms,"
MacDougall says.
While Macri was a leading opposition
figure as the mayor of Buenos Aires from
2007 to 2015, he is part of a new political coalition, Cambiemos (Let's Change), that has
not had time to prove its mettle. And it will
not be easy to gain the nod from investors,
given that the economy is flagging, inflation is surging and consumer discontent is
simmering.
"To sustain support and do well in the
legislative elections, Macri must show by
the first quarter of 2017 that the economy is
improving," says Juan Cruz Díaz, managing
director of Cefeidas Group, an international
advisory firm in Buenos Aires.
And that could also attract the attention
of more foreign investors.
Add into the mix the troubles in Brazil,
and investors likely are going to become
even more buoyant about Argentina.
"Investors are saying that they are going
to take a break from Brazil," says St. James.
"Where else can they go? Well, there's
Argentina, which is suddenly promising the
world to everybody. It's a great opportunity
for Argentina to capture the companies that
have already invested in Latin America and
who know what it's like to invest in Brazil,
and who are now saying they are going
to put money into the new and improved
Argentina."
First, though, it will be the bolder investors who take the leap.
"They'll take that risk because they know
they are going to get a better return," St.
James says. "For someone who jumps in
later, the risks will be lower and the returns
will be lower. Most investors are saying,
'You know, we'll wait. We may actually not
end up making so much money, but we
want to see that the country is not going to
go crazy on us.'" LF

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