(MENAFN – Al-Borsa News) An increasing number of foreign companies are moving to reduce the level of investment in Argentina or to flee completely from the country, fearing the increasing intervention policies of the left-wing government, which aim to stabilize the faltering economy.
The Financial Times reported that the Chilean retail giant Vallabela has become the latest to join the chain of companies that announced their intention to withdraw from Argentina last week, as the government moved to tighten already stringent capital controls to protect dwindling foreign exchange reserves.
Argentine President Alberto Fernandez was able to achieve a great victory by reaching a deal with private sector creditors to restructure the $ 65 billion in external debt last month, but the outbreak of the epidemic after only 3 months of assuming the reins of power has impeded his attempts to rebuild investor confidence.
“It is an exaggeration to say that there is some kind of mass migration going on, but companies are struggling with the increasing trend of interventionist policies, which may worsen with deteriorating economic conditions as well,” said Kezia McKej, director at the consulting firm McLarty Associates.
The American auto parts manufacturer Aksalta, the German and French BASF company, Saint-Gobain Securit, and the French pharmaceutical company, Pierre Fabre, were among the other companies that left Argentina recently. Latin, decided to withdraw from the country last July.
The Coronavirus crisis has dealt a blow to the Argentine economy, which remains subject to one of the strictest and longest lockdowns in the world.
However, investors and analysts insist that the escalating state intervention is the main reason that companies made decisions to move away from Argentina, something they have not done anywhere else in the region.
McKeej of McLarty Associates added that the huge challenges posed by increasingly stringent capital controls, import restrictions and price increases bans are making companies in some sectors such as consumer goods increasingly unsustainable.
In addition, an executive at a multinational company operating in the country said, “In light of everything that’s happening here right now, you can forget about foreign companies making any investments at the moment.”
Alejandro Diaz, chief executive of the American Chamber of Commerce in Argentina, said controls on currency, imports and prices are deepening concerns and raising questions about developing business plans.
The “Financial Times” reported that some are using a brave face, such as “Fly Bondi”, the first low-cost airline in Argentina, despite the departures in the aviation sector in recent months.
“If the government can create a sound and fair regulatory environment, we will continue to invest in Argentina,” said Peter Yu, managing partner of Cartesian Capital, the controlling shareholder of Fly Bondi.
Despite expectations that the Argentine economy will contract by 12.1% in 2020, the economy is also expected to record a recovery of 5.5% in 2021, but economists say that expectations of an inflation rate of 29% next year are very optimistic assumption, especially after The country has resorted to printing money a lot in recent months.
Economists fear that the recent tightening of capital controls only delays the devaluation. In this regard, economist Luis Secco said: “They are only buying time, and this does not solve the real problem.”
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