ARGENTINA: An Introduction to Energy & Natural Resources: Mining

ARGENTINE LEGAL MARKET REVISITED 

By Carlos E. Alfaro 

I was invited to provide a brief introduction to the current economic, legal or political trends affecting the practice of law in Argentina, its level of activity, trends and developments, new legislation that could have an effect on clients, potential hurdles or difficulties faced by clients and how these can be overcome.

The first question to be addressed is what kind of market Argentina is. Argentina is a country rich in natural resources and with a highly educated population, but at the same time with a persistent political and economic instability. Argentina is the South American country with the most variety of natural resources: the third largest deposit of lithium, the third largest shale formation for oil and gas, the fourth largest producer of soy and vast maritime resources. Argentina is also a leading food producer with large-scale agricultural and livestock industries. It has a stock of bovine as of 31 December 2021 of 53,416,435 heads. With a Gross Domestic Product (GDP) of approximately US$490 billion. Within its 2.8 million square kilometres of territory, it also has great potential for renewable energy. Argentina has innovative services in high tech industries and a highly educated middles class. Education in state institutions is free and covers primary, secondary, tertiary levels and undergraduate university levels. According to the last census, the illiteracy rate is of only 1.9%, the second lowest in Latin America. In the last decade, Argentina has created nine new universities and there is a draft in Congress that creates seven more universities, while the outflow of university students has increased by 68%. Even though education at all levels, including universities, has always been free, there are also a significant number of private schools and universities ranked at international level.

Since 1984 Argentina has also enjoyed political stability through successive democratic elections and the military option no longer exists. Presently there are no restrictions to foreign investments or mandatory registration. Therefore from the point of view of a potential investor Argentina is a bounty.

But by the same token, Argentina’s economy has historically suffered hyperinflation and defaulted in its foreign debt nine times since its independence in 1816, resulting in several large currency devaluations, and its inflation rate is higher than a 100%. Currently Argentina has renegotiated its debt with the IMF and the programme approved by the IMF provides a plan to eliminate subsidies and costly social programmes to reduce the deficit. The Government so far has enacted a step-by-step plan with a goal to lower inflation to 4% monthly by March 2023.

An unstable economy like Argentina demands lawyers to follow the myriad of short-lived regulations to adapt contracts to an everyday new situation. This represents a challenge for the legal profession but at the same time a surge in the demand of legal services. Legal risk analysis has become more relevant. To anticipate regulatory changes has become a key exercise for lawyers and its clients. Law firms organise monthly meetings with clients to review their activities and explain any new legislation and potential hurdles or difficulties that may have an effect on their companies. How to anticipate these changes becomes the main objective. Consequently, working side by side with the client is of the essence. Many law firms have assigned (seconded) a lawyer to work from the client’s premises two days per week.

Two other factors pose a challenge for law firms: rotation of talented young lawyers and competition based on discounted fees (a universal trend but an acute one in Argentina). One value that law firms appreciated in the past was to build trust and knowledge through years of practice. A young lawyer’s aspiration was to advance along the years a career within the same law firm. Law firms were training those young lawyers to model their practice in the traditions of the firm and become partners. Today - and this happens in other countries too - a young lawyer's goal is to rotate. It has become increasingly difficult to offer these young lawyers an incentive to stay in the firm particularly in Argentina because of lack of complicated deals in the market and the attraction of emigrating and working abroad. Many law firms offer programmes to study abroad. But, for example in the case of Masters in American universities, the lawyer will apply to work in a local law firm once they have passed the Bar exam.

The other challenge is the fee structure. As a result of splits in larger firms, there are many good boutique law firms that compete in the market based on low fee rates. This problem is critical in Argentina and perhaps unique among other Latin American law firms. The legal market has become extremely competitive based on costs. Argentina, probably, is the most low-priced of all.

This situation benefited local law firms as it has become a barrier to the opening of foreign international law firms. Some have opened an office based on the expansion of a client in the region, but when the client’s needs were satisfied they closed the office (ie, Cleary Gottlieb). Others adopted the partnership/alliance model with a local established law firm (ie, Denton and DLA Piper). This model faces two challenges: the fee structure compared to other “associated” law firms is not sustainable in the long run and the referral issue (most of the local law firms base their activity on the capacity to receive referrals from the largest international law firms which automatically disappeared with the association).

As to new legislation that will have an effect on clients, potential hurdles or difficulties faced by them and how these can be overcome, the challenge is that Argentina is a heavy regulated market with established Argentine local entrepreneurs with a contact advantage over foreigners. Local entrepreneurs are the ones that can successfully navigate the hallways of the Government and take advantage of opportunities or anticipate potential hurdles. Partnering with a local entrepreneur or hiring a well-connected local law firm is the most appropriate step if the foreign entrepreneurs want to avoid pitfalls. This is when “knowing the market of your client” becomes the most important asset of the local law firm.

Last but not least, Argentine businessmen and lawyers are very internationally oriented: a fact that can be tested at conferences and seminars where the Argentine delegation is generally the largest one.