ARGENTINA: An introduction to Banking & Finance

Introduction

Argentina is one of the largest economies in Latin America, with a GDP of approximately USD620 billion as of 2023. The country has a population of over 46 million people and boasts abundant natural resources, including fertile land; gas; gold, silver, copper and lithium reserves; and significant potential for renewable energy production.

Despite ongoing economic challenges, including high inflation rates (which reached 211.4% in 2023) and significant depreciation of the peso against the US dollar (with a more than 80% devaluation in 2023), Argentina’s banking and finance, infrastructure, energy, and mining sectors remain resilient and adaptable.

The New Administration

On 18 November 2023, Javier Milei won Argentina’s election run-off and was elected as Argentina’s president for the 2023–2027 period, which commenced on 10 December 2023.

During his public campaign, Milei proposed fast and radical measures to address economic imbalances, including strong cuts to federal spending, privatisations, and deregulation, as well as the implementation of a tight monetary policy and a strong reduction of money printing.

When assuming office, he faced severe economic challenges such as reducing inflation (211% in December 2023), curbing the fiscal deficit, eliminating regulatory hurdles, growing net foreign exchange reserves, restarting economic growth, and dealing with substantial poverty rates (approximately 40%).

The Large Investments’ Regime (RIGI)

In that context, the Milei Administration is starting to deploy incentives to attract investments, such as the enactment of the Foundations Law (Ley de Bases) and, in particular, the large-investments stimulus regime, a tailor-made regime for strategic exports (known as RIGI),a key part of the reform plans by President Milei.

Many players and observers hope this new framework may finally kick-start long-awaited projects and initiatives. They view the new RIGI as critical to building infrastructure and accelerating the construction of new projects in a wide array of industries.

The RIGI is intended to cover the entire value chain of certain key sectors, including infrastructure, energy, oil and gas, and mining. It was developed to provide an incentive framework that could de-risk as much as possible sovereign, political, foreign exchange restrictions, tax and customs contingencies, by ring-fencing the eligible investments from changes in the applicable laws throughout the length of a 30-year stability term.

The RIGI includes key benefits, ranging from import duties exemptions and other tax exemptions and holidays, to a specific foreign exchange regime for exports, among other incentives.

An investment may benefit from the specific incentive RIGI framework if the project investment is equal or greater than USD200 million, while a more-beneficial regime is set out for strategic projects with a project investment equal or greater than USD1 billion.

Moreover, investments considered eligible for RIGI will be protected investments under the terms of the applicable bilateral investment treaty. In this regard, the law also sets forth that disputes will be solved under international arbitration with a choice awarded to the investor to settle disputes pertaining to the investment between different arbitrations rules (PCA, ICC or ICSID).

Other Relevant Reforms

In tandem with the implementation of the RIGI, and with the effort of facilitating private investment and financing, the government has recently modified the framework applicable to public works, services and infrastructure concessions, and also created a new private initiative regime. Both regulations are strongly focused on attracting private capital, and decentralising public contracting as much as possible. Substantial protections for lenders and sponsors are provided as well.

Also, as part of the Foundations Law, the government has passed significant regulations in connection with the oil & gas industries, aimed at promoting free-trade and exports.

Industries to Watch in Argentina  

With the RIGI kicking-off, relevant stakeholders have recently announced promising plans for diverse industries, principally LNG projects, mining and energy.

LNG

The LNG sector presents significant opportunities for Argentina to leverage its unconventional natural gas resources produced in Vaca Muerta and become an exporter of liquefied natural gas.

The commissioning of a new natural gas pipeline has garnered support in aiding development and decreasing reliance on imports and is the first step to allow Argentina to produce a natural gas surplus which may be exported.

LNG holds enormous potential to reshape the energy landscape of Argentina and also to help fully harness the country’s under-exploited reservoirs.

Mining

Lithium

As the fourth largest global lithium supplier, Argentina owns one of the world’s largest lithium reserves, a critical component for the energy transition, considering renewable energy storage solutions and electric vehicle batteries. The country’s mining-friendly policies and low royalty rates can make it Latin America’s premier destination for foreign investment looking for lithium projects, fuelling projections that the country may surpass Chile as the world’s second-largest lithium producer.

The sector has largely been driven by private enterprise and increased demand worldwide, as the federal and provincial governments have looked to raise export proceeds through lithium mining projects. Despite the macroeconomic challenges, Argentina has seen a steady growth in this industry throughout the years, with a clear export increase forecast for the near future.

When it comes to funding, given the amounts involved and the current strict foreign exchange regulations, most lithium projects have been financed from offshore sources or by foreign equity, but in some cases sponsors and lenders have resorted to complex financing alternatives, including export credit agencies and multilateral financial institutions.

Copper, gold and other minerals

Argentina’s metal sector holds vast potential for growth, with abundant reserves, especially of copper, gold and silver. Under the Mining Law there is a 30–year fiscal stability period plus other benefits (such as tax-free imports) at each stage of a project’s development.

In most cases, investments have been channelled through offshore financing or by offshore equity contributions given foreign exchange regulations that make cross-border financing to the operating company challenging.

Considering the status of logistical issues and the absence of grid connection for isolated projects, this sector is becoming a source of interesting opportunities for energy and infrastructure developments.

Energy

Renewables

In recent years, Argentina has seen remarkable progress in the renewables share of its power generation matrix, positioning the nation as a key player in the global push towards sustainable energy sources. This growth is driven by world-class resources, supportive policies, and a commitment to carbon emission reduction. The RenovAr programme, launched in 2016, introduced auctions for long-term contracts, ensuring fixed prices for energy over 20–25 years, then enhancing project viability.

Local players have a significant know-how in quickly ramping up solar PV and wind facilities, and cross-border financing was possible under bankable structures such as RenovAr via a strong involvement from mandated lead arrangers and export credit agencies. Renewable generation rules mandate that 20% of the energy consumption is sourced from renewables by 2025. As of today, that percentage is 13%, which means that at least an additional 7% would still need to be commissioned (7664 MW of new renewable generation) by the end of 2025.

The current gap may also be closed by an active corporate power purchase agreement (PPA) market, which has mainly been funded locally by equity or debt, and which has recently benefited from certain regulatory measures targeted at dealing with transmission issues. In addition, the government Energy Transition Plans to 2030 and 2050 aim for new renewables ranging 7.5 GW for 2030 and 34–45 GW for 2050.

Transmission

Argentina’s growth in the power sector in recent years has been driven by policies aimed at expanding power generation, installed capacity from renewables and thermal facilities, alongside developing a corporate PPA market for renewable projects. This push has not occurred in sync with transmission expansion works, and currently transmission capacity faces bottlenecks, imposing a barrier for additional power generation projects.

This situation also seriously limits the growth of energy-hungry industries such as copper/gold and lithium mining and their wider production chains as well (eg, vendors and equipment providers). New power transmission facilities are of the essence for mining projects which are currently off-grid. Projects would improve their feasibility and enhance their attractiveness to foreign direct investment should they be able to offtake electricity from the network directly.

According to the National Energy Transition Plan to 2030, more than 5,000 km of new power lines and transformer station segments to connect the core transmission system to several grid systems, scattered throughout the country, are planned. Under this scenario, investment totalling approximately USD5.57 billion would be required.

The energy transition

Argentina has the potential to become a leader in the coming energy transition, including the development of hydrogen technologies and the promotion of sustainable mobility. Due to significant costs in scaling up infrastructure for hydrogen production, storage and transportation, the government has a key role to play.

The government has recently published the Energy Transition Plans to 2030 and 2050, with ambitious goals in terms of green hydrogen development and associated power generation and installed electrolysis capacity.