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Argentina Sees $90 Billion Boost in Public-Private BillMon, 06/06/2016 - 20:34
Argentina’s President Mauricio Macri will send a public private partnership bill to Congress in the coming weeks that will increase the country’s financing capacity by as much as $90 billion, according to his top adviser on foreign investment.
The bill will allow the government to speed up its investment in infrastructure, Horacio Reyser, Macri’s adviser on foreign investment, said in an interview. It will also provide guarantees to investors and facilitate access to multilateral lenders and capital markets.
“If the state had to build all the works with its own financing and its own technical capacities it would take a lot longer than if one opens up the possibility of construction and finance to other players,” Reyser said from the presidential palace in Buenos Aires. “This needs to be seen as an additional source of financing that can generate efficiency and transparency in infrastructure projects.”
Macri assumed power in December vowing to open up Argentina’s economy by unwinding controls and regulations that had driven away investment. In six months, he’s lifted currency controls, cut subsidies and brought the country out of a 15-year default by settling with holdout creditors. Now, he needs foreign investment to compensate for the decline in weaker consumer demand and kick start a flagging economy.
According to Reyser, financing through the public-private partnership project could be used for infrastructure, schools and hospitals, including projects by local governments.
Macri has announced plans to spend as much as $26 billion to upgrade Argentina’s road and railway network and modernize airports, ports and urban transport systems over the next four years.
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The bill was designed in consultation with local business chambers and multilateral lenders such as the World Bank’s International Finance Corporation, the Corporacion Andina de Fomento and the Inter-American Development Bank, Reyser said. While those lenders would probably be the initial creditors, the long-term objective is to open up credit lines with other lenders by providing additional protection from risk, he said.
The PPP law would not only distribute risks evenly between the state and its private partners but also provide legal protection for lenders by technical arbiters, he said. The bill will be sent for approval to Congress by early July.
“The aim is to get to where one can issue bonds in capital markets to finance an infrastructure project,” Reyser said. “The security and knowledge the PPP law brings to this ecosystem will allow for this kind of financing.”
Reyser, 46, was tapped by Macri to advise him on foreign investment shortly after he assumed office last December. A holder of an Advanced Management Program diploma from Harvard Business School, Reyser worked at Techint Group, Tenaris SA, and Ternium SA before becoming a partner at the private equity firm Southern Cross Group.
Foreign direct investment in Argentina fell 42 percent in 2014 to $6.6 billion, according to the United Nations’ Economic Commission for Latin America and the Caribbean, or CEPAL. That compares with investment of $62.5 billion in neighboring Brazil and $22 billion in Chile. Reyser said that even that number is misleading since many companies were forced to reinvest their profits due to capital controls.
Argentina’s objective is to attract foreign direct investment of about $25 billion a year, Reyser said. Macri has already received pledges of about $15 billion since taking office, although some of those are over several years.
The reforms Macri has implemented, which included devaluing the peso by about 30 percent and removing subsidies on utility bills, have caused inflation to accelerate to about 40 percent and the economy to stall as consumption falls. Reyser said that while that has deterred some investors, many are already pledging their money knowing that the macroeconomic situation will improve by the end of the year.
“It’s true that some are waiting but there’s also some that aren’t,” Reyser said. “It’s natural that the flow of capital begins with financing but ends up converting into direct investment.”