“The changes our country needs are drastic,” Argentina’s new president Javier Milei declared shortly after being elected in late 2023. What happened next certainly lived up to this promise.
Under what France 24 called “an all-out fiscal austerity program,” aiming to eliminate the deficit and tame chronic inflation, Milei’s government put infrastructure and public works projects on pause, slashed budgets, pensions and price controls. The government also substantially devalued the peso against the US dollar. “Although this makes exports cheaper and more competitive, imports are now even more expensive,” Deutsche Welle pointed out in its coverage of the situation.
Yet the first months of the Milei administration also saw some positive outcomes. Argentina reported a primary fiscal surplus, a significant reduction in the Central Bank’s interest-bearing liabilities, and billion-dollar growth of its net international reserves. And late June brought two new developments with potentially transformative implications.
The first is Argentine Law No. 27,742. Known as Ley Bases, this is the version of Milei’s much-debated and revised Omnibus Bill that ultimately gained approval. One key part of Ley Bases is the Incentive Regime for Large Investments (RIGI), offering 30 years of stability in tax, customs, foreign exchange, regulations, and more, in sectors from hydrocarbons and electricity to forestry and steel. The goal: modernize infrastructure, boost exports, and strengthen Argentina’s presence in the global economy.
What makes the RIGI different—and potentially game-changing?
The RIGI is a big deal is because it aims to make the very biggest deals more feasible and attractive in Argentina. Eligibility requires an investment of at least $200 million USD, with at least 40 percent made in the next two years.
Some of the benefits include:
- Reduced taxes on income and dividends.
- Incentives related to the amortization of assets and VAT payments.
- Several exemptions from certain import and export taxes.
- Tax exemptions related to engineering, procurement, and construction services and transporting exports.
- Exceptions from obligations to repatriate and convert the proceeds from exports into local currency.
As Argentine tax and investment policy goes, many consider the RIGI to be one of its kind, “unprecedented and exaggerated in its scope,” in the words of political analyst and risk consultant Marcelo J. Garcia. Argentine tax advantages until now have primarily focused on small- and medium-size enterprises, information services firm Wolters Kluwer points out. Furthermore, with its 30-year guarantees, the RIGI aims to sidestep a typical cycle of private sector benefits followed by budget shortfalls, followed by legislative changes in the opposite direction to boost revenues back up.
Given constant changes in the incentive system, macroeconomic volatility, and the perception of risk, Argentina needs a regime for investment promotion, Daniel Schteingart with research and public advocacy firm Fundar asserts. One hope is that the RIGI “will open the floodgates to investment” in the nation’s energy, oil, gas, and mining sectors, “with investors offered a slew of tax breaks, currency exchange perks and other benefits to sweeten the deal,” writes Latin Lawyer.
Will the RIGI unleash Argentina’s natural resource and tech potential?
In resources from liquid natural gas (LNG) to copper, the RIGI is the legislation the industry’s been waiting for—literally.
“Without RIGI, there is no LNG project,” YPF CEO Horacio Marín declared—a sentiment shared by Malaysian Ambassador Azman Rahim. With Malaysia’s Petronas as a joint partner, YPF plans to use the RIGI to build an LNG export terminal and pipelines to move liquid natural gas (LNG) from the Vaca Muerta shale and gas formation to the Atlantic.
LNG is just one industry unleashed by this new program. “We have been talking to companies that were just waiting for the RIGI to be approved to move ahead with their exploration of copper deposits,” a mining industry source told Fastmarkets. The commodity price-reporting firm pointed out that “new copper projects will be necessary for global supply to meet rising demand coming from energy transition trends.”
Artificial intelligence—specifically the massive infrastructure needed to build datacenters and power superhuman algorithms—is another area expected to spur natural resource development, working hand in hand with the RIGI’s unsurprising focus on technology. In his “CEO diplomacy, Milei has already met with Elon Musk and Mark Zuckerberg, as well as the CEOs of Apple, Google’s parent company Alphabet, and Open AI. Foreign investments related to technology also leverage Argentina’s existing strengths. The nation is already known for its internationally valued IT talent as well as intrepid startups like Limay Biosciences, which is bringing its rapid testing technology to clinical trial in the wake of a historically bad dengue season.
What could tech-oriented RIGI investments look like in terms of capital expenditures, hiring, services, and beyond? The pathway isn’t immediately clear. “The type of technology projects that can apply to RIGI isn’t as obvious as it is in mining or hydrocarbons,” according to Ignacio Aquino of PwC Argentina.
Will a RIGI tide lift all boats?
Companies without $200 million to invest are hoping to see benefits from all of Milei’s reforms, especially as businesses across Argentina have been forced to lay off staff or initiate crisis prevention procedures with the Labor Secretariat amid plummeting sales and production.
The RIGI does offer some protections for the smaller fish in the pond, including a requirement to allocate at least 20 percent allocated to local suppliers. But this requirement comes with a caveat: “if such suppliers are available and meet market conditions for price and quality.” And there are some doubts as to how this clause may play out in reality.
Fundar’s Daniel Schteingart illustrates with the example of setting up warehouses, bringing in machinery, and so forth for a LNG plant. “It will be cheaper for large investors to bring everything from abroad than to do it with local industrial companies,” he says. “Thus, a huge opportunity will be lost for the local industry to be a partner in the large investment projects.”
By not requiring investors to keep their proceeds within the country, Schteingart warns that the RIGI may “create an enclave economy, with exports but without job creation.”
Looking at the bigger picture, political scientist and economist Pablo Tigani cautions against “a return to the policies of the 1990s, with deregulation, privatization and the unconditional opening up of the economy, which will deal a heavy blow to industry and to national small and medium-sized enterprises.”
“Adherence” and environmental impact
As the RIGI moves from policy to reality, it’s important to keep in mind a few cautions and considerations. First of all, provincial governments need to agree—or “adhere”—to the plan, and this is not always guaranteed.
“The Río Negro legislature is expected to pass the draft legislation, especially given the jurisdiction is vying for hefty LNG investment,” BN Americas reports about the YPF/Petronas deal. “A question mark hangs over whether Buenos Aires province will adhere. Those in favor of the investment going into Buenos Aires highlight that export-oriented infrastructure is already in place there.”
Meanwhile, other aspects of RIGI terms have raised concerns.
“Any environmental or labor regulation can be considered null and void if a company claims that it is contrary to its investment project,” Ariel Slipak, research coordinator for the Environment and Natural Resources Foundation (FARN), pointed out.
Environmental impact is no small concern—and underscores the importance of innovations like telematics, fresh approaches to transportation, and sustainable business in general. The Milei administration is counting on ag exports like grain, soy, meat, wine and more for the foreign currency to bring its reforms to life. Yet Argentina recently marked the most extreme warm season the nation had ever recorded, with a new record of 10 heatwave events. In July 2024, “cold wave” of extreme temperatures disrupted livestock and logistics in Patagonia.
Other reforms to keep on your radar
Other developments that may impact a company’s business strategy right now include:
New rules for labor management: Does your business strategy involve hiring workers from a local office or acquiring a local company? Your in-country offices and HR departments will need to be up to speed on employee registrations, probationary periods, social security obligations, labor contracts, and more. DLA Piper calls Ley Bases “the most significant change in Argentina labor legislation since the 1990s.”
Uncertain times for public works contracts: If your business strategy involves public works—including construction, goods and related services related, particularly if they meet certain timeframes and thresholds—keep a close eye on the business landscape in the year ahead. Ley Bases authorizes the Executive Branch to renegotiate or terminate these contracts and concessions.
Open skies ahead? A recently published decree invites foreign airlines into Argentina’s market. How could this play out in your business? “Airlines also now have full control over how much they charge for tickets, the decree states, doing away with a dormant regulation which allowed the government to set a price floor,” US News & World Report detailed.
The looming—and sweeping—possibility of privatization: Finally, as Ley Bases shifts oversight of administrative, economic, financial, and energy matters to the executive branch, enterprises under consideration for such a move include:
- Oil and gas exploration and distribution.
- Electric power.
- The construction of major gas pipes and dams.
- The water and sewer systems of Buenos Aires.
- Operation of the country’s main freight and passenger rail networks.
- Operation the Río Turbio coal mine.
- Operation of Argentina’s three nuclear power plants.
More work remains
Not even a full year into Javier Milei’s presidency, the RIGI and the rest of Ley Bases are just the beginning. “There is still a lot to be done,” Hans-Dieter Holtzmann of the Friedrich Nauman Foundation in Buenos Aires told Deutsche Welle, and Malaysian Ambassador Azman Rahim called the RIGI “a work in progress.”
As the situation continues to unfold, optimism accompanies criticism. Gustavo González, a sociologist at University of Buenos Aires, cites “the famous resilience of Argentines. … the result of more than three generations that have grappled with adverse circumstances, great uncertainty and abrupt changes,” he told AP News.
Will reforms like the RIGI and Ley Bases, coupled with strategically targeted international investment, give Argentina’s resilient people and businesses less adversity and more certainty? And what opportunities await for your company? Follow this blog for future updates and reach out to us for strategic guidance.