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November 17, 2014 at 08:20 PM
For most foreign investors, being able to invest with greater ease in a country’s energy sector is an exciting prospect that spells new opportunities. But not when that country is Argentina, a nation that has, for numerous reasons been in the global market doghouse for the better part of the past couple of years.
The Argentine government recently announced measures that will facilitate the entry of foreign capital into its energy sector. The new legal framework has been designed to invite international oil companies to help develop the country’s vast shale deposits, which promise great potential and have captured the attention of high level financiers like George Soros, who in August, more than doubled his investments in YPF, Argentina’s state-owned energy company.
But though the new rules, which, among others, have reduced the minimum investment for companies to be exempt from import controls to $250 million from $1 billion, are exciting, many investors are still leery about Argentina.
“The country does not have a history of treating foreign investors very nicely,” said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management. “Argentina is desperate for money as oil prices have fallen and foreign capital has fled, but while the change in Argentina’s law to allow for more foreign participation in the development of the energy sector is a good step, it’s woefully inadequate. They can roll out the red carpet, but if you think your assets are going to be taken on a whim, why would you want to walk down that carpet?”
With under $30 billion in foreign exchange reserves and a $6 billion structural trade deficit in the energy sector, “Argentina has little choice but to fix things,” said Jim Barrineau, co-head of emerging market debt relative and head of Latin America at Schroders in New York. “They’re finally doing something, albeit grudgingly, and it has enormous potential but we’re talking about a very long drawn out process and it will be a long time, probably only after the next presidential elections, before we see anything really happening.”
