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Argentina losing out on Latin American FDI flows

Oct. 27, 2011 at 3:39 PM   |   Comments

BUENOS AIRES, Oct. 27 (UPI) -- Argentina is losing out on foreign direct investment flows into Latin America through a complex set of reasons that may have to do with the country's style of government.

FDI to Argentina fell 30 percent in the first six months of the year while several other countries in Latin America and the Caribbean received 54 percent more, the U.N. Economic Commission for Latin America said in a report.

Despite positive projections, the global financial volatility is generating uncertainty regarding the region's economic performance, ECLAC said in the report.

Argentina's economy, fighting double-digit inflation, is still growing at about 8 percent a year and unemployment has fallen but huge economic problems continue to bedevil the government.

Foreign investment in Argentina fell to $2.4 billion in the first half of 2011 from $3.5 billion a year earlier, the commission said. Brazil received 157 more direct investment than in the first half of last year, with a total of $44.1 billion, while in Colombia it increased 91 percent to $7 billion, the commission said.

"The increase in FDI inflows is due to the stability and economic growth in most of the countries and the high prices of raw materials, which continue to attract investment in mining and hydrocarbons, particularly in South America," the report said.

As mining and hydrocarbons remain the main attraction for investors much of the interest moved away from Argentina to other countries rich in minerals and hydrocarbons or proven reserves larger than those in Argentina, which has recently reported moderate success with oil finds.

The investors' response, however, was linked by analysts to increasing intervention in the economy by the administration of President Cristina Fernandez de Kirchner, who won a second term in office last Sunday.

Before Fernandez swept to victory worries over the election outcome caused a run on bank accounts and depletion of the central bank's foreign exchange reserves.

About $3 billion changed hands and added to estimates of capital outflows of $20 billion from Argentina in 2011. The same estimates showed Argentina lost $73 billion of reserves due to capital outflows over the past four years.

Investors blamed the soaring costs, pressure from strong unions and inefficient handling of government subsidies to the utilities sector.

Argentina's continuing problems led the government to order foreign exchange earning industries to repatriate profits stashed away abroad.

Foreign direct investment also fell in five of 18 countries in Latin America and the Caribbean -- 31 percent in Paraguay, 18 percent in Mexico, 4 percent in Uruguay and 14 percent in Chile.

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