Argentines seek local development to reduce reliance on international capital markets

Growing Argentina’s local capital markets remains key to boosting economic growth in a country saddled with high interest rates.

But investors’ reluctance to bet long-term on the country’s economy has proved difficult for the development of its local market, because of its volatile economic history.

“Developing a local capital market is fundamental,” said Federico Barroetaveña, CFO of Techint Ingenieria & Construccion. “The logical thing would be for the local market to finance infrastructure.”

Argentina’s Senate is currently debating reforms to capital markets law to enhance financial instruments available to savers and small businesses, among others.

Speaking at LatinFinance’s 4^th Cumbre Financiera Argentina in Buenos Aires on Wednesday, Marcos Ayerra, chairman of securities regulator CNV, said the final goal in developing the markets was to decrease poverty in a sustainable fashion.

He also noted there was potential capital in the $120bn washed through the government’s tax amnesty plan, which can be invested into Argentina’s local capital market.

“There are 120 billion opportunities,” he said in reference to the amount of expatriated cash.

If approved as expected, the bill, which required an amendment, would then return to the lower house of Congress, which had already voted in favor of the measure.

Potential changes include the creation of life insurance instruments and easier processes allowing individuals to set up retirement funds that would be tied to equity instruments.

Going long in Argentina 

Investors with short-term memories, however, are still concentrated on the short-term gains in Argentina. At a time of low interest rates, destinations such as Argentina offer short-term returns and even faster profits.

“There is a lack of long-term thinking in the Argentine market,” said Martín Gavito, CNV director. “Perhaps what we are missing is to create this demand.”

For now, there is little incentive for individuals to put their money in the local market.

“Beyond the regulatory framework, the most important thing is to generate an incentive for local savings,” said Eduardo Zemborain, head of special industries & investment banking at ICBC.

For Juan Manuel Pazos, head strategist of local brokerage Puente, “convincing savers” to get involved in the local market remains integral to future growth.

Retirement savings, meanwhile, are another crucial measure in developing an illiquid local capital market, according to Carlos Planas, president and senior portfolio manager at Axis Inversiones.

“The exchange rate will be stable so the segment in pesos is very attractive with a range of two to three years,” Planas said.

That is the theme President Mauricio Macri emphasized when he called on lawmakers to approve the measure earlier this month at his annual speech before Congress, noting it will provide options to channel Argentines’ savings, “particularly for small- and medium-sized businesses that need the capital to grow.”