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Argentina: Political, Economic Changes Expected as Presidential Elections Loom

Navigating the new legal scenario, amidst a convoluted political landscape as the October presidential election looms, is the main challenge for Argentina's in-house counsel this year, according to experts at the "Legal Perspectives for 2015" seminar, organized recently by the ACC Argentina Chapter and held in Buenos Aires.

New legislation introduced by the government in 2014 increases market regulations in the South American nation. The price and availability of supplies, goods and services Act, for example, creates a commission comprised of members of the executive branch to analyze and monitor pricing and availability of goods and services in Argentina, so that economic distortions can be identified and corrected.

Inflation, a long and steady problem in Argentina, is expected to increase this year, boosted by a scarcity of foreign currency. As the government prints more pesos to close its fiscal deficit, the monetary pressure will push for a devaluation of the Argentinean currency.

This will certainly impact private companies, especially when it comes to hiring new personnel. Salaries run the risk of becoming diluted as inflation grows. Moreover, companies looking to reduce their labor force will encounter challenges, as recently enacted labor laws make the process more complex.

Neither investment nor exports will substitute private consumption as the main source of growth for aggregated demand. Furthermore, economic activity will be affected by growing restrictions to imports, as authorities try to protect the hard currency reserves available.

The deterioration of the economic environment is being slowed down by the political capital held by the current government. A new administration, with fresh political and socio-economic platforms, could slow down the financial downturn, but this is unlikely. An economic meltdown looks inevitable, according to the cur- rent metrics.But, as trouble looms, opportunity also rises. A closed market, like the current one in Argentina, is a good environment to invest in because when it opens, those pioneer investors will have the first chance to sell their products to a population eager to consume.

The country has proven in the past that it has a one-of-a-kind ability to emerge from its crises – although sometimes not unscathed. Still, Argentina has grown over the past 50 years despite its turbulent economy.

About the Authors

Gonzalo Rovira is the intellectual property and licensing manager for Latin America south at Monsanto.

Martín Castro is the legal and public affairs manager at Bridgestone.

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