The chapter of the Ley Bases seeks to enshrine once and for all a pattern of productive specialisation of Argentina as a mere exporter of commodities, with multinationals dominating the cream of the business and without any articulation with the national productive framework or the innovation system.
Illustration: Micaela Nanni.
The RIGI, an anti-Argentina project
The heart of the Ley Bases being discussed today in the Senate is not the income tax, the modest (and asymptomatic) labour reform or the laundering of taxpayers’ money. Not even the powers delegated to the president.
The core of the government’s proposal is the Large Investment Incentive Regime (RIGI), which consists of providing incentives, for a period of 30 years, through fiscal and customs policies, for an investment boom in mining, oil and gas. And probably also in agricultural investments.
The project seeks to enshrine once and for all a pattern of productive specialisation of Argentina as a mere exporter of commodities, with multinationals dominating the cream of the business and without any articulation with the national productive framework or the innovation system. A pure and simple enclave economy.
At Fundar we agree that the country needs foreign direct investment. Foreign capital is one of the motors of a national development strategy such as the one we are thinking of. But it cannot be done in any old way.
The RIGI scuppers any opportunity to leverage our natural resources to capture rents in a reasonable way and to articulate with existing and potential productive sectors that will emerge as a result of the investment. It also completely dismisses the benefits of virtuous socio-environmental governance, one of which is precisely to make investments more sustainable.
5 keys to understand why
Estas son nuestras razones de por qué el RIGI es un proyecto anti-Argentina y debe ser vetado o modificado en el Senado de la Nación.
1) Announcements today, hunge tomorrow
The project adopts a short-term perspective to promote the attraction of large investments, especially for the amounts involved in extractive sectors such as mining, oil and gas.
- It offers a two-year window of opportunity, extendable at the discretion of the national executive branch for another two years, for large investment projects (greater than 200 million dollars) to join the regime.
- It grants tax, customs and exchange benefits with the sole requirement that up to 40 per cent of the project’s amount be executed within two years of the approval of the regime’s adherence.
- And it binds the Argentine state hand and foot for 30 years to capture extraordinary profits and make productive development policy.
A combination of privileges for capital and restrictions on the collective good that no serious country in the world does (at least none in the region, although there are examples in Africa).
2) Even companies don't ask for that much
Did the multinational companies pass their wishlist to the national government, which then transcribed it into the RIGI bill? If we look at the tax, customs and exchange benefits given to these large investments, we are tempted to say yes.
From most to least important, these are: reduction of the profit rate from 35% to 25% and accelerated depreciation, zero withholding taxes on all exports arising from the investments, zero tariffs on imports of machinery (new and used) and capital goods, no domestic purchase requirements now or ever, foreign exchange settlement requirements in the Single Free Exchange Market (MULC) of only 80% in the first year, 60% in the second year and zero (yes, zero) in the third year of the investment.
It is the most generous regime in the country’s history. With an absolute novelty: without any conditions in return. Not today, not ever. Because thirty years of stability prohibit any change at the national, provincial and municipal levels. The Roca-Runciman pact would blush. Strictly speaking, in that 1933 pact, also signed in May, the UK “allowed” a 15% share of the total meat trade to be done by Argentine meat packing plants. Not even in RIGI.
3) Destruction of domestic industry and associated employment
Under RIGI, a multinational mining company could import not only all the equipment needed for mining – the complex machinery, backhoes, tractors, trucks – but also the chemical toilets and workers’ clothing.
What’s more, depending on how the regulations end up, the workers could be entirely foreign (something that is not entirely uncommon in the mining business, but would now be enshrined in the spirit of the law), without the need to hire any local people. This law gives carte blanche and irreversibly tilts the playing field: everything for the companies, nothing for the communities (not even the catering service).
At the national level, this makes it impossible tout court for productive policy opportunities to be leveraged in sectors with high demand for inputs and services, which are those that tend to be used throughout the world to promote local linkages. The mecca of the free market, the United States, with the approval in Congress of Republicans and Democrats, established industrial policy conditionalities through the Inflation Reduction Act and the CHIP Act, for the simple reason that it is the smartest decision that can be taken as a state in a context of growing global tensions.
4) Social and political unsustainability makes it essentially unstable
The fact of having such a ridiculously generous incentive regime for so long (back: 30 years), based purely and exclusively on the exploitation of natural resources – which employ relatively few people and spill nothing – makes it very unstable over time.
It is a regime that, if approved, is born wounded in terms of social and political legitimacy. Therefore, rather than providing incentives for investments to come, the RIGI promotes incentives for both the street and politics to respond to such a mortgage on the country’s future. There will be conflict sooner rather than later: it is unavoidable by the very design of the regime as it stands.
In other words, RIGI is unsustainable: it undermines the stability of the businesses it promotes. It is not credible that it will last over time, not for 30 years, not for 15 years, and perhaps not even for the current period of government. Which brings us to the last point.
5) The enshrinement of legal uncertainty
We are the country with the highest number of mining projects stopped due to environmental conflicts in the entire region, where community activism is the norm, and where politics has been made “in the streets” for 200 years. Like it or not, that’s who we are. That is why it is ridiculous to think that this regime is going to get through 30 years of Argentine politics unscathed. Thirty years of instability, conflict and the “breath in the back of the neck” of civil society.
Politics, which is reactive and accompanies society from behind, will not stand on the sidelines when the winds change. Nor will the judiciary. This is not speculation, it is merely information on what has happened in our country and in the region. Just look at the mining project in Panama, one of the largest copper projects on the continent in recent decades, which after years of conflict with the community and then with public opinion was declared unconstitutional by the country’s Supreme Court.
This type of project, which is approved under RIGI, will end up in the Supreme Court of Justice, due to the conflicts it imposes between the limitations on the provinces “originating from the resources” and the Nation, or will end up in the ICSID, an international tribunal in which Argentina has faced dozens of disputes in recent decades.
A proposal
Fundar has proposed and defended large investment promotion schemes. I point to just one: a proposed liquefied natural gas (LNG) law that would have YPF and Malaysia’s Petronas as the main, but not exclusive, beneficiaries.
There are many reasons to move forward with such a scheme: there is a nationally owned company, with strong state participation, leading the project to learn from a key partner a business it does not know and could not learn by its own means in a reasonable time. The state appropriates in a substantial way the income generated by the exploitation of a strategic resource that has a limited window of opportunity in time.
The RIGI under discussion in the Senate contains none of these future prospects. The RIGI is pure surrender of natural resources, especially non-renewable ones, to foreign capital. It is a project born of economic urgency and does not consider the national interest.
Rejecting it in limine or modifying it severely – in order to limit tax and customs benefits, exemption periods and impose conditions for productive articulation with national industry – are the only two reasonable options. This issue is too big and too important for an express closed-book treatment.
Let us hope that the reviewing House is up to the task. There is still time to avoid having to repent for 30 years.
