During the early morning of June 28, after a long debate in the Chamber of Deputies, in fact, in the whole Congress in general with its comings and goings, the Basic Law was approved. On this occasion, the proposal is to provide people with the positions of different experts on the subject regarding one of the most debated points, the Incentive Regime for Large Investments (RIGI), in order to help them understand what it is, why some support it and others do not, what benefits or detriments it generates, and to be able to form their own position and opinion on the matter.
Giacomini, economist, former friend of Milei's
To begin with, it is interesting to have the opinion of someone who knows Milei, and who is also of the same ideology as him. In an interview with Tenembaum and María O'Donnell, Diego Giacomini, economist, former friend of Milei, in spite of belonging to the defenders of liberalism, takes a hard position against the RIGI; in this talk he said "the RIGI is an inequality before the law, why is it an inequality before the law? Because you say to those who come from abroad: bring the money you have, whatever you want, I do not ask you where it comes from, perfect, then, take it out whenever you want, however you want, I do not ask you or prevent you, you do not have to liquidate, ready, besides, I do not force you to buy nationally either". He continues, in reference to national businessmen, saying that Argentine investors, with the RIGI in force, would be required to provide information about the origin of the money, and restrictions would be imposed on them when turning dollars and buying in the national market. Giacomini expresses: "It is an inequality before the law and goes against what the President himself talks about, who speaks of equality before the law as, it is true, one of the pillars of liberalism".
Daniel Funes de Rioja, lawyer, President of the UIA
In an interview with Diego Iglesias, Daniel Funes de Rioja, President of the UIA, in what seemed to be an attempt to escape the questions of the interviewer of Radio Con Vos. In spite of this, Funes de Rojas made some statements and anticipated the position of the UIA to create some kind of national incentive law. At that time he said: as regards objections, "we have raised our main concerns is, fundamentally, to ensure that in the case of national manufacturing of certain capital goods, they can compete despite the fiscal asymmetries, let's say both the 17.5% tax and the country tax, that this kind of asymmetries do not put you off". On the other hand, regarding the general position of the base law, "this law has to come out and it has to come out as soon as possible because the large investments that are looking at Argentina in the energy and mining areas are expectant and it is a very important foreign direct investment not only for what it means as an investment in the country but also for the value chain, the leverage on the SMEs". Also, in reference to the advantage of the richness of the Argentine soils, he expresses: "we must take advantage of the opportunity that Argentina has, it is not an opportunity to empty the natural resources, but to exploit them properly".
As it was said, when listening to the note of the UIA representative with Diego Iglesias, he seems to run away from the questions and does not want to make any statement. However, from those, a reading between the lines of what Daniel Funes de Rojas says can be made; for example, he raises a certain caution in what some call "unfair competition" of national companies against foreign ones. He also clarifies the importance of avoiding what would be the concept of "enclave economy", that is, an intense economic activity generating a "favorable trade balance", but where those profits are not distributed in society. Local employment tends to be precarious and poorly paid, and foreign companies often import their own technology and specialized personnel, limiting the transfer of knowledge and skills to the local population. This is one of the constant criticisms of RIGI.
However, the UIA representative, in turn, seems to argue, as he says in the second quote, that RIGI would bring a multiplier effect in the economy by stimulating a whole value chain and a "leverage on SMEs", benefiting other sectors, for example, by demanding local infrastructure, services or products; although it is the latter that critics say will not happen.
In that interview, Daniel Funes de Rojas also said: "what we have suggested, also, is that there should be an investment regime for investments in national industry, of national capital, and obviously not of 200 million dollars or more, but starting this much lower. And not to ask for subsidies, but in any case to look for incentives to produce more, to be more competitive and to export more".
Opinions within the UIA do not seem to be in agreement, but the greatest agreement can be seen in the inequality of privileges, incentives and general conditions of competition of local companies as compared to foreign ones. Perhaps, in this sense, this is the reason why we learned a few weeks ago about the design of the Argentine Industrial Union (UIA) of the Incentive Regime for Industrial SME Production (RIPI), in order to balance the incentive balance.
Emmanuel Álvarez Agis, economist, former vice-minister of Economy
Among the critics of RIGI, there is also Emmanuel Álvarez Agis, who, with his experience as vice-minister of economy in Cristina Kirchner's second term, makes the comparison with the 2013 Chevron deal. As he says, in an interview with María O'Donnell, they negotiated with Chevron that as of the arrival of a certain amount of barrels of oil produced in dead cow, the company would be able to start "transferring dollars" to its parent company; but he clarifies that the agreed production level was only reached by the North American company in January 2021, and that "when it went to transfer the first dollar, the Central Bank said no".
In view of this, Álvarez Agis states that Argentina needs an investment promotion law because we are not reliable, which coincides with one of the arguments of the government and the defenders of RIGI, who argue that it is necessary to give great benefits given our past. In turn, the former Minister of Economy, as well as other critics of RIGI, maintains his position that the benefits are excessive and that "no company was asking for so much", a phrase very often repeated and present in Congress in the words of Martin Lousteau, and that the government's objective of "dollars coming in" is not in line with the regime since, after the amendments in the Senate, as from the fourth year, companies are no longer obliged to liquidate anything in the country.
Agustín Etchebarne, economist, general director of Fundación Libertad y Progreso
Agustín Etchebarne is a self-described liberal economist, director of Fundación Libertad y Progreso. Etchebarne, whose thinking is generally in line with that of Javier Milei, is an advocate of the Ley Bases and the RIGI. Among his statements he says: "the RIGI are those basic rules for large investors where the cepo is eliminated as from the third year, taxes are lowered, benefits are given and made permanent for 30 years".
The liberal economist also explains how, according to him, the RIGI would generate more SMEs and therefore more jobs, something similar to what Daniel Funes de Rioja, President of the UIA, said when he talked about "leverage on SMEs". Etchebarne says: "you are going to have large mining projects because they are projects of more than 200 million dollars, in reality they are going to be projects, sometimes, of 10,000 million dollars. When you invest in a mine you build a new city, you generate a lot of Argentine SMEs that will supply that city, that will generate the logistics, that will feed all those people, that there will be catering companies, that there will be transportation companies, that there will be construction companies, and construction is the mother of industries. But also, in order to generate thousands and thousands and thousands of new companies, you need that those benefits that the big companies have today reach everyone, and that requires the elimination of the cepo for everyone, eliminating taxes or lowering taxes for everyone, simplifying and deregulating and allowing imports for capital and investments, also, of one million dollars, not only of 200 million dollars; because investments of one million dollars generate more employment, that is to say, 200 investments of one million dollars generate, in general, more employment than an investment of 200 million dollars and that will take longer".
On the other hand, Etchebarne, touches on the issue of equality before the law, a fundamental principle of liberalism, and clarifies: "but in no way is it the end of the movie, the end of the movie has to be equality for all, that everyone has the benefits of lower taxes and greater stability". In this regard, he also states: "it is not a matter of being a foreigner or a local, it is a matter of the size of the investments. What can happen is that you have a large investment from abroad and they want to make a meat packing plant that starts operating in the next 2 years and starts competing with the current meat packing plants that have already invested 200 million but before, in the last years" In this sense, paraphrasing the economist, he states that in, for example, a mining investment to export, which does not compete with local ones, there is no urgent need to establish equal competition for Argentine and foreign investors; But if it were an investment of a supermarket or a meat packing plant, it would be an unfair competition, and it would be necessary to equalize the advantages, favoring with the lowering of taxes; he says: "the spirit has to be that you do not harm anyone who has already invested in Argentina".
Carlos Freytes, political scientist, director of the Natural Resources area of Fundar.
Another great critic of RIGI is Carlos Freytes, director of Fundar's Natural Resources area, who has expressed his position in several interviews and even in Congress. The political scientist defines the RIGI as "problematic", and argues it by saying: "because it implies three great renunciations on the part of Argentina: firstly, it implies the renunciation to tax these projects; secondly, it implies the renunciation to make productive policy in relation to these projects; and thirdly, it implies the renunciation of Argentina's capacity to decide on the use of natural resources" in a note in Radio Con Vos, in which he explains in great depth and with technicalities the RIGI, but in a simple way.
Freytes also takes the side of those who argue that "the companies did not ask for so much" and is against the tax stability granted for 30 years; regarding this he says: "why is it wrong? for several reasons, first, because the investment decision of the company depends on what happens in the first 10 years, that is, in the first 10 years the company recovers its investment and all its financial calculation; to invest or not it is focused on those 10 years. Secondly, it is wrong because it over-commits the Argentine State beyond its intention to encourage foreign direct investment; thirdly, it is wrong because in the compared experience, and there is for example the case of Peru, one generally does not grant one benefit on top of another, and for example, companies that are going to invest large amounts sign a specific contract with the Peruvian state in which they can opt for two things: Either tax stability and a higher rate, or the general regime without stability, that is, a lower rate in the general regime without stability. Here they are given both".
Also, regarding the liquidation of foreign currency exports, Carlos explains: "if one, for example, is going to build a copper project, that copper project will have 4 or 5 years of construction until it generates foreign currency, that is to say, in practice there is no obligation to liquidate foreign currency because the project will only mature in 4 or 5 years". And he adds, in this sense: "there is a virtuous moment when investments are made in the country, the project is built, work is hired to build the project, etc., there is a positive balance; now, in time, that balance is negative or intangible for the Argentine economy".
Finally, he mentions the benefits of imports under the incentive regime: "what RIGI does is that it allows companies to import at zero tariff not only capital goods but also spare parts, machinery parts, production inputs, and in the last wording it says directly merchandise; merchandise means that initially they could import even the uniforms and work shoes of the workers who operate the project". Paraphrasing Carlos Freytes, he emphasizes that the companies, as always, ask for guarantees regarding the possibility to remit dividends, and this is in the regime, they also ask for a reduction of the export duties, which is also in the regime; and what the companies do not ask for is the reduction of 10 points of the income tax. In addition, Freytes says: "if a project has to choose between importing a zero tariff machinery or buying that machinery locally when the producer will have had to import inputs under the general tariff regime, that puts it at a competitive disadvantage".
Carlos Melconian, economist, former Central Bank President
Carlos Melconian, economist, former president of the Central Bank during Macri's term, is in favor of the Ley Bases and supports the RIGI. Regarding the investment regime, he raises, like many others, the problem of inequality and maintains, paraphrasing, that he is in favor of "those who put money in, earn money, that it is theirs and that they can do with it what they want". Melconian says that Argentina's problem is its bad reputation and the distrust it generates, in this sense, the RIGI would solve this problem. The former president of the BCRA puts on the table the situation in which a company demands the removal of certain taxes that are not charged in another country and that without this condition does not put capital, in addition to the possibility of doing with the dollars what it wants, that is, not having the restrictions of the cepo; "everything that a normal economy has" says Melconian. The question Carlos asks himself is, in an economy that has fallen so much and is not reliable, how much do you give? do you give what they ask for? do you give less? do you give more? Carlos Melconian says that with the RIGI, in a situation like the one that occurred in a short period of time with the arrival of Menem and Kirchnerism, which being from the same political party had very different policies, this regime gives the possibility to the foreign businessman to carry out a lawsuit, which gives security to the investor. Nicolas Dujovne, former Minister of Finance during Macri's term, joined the debate and in favor of RIGI, says: "RIGI is a very effective tool. There are numerous sectors that need it, especially after Argentina has had recurring problems with contracts".
On the other hand, the economist maintains that "the Incentive Regime for Large Investments (RIGI) is not the ace up the sleeve for money to come in. There is no economic plan, there is a financial plan", and seems to imply that the RIGI would not bring major changes in the economy. Hernán Lacunza, also former Minister of Finance during Macri's term of office, is in the same position and says: "the RIGI will not move the macro, it will channel some specific investments in the favored sectors, which are about five extractive sectors [...] The micro accompanies, the macro rules; if you do not have a stable macro that allows you to infer that you will lift the cepo not in six weeks but in 6 months, the investment will wait".
Conclusions
As a conclusion, summary or closure to what has been said here, certain statements can be made: The first is that, in general terms, everyone agrees that the benefits of RIGI are great, although some see it as something good or necessary and others see it as excessive and detrimental. Second, both critics and supporters of RIGI argue that a foreign investment regime is necessary. And third, whether they agree or disagree with this point of the Base Law, all see the need to equalize competitive advantages between locals and foreigners. It is in this last statement that there seems to be the greatest agreement across the ideological spectrum, including the liberal wing, which surprises some with this criticism, and which is joined by Horacio Liendo, "architect" of the Convertibility and Roberto Cachanosky, also a liberal.
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