ARGENTINA'S SHARE OF FDI INFLOWS HAS DECLINED

UNCLAS BUENOS AIRES 001211 SIPDIS PASS FED BOARD OF GOVERNORS FOR PATRICE ROBITAILLE OPIC FOR GEORGE SCHULTZ AND RUTH ANN NICASTRI PASS USTR FOR LESLIE YANG TREASURY FOR RAMIN TOLOUI AND CHRIS KUSHLIS AND OCC FOR CARLOS HERNANDEZ USDOC FOR ALEXANDER PREACHER USDOL FOR ILAB PAULA CHURCH AND ROBERT WHOLEY SOUTHCOM FOR POLAD AND J5 FOR JUAN RENTA SIPDIS E.O. 12958: N/A TAGS: EFIN ECON ELAB ETRD ALOWAR SUBJECT: ARGENTINA'S SHARE OF FDI INFLOWS HAS DECLINED DESPITE OUTSTANDING ECONOMIC INDICATORS -------------- SUMMARY -------------- ¶1. Argentina received 1.4 percent of foreign direct investment (FDI) inflows to developing countries in 2005, and 5.9 percent of FDI inflows to Latin America. Both of these shares are well below Argentina's average FDI share during 1992-2000. Even if FDI from the 1990s privatizations is excluded from the average, FDI into Argentina in 2005 would have been at least 11.2 percent of Latin American FDI inflows if FDI had responded to GDP growth as it did during the 1992-2000 period. This suggests that Argentina's relative attractiveness to foreign investors has not increased significantly since the 2001-2002 crisis, despite Argentina's outstanding economic performance over the past four years. End summary. -------------- -------------- ARGENTINA'S RELATIVE PERFOMANCE IN ATTRACTING FDI -------------- -------------- ¶2. Argentina received 1.4 percent of all foreign direct investment (FDI) inflows to developing countries in 2005, and 5.9 percent of FDI inflows to Latin America, a total of USD 4.6 billion. Preliminary data from CEPAL, the UNCTAD World Investment Directory and the Argentine Ministry of Economy, as presented by local analysts, show that total FDI inflows worldwide in 2005 were USD 902.97 billion. Developing countries received 36.5 percent of this total, or USD 329.6 billion. Latin America received 23.8 percent of the FDI inflows to developing countries, or USD 78.4 billion. ¶3. Argentina's 1.4 percent share among developing countries in 2005 was down slightly from 1.8 percent in 2004, and up from its 1.1 percent share during the 2001-2002 crisis period. However, it is only about one-fourth of Argentina's average 5.4 percent share of FDI to developing countries during the period 1992- ¶2000. Even if the data is adjusted to exclude the 1999 purchase of YPF by Repsol of Spain and FDI received during the privatizations of the 1990s as exceptional events, Argentina's share of FDI to developing countries last year was less than half of its 1992-2000 average of 3.3 percent. ¶4. Similarly, Argentina's 5.9 percent share of FDI among Latin American countries in 2005 was down slightly from 6.3 percent in 2004 and up from its 3.1 percent share during 2001-2002. However, it is only slightly more than a third of Argentina's 14.4 percent average share of FDI to Latin American countries during the 1992-2000 period. Even if the purchase of YPF and FDI directed to privatizations in the 1990s are excluded from data, Argentina's average share of FDI in Latin America was still 8.8 percent from 1992- ¶2000. ¶5. According to Embassy calculations, Argentina's 2005 share of Latin American FDI inflows would have been 11.2 percent if Argentina's FDI share had tracked with GDP growth as it did in 1992-2000, and all other variables had remained constant. This estimate excludes the purchase of YPF and the 1990s privatizations from the calculation of the 1992-2000 average. -------------- COMMENT -------------- ¶6. The recent relative Argentine performance in the FDI field, compared to that of its Latin American neighbors and emerging markets worldwide, suggests that Argentina's relative attractiveness to foreign investors has not recovered significantly since the 2001-2002 crisis, despite Argentina's outstanding economic indicators of recent years. ¶7. To see more Buenos Aires reporting, visit our classified website at: http://www.state.sgov.gov/p/wha/buenosaires GUTIERREZ