THE ARGENTINE ECONOMY, FOREIGN INVESTMENT, AND UNITED STATES INTERESTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001900010029-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 10
• Document Creation Date: December 19, 2016
• Document Release Date: May 16, 2006
• Sequence Number: 29
• Publication Date: November 21, 1973
• Content Type: MF

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Attachac3 are the three ,
for your memorandum an per your request of 14 ftovember 1973.
Any questions may be directed to
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Latin Marian Branch, Orn
Attachment:
An stated
Distribution: 5-5689)
Orig. i 1 - Addressee
1 - D/OER
1 - D/D
1 - SA/ER
1 - St/P
1 - D/LA 25X1
OER/D/LA1 (21 Nov 73)
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The Current State of the Argentine Economy
1. The Argentine economy in 1973 presents a mixed picture.
ODD is expected to register a 41-4.5% increase and the trade
surplus to total between $600 million and $800 million. Price
freezes and rollbacks instituted in June cut price rises to
the point where inflation for the year will probably end up
at around 35% to 451 -- far below the 561 registered in 1972.
2. Problems, however, continue to plague the Argentine
economy. Public spending continues to exceed revenues at an
alarming pace and the total deficit for the current year could
exceed 81 of GDP; treasury outlays in the aggregate usually
amount to 81-91 of GDP. Artificially low prices for agricultural
products, combined with increasing disincentives to, agricultural
production, threaten to undermine Argentina's chief source of
foreign exchange. Thus, it is expected that Argentina will
only have some 700,000 tons of exportable wheat surplus from
the Dec3mber/January harvest compared with 3.2 million tons
exported from the 1972/73 harvest. It is clear that only a
good corn crop and continued high world prices will enable
Argentina to avoid serious balance of payments problems in
1974. Argentina's public external debt totals about $3.2
billion. Service payments on the debt plus inelastic demand
for the import of intermediate goods make high export earnings
essential if an economic recession is to be avoided.
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3. Peron continues to pursue aggressively previous
regimes' policies of promoting non-traditional exports.
For example, credits of $200 million per year have been
granted to Cuba and other substantial credits extended to
Chile for the purchase of Argentina goods -- mainly manufactures.
Although this policy will help offset revenue losses from
lowered wheat and beef exports, the concessionary financing involved
could further exacerbate domestic inflationary pressures.
Increased export of manufactures, price controls, declining
agricultural production and low profit margins will lead to
increased shortages of cor-sumer and producer goods. If wage
demands lead to large increases in early 1974 while prices
remain frozen, the situation will deteriorate even further.
CIA/OER
21 November 1973
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roroign Investment in Argentina
1. Argentina's foreign investment climate deteriorated
rapidly in the first months of Peronist rule. Bills introduced
to expropriate and restrict foreign investment combined with
fears generated by terrorist kidnapping, extortion, and murder
have brought new investment to a virtual standstill. At stake
is some $3 billion in foreign direct investment, of which some
$1.4 billion represents the US stake.
2. After four months of legislative wrangling, a new
Foreign Investment Law was approved on 7 November. Although
the bill finally passed was far more reasonable than the
original draft, the law is more restrictive than the Andean
Foreign Investment Code and limits foreign equity to less than
201 in most sectors. In addition, profit remittances are
limited to 12.5%. The law also gives explicit recognition of
a recent Argentine Supreme Court decision (Parke-Davis) that
ruled that intra-corporate payments for royalties, headquarters
expenses, and interest, technical and management fees will be
considered dividends. The adverse effect of this ruling will
be minor because of the relatively small size of such charges,
but many foreign subsidiaries may face sizable claims for back
taxes.
3. Argentina also has "renationalized" foreign bank
holdings acquired since 1966. Only about $4 million in US
equity appears to have been affected and the impact on US
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business is far less than other measures nationalizing credit
and bank deposits. Those latter measures have seriously
limited the discretionary power of local banking institutions,
but the adverse impact of these now restrictions has been
mitigated by the unprecedented price stability which has
resulted in 1t\rge positive interest rates for the first
time in many years.
4. The Peronists have resisted attempts to make the
foreign investment legislation too restrictive. They also
have r,.iisted congressional attempts to nationalize oil
refineries and ITT holdings,and provincial efforts to expropriate
large agricultural holdings in southern Argentina. In addition,
it now appears that the uproar over the US memoranda of concern
over moves against foreign investment was more a reflection of
political infighting within Peronist ranks than any concerted
anti-US campaign.
5. The major deterrents to foreign investment in
Argentina appear to be more economic than political. Continued
price freezes and rollbacks have cut severely into profit
margins and have resulted in shortages and a growing black
market for a variety of goods. The problem emanates from price
control measures that have been accompanied by a record
monetary expansion which has nearly doubled the currency in
circulation during the last 12 months.
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6. Desidos the adjustment to the now economic environment,
many US interests now face a threat presented by extensive
lines of credit Argentina granted Cuba. Refusal by US sub-
sidiaries to trade with Cuba could result in such reprisals
as limitations on domestic sales, tax persecution, substantial
fines, and possible imprisonment of corporation executives.
CIA/OER
21 November 1973
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Foreign Invostmont
1. Threats to US investments have subsided in recent
months with the exception of the Cuban trade problom. There
is no doubt, however, that Argentine policies will generally
discourage substantial new investment because of the economic
climate as well as restrictions on foreign capital.
Brazil and Chile
2. Argentina continues to view Brazil as an adversary,
and disputes over hydroelectric developments in the Plate Basin
are a symptom of this continuing rivalry. Peron's concern over
Brazil's hemispheric influence was probably a consideration in
Argentina's extension of $215 million in credits to the new
Chilean junta. The United States will remain a potential
target of nationalistic fervor as it develops closer ties with
Brazil and Chile.
Bilateral Balance in Trade and Payments
3. The Peronists expressed desire for "multinationalism"
also has extended to trade policies. They are actively seeking
bilateral balance in trade and payments with all nations. Since
the United States traditionally runs a trade surplus with
Argentina, its share of the Argentine market will continue to
decline in the years ahead.
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Argentina and World Commodity Markets
4. The US bilateral trade surplus in its trade with
Argentina reflects the small amount of US purchases of beef
and grain -- Argontina's major exports. Argentina usually
has been an export competitor in grains, particularly wheat
and corn. At present world prices and demand levels, however,
competition among grain suppliers is indirect and low key.
However, any significant drop in world grain pricers could
lead to some deterioration in US-Argentine relations. The
United States has banned large imports of Argentine beef
because of the diseases endemic among Argentine cattle. As
a result, Argentina's major markets continue to be Latin
America and Western Europe.
5. Argentina requires continuing imports of raw materials
and intermediate goods for its manufacturing industries, as
well as machinery and equipment. These comprise the major
US exports to Argentina. A current critical Argentine need
is steel scrap. Argentina continues to press the United States
to increase the licencing of adequate exports of this now
scarce material.
6. Argentina appears to be well supplied with petroleum
despite a growing gap between consumption and domestic supply.
Peron appears to have sufficiently friendly ties with the
Middle East to avert any serious cut-off of petroleum supplies
in the near future.
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Other L robloms
7. Problems in negotiating civil aviation agreements
represent one of various continuing issues between the United
States and Argentina. Other sources of friction have been
military
the termination of the US/mission in Argentina and Buenos
Aires' new Trade Law which runs counter to GATT provisions.
CIA/OER
21 November 1973
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