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ECONOMY | 10-04-2024 15:24

HSBC joins firms exiting Argentina amid Milei's economic makeover

Foreign companies reluctance contrasts with local optimism; Exxon and Clorox decided to divest investments in Argentina.

President Javier Milei is trying to draw foreign investment to help stabilise a faltering economy. Some big international companies are abandoning the country instead.

HSBC Holdings PLC announced on Monday plans to sell its business in Argentina to Grupo Financiero Galicia for US$550 million, along with a US$1-billion pretax loss. Clorox has ended operations there, while Exxon Mobil Corp may also pull out. This comes after Banco Itau pulled up stakes last year while Walmart Inc, Falabella SA and LatAm Airlines Group SA departed during the pandemic. 

HSBC’s unit in Argentina, “generates substantial earnings volatility for the Group,” Chief Executive Officer Noel Quinn said in a statement Tuesday, adding its business there has “limited connectivity to the rest of our international network.” 

The decisions to leave come amid Argentina’s worst economic crisis in more than two decades. Analysts expect its economy to contract for a second straight year. 

To help combat inflation and shrink the fiscal deficit, Milei has devalued the peso by more than 50 percent and slashed government spending. While monthly inflation has slowed — albeit still at crisis levels — analysts surveyed by Bloomberg expect prices reached nearly 300 percent annually in March.

“There is a lot of interest in Argentina abroad, but foreign investors are expecting fiscal discipline and sustainable changes,” said Fabian Kon, the CEO of Galicia, adding the need for strong institutions. 

As some multinationals leave, Milei’s cuts to public spending and monetary supply have sparked a rally largely fuelled by hedge funds and local Argentine investors: the stock market is up 35 percent in dollars and sovereign bonds maturing in 2029 have risen 47 percent so far this year. With that rally as a backdrop, traders in Buenos Aires believe that foreign investment has yet to flow into capital markets or the real economy. 

Eduardo Constantini, the CEO of Consultatio, a financial firm in Argentina that bought local broker TPCG this week, expects medium-term investors are likely keeping a close eye on political developments before making a bet on the country.

Constantini is waiting to see if Milei can negotiate an agreement with Congress on his package of reforms after lawmakers rejected the first version of the bill earlier this year. 

“It’s very early and reasonable to think that foreign investors aren’t making direct investments only three or four months into this government,” Constantini said in an interview. “The reality is the federal government has to shrink. We’ll have to see if politicians reach a deal.”

Beyond HSBC, Exxon Mobil Corp is mulling bids for its Argentine shale assets as it looks to unwind its bet on the nation’s oil and gas riches. Clorox sold two production plants and brand rights to Apex Capital and revised its full year forecast.

Galicia’s Kon sees reason for optimism.

“Argentina is going in the right macro direction — it needs fiscal balance, a single exchange rate, lifting of currency controls and a stable regulatory framework,” Kon said. “If this happens, inflation will come down and Argentina will start to grow.” 

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by Ignacio Olivera Doll, Bloomberg


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