Part 6 of a six-part series on capital costs and economic competitiveness in Latin America
Decades of government intervention and fiscal instability made Argentina one of Latin America’s most expensive places to invest. File Photo by David Fernández/EPA
Argentina represents the most difficult case examined in this six-part series. Decades of government intervention and fiscal instability made it one of Latin America’s most expensive places to invest, and recurring political crises deepened the problem. Investors demanded high returns because experience had taught them that the rules could change without warning. Contracts might be rewritten, or a new economic policy might replace the previous one overnight.
Recent developments suggest that pattern is not irreversible. Argentina’s government posted a primary fiscal surplus of 1.4% of GDP in 2025, according to the Economy Ministry, the country’s second consecutive annual surplus after 14 years of deficits. The 2026 budget, passed by Congress in December, targets a primary surplus of 1.2% of GDP and projects inflation easing to roughly 10% for the year.
The early results have been mixed but real. Monthly inflation fell to 2.1% in May, the National Institute of Statistics and Censuses reported, the slowest pace in eight months. But year-over-year inflation actually rose to 33.2% because of a weak comparison base, a reminder that disinflation in Argentina remains uneven rather than settled. S&P Global nonetheless upgraded the country’s sovereign credit rating to B- from CCC in June, citing improved fiscal and external accounts.
The central challenge now is to convince the public and investors that the reforms will survive political pressure.
From temporary adjustment to permanent rules
Argentina has experienced stabilization programs before. Many produced initial improvements, only to collapse when governments abandoned fiscal restraint or resumed monetary financing of public spending.
Credibility, therefore, depends on institutions rather than promises. The Central Bank must operate with genuine independence. Its mandate should focus on price stability, and its ability to finance government deficits should be explicitly restricted.
Fiscal rules should include transparent correction mechanisms whenever targets are missed. Independent supervision would further reassure investors that discipline does not depend solely on one administration.
Spending restraint must continue, but it should become more strategic. Some government programs have little measurable impact, and several agencies perform overlapping functions.
Reducing such expenditures would free resources for more productive uses. At the same time, essential public services should be protected; assistance for the most vulnerable will remain necessary during the transition. A reform program that ignores social pressures risks provoking the resistance that undoes its own achievements.
Privatization and investment
Privatization can reduce fiscal burdens and improve efficiency. Argentina possesses state enterprises and infrastructure assets that could attract substantial private capital.
But privatization is not automatically successful. Assets must be sold through transparent procedures under clear rules, with credible public oversight.
Transferring a state monopoly into private hands without adequate competition would merely replace one form of inefficiency with another. The purpose should be to improve services while reducing costs.
Tax reform is equally important. Argentina’s complex tax system discourages formal employment and makes long-term investment less attractive. Simplifying the system would make the country more competitive. The most distortive taxes should be eliminated or gradually reduced.
Investors also need confidence that tax and regulatory rules will not be changed retroactively. Stability matters more than temporary subsidies, because major projects often require decades to generate returns.
Opening the economy carefully
Greater integration with the global economy would give Argentine companies access to lower-cost inputs and new export markets. It would also expose domestic producers to stronger competition. Trade opening should therefore proceed in a way that gives productive sectors time to adjust. The objective should be to improve competitiveness, not to subject local companies to sudden disruption.
Labor reform is also necessary. Argentina’s rigid employment rules can discourage hiring and encourage informality. A more flexible system could reduce the risks companies face when creating new jobs. That flexibility should be accompanied by clear worker protections and effective enforcement. Reform will be more durable if citizens see it as a path toward formal employment rather than a reduction in labor rights.
Investor protection remains essential. Contracts must be respected, and property rights must be enforced consistently. Country risk falls when investors believe the legal system will protect them regardless of which party controls the government.
Argentina’s untapped advantages
Few countries in the region possess Argentina’s range of natural resources. It also has a relatively educated population and considerable productive capacity.
Its agricultural sector is internationally competitive. Vaca Muerta, the shale formation in Patagonia, has drawn the clearest test of that potential: state energy company YPF filed a $25 billion investment application in May under the government’s Large Investment Incentive Regime, aiming to lift export-bound oil output to 240,000 barrels a day by 2032. Total RIGI-linked projects, approved and pending, now approach $95 billion, the economy ministry has said.
Argentina also benefits from a large domestic market.
These advantages have long been held back by instability. Inflation made long-term planning difficult, and frequent regulatory changes added uncertainty.
The reforms already undertaken show that the country can begin to reverse that history. But the decisive test will be whether they become lasting institutions rather than a single administration’s project.
Markets will watch whether fiscal balance is maintained and monetary financing remains under control. They will also examine the transparency of any privatization program.
Each consistent step can reduce uncertainty and lower the cost of capital, supporting new investment and formal employment.
Across Latin America, the cost of capital depends on more than a country’s resources or short-term economic policies; it also reflects the credibility of its institutions. Argentina’s challenge is greater than that of most countries because its history of policy reversal runs so deep. That also means the potential gains, if the rules hold, are larger than elsewhere in the region.
A market-oriented reform program cannot be judged only by the speed of its initial adjustment. Its success will depend on whether it produces durable rules that survive a change in government, and whether ordinary Argentines see the benefits in their daily lives before they are asked to defend them politically.
César Addario Soljancic (www.cesaraddario.com) is an economist specializing in public finance, with decades of experience advising governments and institutions across Latin America and the Caribbean. Over his career, he has led 69 capital-market assets across 13 countries, totaling nearly $49 billion. The views expressed are solely those of the author.
