Background Notes: Argentina, March 1998

Released by the Bureau of Inter-American Affairs.

OFFICIAL NAME: The Argentine Republic

PROFILE

Geography

Area: 2.8 million sq. km (1.1 million sq. mi.); about the size of the U.S. east of the Mississippi River; second-largest country in South America.
Cities: Capital--Buenos Aires (city: 3 million; metropolitan area: 12 million). Other major cities--Cordoba (1.2 million); Rosario (950,000); Mar del Plata (900,000); Mendoza (400,000).
Terrain: Andes mountains and foothills in west. Aconcagua, (7,021 m; 23,034 ft) is highest peak in the Western Hemisphere; remainder of country is lowland; central region characterized by vast grassy plains (pampas).
Climate: Varied--predominantly temperate with extremes ranging from subtropical in the north to arid/subantarctic in far south.

People

Nationality: Noun and adjective--Argentine(s).
Population (mid-1995): 34.6 million.
Annual population growth rate: 1.3%.
Ethnic groups: European 97% , mostly of Spanish and Italian descent.
Religions: Roman Catholic 92% , Protestant 2% , Jewish 2% , other 4%.
Language: Spanish.
Education: Years compulsory--7. Adult literacy--96.2%.
Health: Infant mortality rate--23.6/1000. Life expectancy--72.3 yrs.
Work force: Industry and commerce--36%. Agriculture--19%. Transport and communications--6%.

Government

Type: Republic.
Independence: July 9, 1816.
Constitution: 1853, revised 1994.
Branches: Executive--president, vice president, cabinet. Legislative--bicameral congress (72-member Senate, 257-member Chamber of Deputies). Judicial--Supreme Court, federal and provincial trial courts.
Administrative subdivisions: 23 provinces and one federal capital district.
Political Parties: Justicialist, Radical Civic Union, FREPASO, numerous smaller national and provincial parties.
Suffrage: Universal adult.

Economy (1997 figures)

GDP: $310 billion.
Annual real growth rate: 8.1% .
Per capital GDP: $8,900.
Natural resources: Fertile plains (pampas). Minerals: lead, zinc, tin, copper, iron, manganese, oil, uranium.
Agriculture (8.5% of GDP, about 60% of exports by value): Products--grains, oilseeds and by-products, livestock products.
Industry (30% of GDP): Types--food processing, oil refining, machinery and equipment, textiles, chemicals and petrochemicals.
Trade: Exports $26.1 billion--grains, meats, oilseeds, manufactured products. Major markets--Brazil 30%; EU 15.5%; U.S. 9%. Imports $27.5 billion--machinery, vehicles and transport products, chemicals. Major suppliers--EU 29%; Brazil 23%; U.S. 21%.

U.S.-ARGENTINE RELATIONS

The United States and Argentina currently enjoy a close bilateral relationship, which was highlighted by President Clinton's visit to Argentina in October 1997. The efforts of the Menem Administration to open Argentina's economy and realign its foreign policy have contributed to the improvement in these relations, and the interests and policies of the two countries coincide on many issues. Argentina and the United States often vote together in the United Nations and other multilateral fora. Argentina has participated in many multilateral force deployments mandated by the United Nations Security Council, including recent missions to Haiti and the former Yugoslavia. Reflecting the growing partnership that marks ties between the two countries, on October 16, 1997, Secretary of State Albright and Argentine Foreign Minister Di Tella held the first meeting of the Special Consultative Process to address important issues in the bilateral relationship.

U.S. Embassy Functions

The U.S. Mission in Buenos Aires carries out the traditional diplomatic function of representing the United States Government and people in discussions with the Argentine Government, and more generally, in relations with the people of Argentina. The excellent political relationship between the United States and Argentina is increasingly reflected in the U.S. embassy's efforts to facilitate cooperation in nontraditional areas such as counter-terrorism, anti-narcotics, and scientific cooperation on space, peaceful uses of nuclear energy, and the environment.

The embassy also provides a wide range of services to U.S. citizens and businesses in Argentina. Officers from the U.S. Foreign Service, Foreign Commercial Service, and Foreign Agricultural Service work closely with the thousands of U.S. companies which maintain offices and/or do business in Argentina, providing information on Argentine trade and industry regulations and assisting U.S. companies starting or maintaining business ventures in Argentina. Attaches accredited to Argentina from the Department of Justice, including the Drug Enforcement Administration, the Federal Bureau of Investigation, U.S. Customs, the Federal Aviation Administration, and other federal agencies work closely with Argentine counterparts on issues related to international crime and other issues of concern.

An active, sophisticated, and expanding media environment, together with growing positive interest in American culture and society, make Argentina an uncommonly receptive environment for the information and cultural-exchange work of the United States Information Service. The number of Argentines studying in U.S. universities is rapidly growing, and the Fulbright fellowship program has more than tripled the annual number of U.S. and Argentine academic grantees since 1994.

The embassy's consular section provides vital services to the more than 20,000 U.S. citizens resident in Argentina as well as to the more than 330,000 who visit Argentina annually. Services include issuing passports, documenting the birth of U.S. citizens abroad, assisting in participation in U.S. elections by registered voters, offering tax and Social Security information, assisting U.S. citizens arrested and/or in jail in Argentina, and provision of other services in the event of death, destitution, or other emergencies abroad.

Principal U.S. Embassy Officers

Ambassador--Vacant
Charge d'Affaires, a.i.--Manuel Rocha
Deputy Chief of Mission--Thomas Martin (acting)
Political Counselor--Mark A. Sigler
Economic Counselor--Patrick Syring (acting)
Commercial Counselor--Michael Likila
Consul General--Bryant J. Salter
Science Counselor--Philip Covington
Administrative Counselor--Benjamin Castro
Defense Attaché--Col. Jeffrey W. Whisenhunt, USAF
Commander, U.S. Military Group--LTC (P) Clark Lynn III, USA
Public Affairs Officer--Alexander Almasov

The U.S. Embassy and Consulate General in Argentina are located at 4300 Colombia Avenue in Buenos Aires' Palermo district. Mission offices can be reached at tel. (54)(1)777-4533/34; fax (54)(1)777-0197. Mailing addresses are: U.S. Embassy Buenos Aires, APO AA 34034; or 4300 Colombia, 1425 Buenos Aires, Argentina.

ECONOMY

In 1989, after decades of economic decline and chronic bouts of inflation, Argentina under President Menem began an unprecedented, profound, and remarkably successful economic restructuring based on trade liberalization, privatization, public administrative reform, and macroeconomics stabilization.

The 1991 Convertibility Law established a quasi-currency board which has provided the pillar of price stability but constrains monetary policy severely. The government privatized most state-controlled companies, opened the economy to foreign trade and investment, improved tax collection, and created private pension and workers compensation systems.

As a result of these measures, Argentina is experiencing a boom in economic growth, which started in the early 1990s. Following a year-and-a-half-long local recession, Argentina's real GDP growth reached 8% in 1997--higher than the average of 6% for the 1991-1997 period. Industry, agriculture, construction, energy and mining all expanded considerably during the year. Real GDP growth will likely slow to approximately 4% in 1998 (the Argentine Government projects over 5% growth). One of Argentina's challenges is to generate growth with more equitable distribution of income.

The structural reforms undertaken this decade--coupled with monetary stability--fostered major new investments in industrial sectors producing goods for exports. This was most notable in the food products, oil and gas, automotive, and mining and metals sectors. As a result, Argentina's exports doubled in five years--from about $12 billion in 1992 to about $25 billion in 1997. Similarly, imports almost doubled during the same period--rising from $15 billion to about $27.5 billion. Foreign direct investment flow--which averaged $3.5 billion annually from 1990 to 1995--exceeded $6 billion in 1997, according to reliable estimates.

The October 1997 unemployment rate was 13.7%--down from 18.4% in mid-1995. However, larger and more significant declines will come slowly over the longer term. This is likely because the government intends to implement several more privatization programs, labor productivity will rise as major private investments are implemented, and future growth will be strongest in the capital intensive sectors.

Argentina is vulnerable to abrupt changes in capital flows. However, strong leadership and earlier structural reforms helped the country weather the 1995-96 financial storm. Argentine authorities, supported by the U.S., Japan, Europe, and international financial institutions, reacted decisively to bolster the peso. The government has continued to demonstrate credibility through further economic adjustment and conclusion of a new Extended Fund Facility arrangement with the International Monetary Fund at the end of 1997.

Argentina's principal economic policy challenges in 1998 are:

• Stimulating job creation through labor market reform;
• Continuing the reform of provincial administration and banking; and
• Simplifying tax collection and combating tax evasion.

Banking

Argentina's banking system began 1998 further consolidated and strengthened by recent large foreign investments. Peso and dollar deposits in the banking system grew strongly and reached nearly $70 billion at the end of 1997--close to twice the level in June 1995, when bank deposits hit a low of $37 billion. Foreign-controlled banks now hold about 35% of total Argentine bank deposits.

In late 1997, shortly after the Asian financial crisis began, the Government of Argentina reassured investors that the country's banking system and reserves were strong enough to withstand the storm. Rapid growth in bank deposits indicates growing confidence in the financial system and in Argentina's reforms. Bank financing and lending costs are still high by industrialized country standards. Credit is very expensive for certain sectors. Easier lending for small and medium sized firms and improved credit risk management are essential to foster job creation.

In late 1997, the Menem Administration announced its intention to privatize Banco de la Nacion, Argentina's largest commercial bank. Strong political opposition, however, makes the timing of this privatization uncertain. During 1998, the government also intends to privatize the National Mortgage Bank.

Foreign Trade

A key development in helping Argentina meet its external payments is the dramatic growth in Argentina's foreign trade since 1990. Foreign trade plays an increasingly important role in Argentina's economic development. Exports currently represent less than 10% of Argentina's GDP. This percentage will rise steadily as Argentine export competitiveness improves--as a result of increased productivity generated by new investments, diversification of export products and markets, and very low domestic inflation.

Grain output is expected to reach a record 60 million tons before the end of the decade. Fresh Argentine beef was exported to the U.S. market in August 1997 for the first time in over 50 years, and other export prospects improved tremendously.

However, export growth decelerated modestly in 1997 due to lower than expected shipments of some primary products, notably oilseeds, cotton, petroleum, and derivatives. Meanwhile, GDP growth led to a surge in imports. Capital goods imports in 1997 (which account for 44% of Argentina's total) grew nearly 40% from 1996 levels--more than double the rate of other import categories.

MERCOSUR, a regional customs union and emerging trade bloc (which includes Argentina, Brazil, Paraguay, and Uruguay, and has associations with Chile and Bolivia), is one of the largest and most dynamic integrated markets in the developing world. Close cooperation between Brazil and Argentina--historic competitors--is key to MERCOSUR's impressive growth. Argentina's trade with the other members of MERCOSUR has grown fivefold since 1991. (During that period, its total foreign trade doubled). As a result, Argentina will focus more attention on deepening MERCOSUR relations. MERCOSUR needs closer coordination of macroeconomic policies and better dispute resolution mechanisms.

Ties to MERCOSUR will take on added importance in coming years. Argentina's trade and investment have tremendous potential to grow along with hemispheric economic integration. The 1997 financial turbulence triggered by the East Asian financial crisis underscored that macroeconomic conditions in Brazil--Argentina's most important trading partner--are important variables for Argentina's foreign trade in 1998 and beyond. On an upbeat note, Chile's association with MERCOSUR has improved access for Argentine exports to East Asia via Chilean ports.

The U.S. registered trade surpluses with Argentina every year from 1993 to 1997 totaling nearly $13 billion. The annual surplus reached $3 billion in 1997--due in large part to Argentina's continued demand for capital goods, as well as the recovery of the local economy. The U.S. surplus with Argentina could climb to a record $3.6 billion in 1998. This trend reflects the Argentine Government's policy of encouraging modernization and improved competitiveness for Argentine industry.

Argentina adheres to most treaties and international agreements on intellectual property. It is a member of the World Intellectual Property Organization and signed the Uruguay Round agreements in December 1993--including measures related to intellectual property. However, extension of adequate patent protection to pharmaceuticals has been a highly contentious bilateral issue. In May 1997, the U.S. suspended 50% of Argentina's GSP benefits because of its unsatisfactory pharmaceutical patent law.

Investment

U.S. direct investment in Argentina, an estimated $12 billion in mid-1997, is concentrated in telecommunications, banking, electric energy generation, gas and petroleum production, food processing, and motor vehicle manufacturing. Additional direct U.S. investment of $3 billion is expected in 1998.

The U.S. and Argentina have an Overseas Private Investment Corporation (OPIC) agreement and an active U.S. Export-Import Bank (EXIMBANK) program. Total EXIMBANK exposure in Argentina approaches $2.5 billion, and the OPIC portfolio is approaching the country limit.

Under the 1994 U.S.-Argentine bilateral investment treaty, U.S. investors enjoy national treatment in all sectors except shipbuilding, fishing, nuclear power generation, and uranium production. The treaty allows for international arbitration of investment disputes.

GOVERNMENT AND POLITICAL CONDITIONS

After years of instability, Argentina is today a fully functioning democracy. During President Carlos Menem's first term (1989-1995), he dramatically reordered Argentina's foreign and domestic policies. His overwhelming reelection in May 1995--in the face of hardships caused by economic restructuring and exacerbated by the Mexico peso crisis--provided a mandate for his free market economic strategy and pro-U.S. foreign policy. Menem's second term ends in July 1999; the constitution does not currently provide for a sitting president to succeed himself more than once.

The constitution of 1853, as revised in 1994, mandates a separation of powers into executive, legislative, and judicial branches at the national and provincial level. Each province also has its own constitution which roughly mirrors the structure of the national constitution.

The president and vice president were traditionally elected indirectly by an electoral college to a single six-year term. They were not allowed immediately to seek reelection. Constitutional reforms adopted in August 1994 reduced the presidential term to four years, abolished the electoral college in favor of direct election, and allowed a sitting president to stand for reelection after his or her first term. Cabinet ministers are appointed by the president. The constitution grants the president considerable power, including a line-item veto.

Provinces traditionally sent two senators, elected by provincial legislatures, to the upper house of Congress. Voters in the federal capital of Buenos Aires elected an electoral college which elected the city's senators. The constitution now mandates a transition to direct election for all senators, and the addition of a third senator from each province and the capital. The third senator will represent the electoral district's largest minority party. The revised constitution reduces senatorial terms from nine to six years in office. One third of the Senate stands for reelection every three years.

Members of the Chamber of Deputies are directly elected to four-year terms. Voters elect half the members of the lower house every two years through a system of proportional representation.

Other important changes to the constitutional system included the creation of a senior coordinating minister to serve under the president and the popular election of the mayor of the city of Buenos Aires. The constitution establishes the judiciary as a separate and independent entity of government. The president appoints members of the Supreme Court with the consent of the Senate. Other federal judges are appointed by a special judicial commission. The Supreme Court has the power, first asserted in 1854, to declare legislative acts unconstitutional.

Political Parties

The two largest political parties are the Partido Justicialista or Peronist Party (PJ), which evolved out of Juan Peron's efforts to expand the role of labor in the political process in the 1940s, and the Union Civica Radical, or Radical Civic Union (UCR), founded in 1890. Traditionally, the UCR has had more urban middle-class support and the PJ has received more labor support. Support for both parties is broadly based. A grouping of mostly left parties and former Peronists--the Front for a Country of Solidarity (FREPASO)--has emerged in the 1990s as a serious political contender especially in the Federal Capital. Smaller parties occupy various positions on the political spectrum and some are active only in certain provinces.

Historically, organized labor (largely tied to Menem's Peronist Party) and the armed forces have also played significant roles in national life. Labor is only just emerging from disarray; its political power has been significantly weakened by Menem's free market reforms. The armed forces are firmly under civilian control. Repudiated by the public after a period of military rule (1976-83), marked by human rights violations, economic decline, and military defeat in the 1982 Falkland/Malvinas Islands war, the Argentine military is now a slimmed-down, all volunteer force focused largely on international peacekeeping.

Government Policy

The Menem Administration has pursued wide-ranging economic reforms designed to open the Argentine economy and enhance its international competitiveness. Privatization, deregulation, fewer import barriers, and a fixed exchange rate have been cornerstones of this effort. All these changes have dramatically reduced the role of the Argentine state in regulating the domestic market. The reform agenda, however, remains incomplete, including improvements in the judicial system and provincial administration.

National Security

The president and a civilian minister of defense control the Argentine armed forces. The paramilitary forces under the control of the Ministry of Interior are the Gendarmeria (border police) and the Prefectura Naval (coast guard). The Argentine armed forces maintain close defense cooperation and military supply relationships with the United States. Other countries also have military relationships with the Argentine forces, principally Israel, Germany, France, Spain, and Italy. The lack of budgetary resources is the most serious problem facing the Argentine military. Current economic conditions and the government's commitment to reduce public sector spending have slowed modernization and restructuring efforts. Under President Menem, Argentina's traditionally difficult relations with its neighbors have improved dramatically and Argentine officials publicly deny seeing a potential threat from any neighboring country.

PEOPLE

Argentines are a fusion of diverse national and ethnic groups. Descendants of Italian and Spanish immigrants predominate. Waves of immigrants from many European countries arrived in the late 19th and early 20th centuries. Syrian, Lebanese, and other Middle Eastern immigrants number about 500,000, mainly in urban areas. Argentina has the largest Jewish population in Latin America, about 250,000 strong. In recent years, there has been a substantial influx of immigrants from neighboring Latin American countries. The native Indian population, now estimated at 50,000, is concentrated in the peripheral provinces of the north, northwest, and south. The Argentine population has one of Latin America's lowest growth rates. Eighty percent of the population resides in urban areas of more than 2,000 and more than one-third of the population lives in the greater Buenos Aires area. This sprawling metropolis, with about 12 million inhabitants, serves as the focus for national life. Argentines enjoy comparatively high standards of living; half the population considers itself middle class.

HISTORICAL HIGHLIGHTS

Europeans arrived in the region with the 1502 voyage of Amerigo Vespucci. Spanish navigator Juan Diaz de Solias visited what is now Argentina in 1516. Spain established a permanent colony on the site of Buenos Aires in 1580. They further integrated Argentina into their empire following the establishment of the Vice-Royalty of Rio de la Plata in 1776, and Buenos Aires became a flourishing port.

Buenos Aires formally declared independence from Spain on July 9, 1816. Argentines revere General Jose de San Martin, who campaigned in Argentina, Chile, and Peru, as the hero of their national independence. Following the defeat of the Spanish, centralist and federalist groups waged a lengthy conflict between themselves to determine the future of the nation. National unity was established and the constitution promulgated in 1853.

Two forces combined to create the modern Argentine nation in the late 19th century: the introduction of modern agricultural techniques and the integration of Argentina into the world economy. Foreign investment and immigration from Europe aided this economic revolution. The investment, primarily British, came in such fields as railroads and ports. The migrants who worked to develop Argentina's resources came from throughout Europe, but mostly from Italy and Spain.

Conservative forces dominated Argentine politics until 1916, when their traditional rivals, the Radicals, won control of the government through a democratic election. The Radicals, with their emphasis on fair elections and democratic institutions, opened their doors to Argentina's expanding middle class as well as to elites previously excluded from power for various reasons. The Argentine military forced aged Radical President Hipolito Yrigoyen from power in 1930 and ushered in another decade of Conservative rule.

Using fraud and force when necessary, the governments of the 1930s attempted to contain forces for economic and political change that eventually helped produce the governments of Juan Domingo Peron (b. 1897). New social and political forces were seeking political power. These included the modern military and the labor movement that emerged from the growing urban working class.

The military ousted Argentina's constitutional government in 1943. Peron, then an army colonel, was one of the coup's leaders, and he soon became the government's dominant figure as minister of labor. Elections carried him to the presidency in 1946. He aggressively pursued policies aimed at giving an economic and political voice to the working class and greatly expanded the number of unionized workers. In 1947, Peron announced the first five-year plan based on nationalization and industrialization. He presented himself as a friend of labor and assisted in establishing the powerful General Confederation of Labor (CGT). Peron's dynamic wife, Eva Duarte de Peron, known as Evita (1919-1952), helped her husband develop his appeals to labor and women's groups. Women obtained the right to vote in 1947.

Peron won reelection in 1952, but the military deposed him in 1955. He went into exile, eventually settling in Spain. In the 1950s and 1960s, military and civilian administrations traded power. They tried, with limited success, to deal with diminished economic growth and continued social and labor demands. When military governments failed to revive the economy and suppress escalating terrorism in the late 1960s and early 1970s, the way was open for Peron's return.

On March 11, 1973, Argentina held general elections for the first time in 10 years. Peron was prevented from running, but voters elected his stand-in, Dr. Hector J. Campora, to the presidency. Peron's followers also commanded strong majorities in both houses of the National Congress, which assumed office on May 25, 1973. Campora resigned in July 1973, paving the way for new elections. Peron won a decisive victory and returned as President in October 1973 with his third wife, Maria Estela Isabel Martinez de Peron, as Vice President.

During this period, extremists on the left and right carried out terrorist acts with a frequency that threatened public order. The government resorted to a number of emergency decrees, including the implementation of special executive authority to deal with violence. This allowed the government to imprison persons indefinitely without charge.

Peron died on July 1, 1974. His wife succeeded him in office, but her administration was undermined by economic problems, Peronist intraparty struggles, and growing terrorism from both left and right. A military coup removed her from office on March 24, 1976. Until December 10, 1983, the armed forces formally exercised power through a junta composed of the three service commanders.

The armed forces applied harsh measures against terrorists and their sympathizers. They silenced armed opposition and restored basic order. The costs of what became known as the "Dirty War" were high in terms of lives lost and basic human rights violated.

Serious economic problems, defeat by the U.K. in 1982 after an unsuccessful Argentine attempt to forcibly take control of the Falklands/Malvinas Islands, public revulsion in the face of severe human rights abuses, and mounting charges of corruption combined to discredit and discourage the military regime. This prompted a period of gradual transition and led the country toward democratic rule. Acting under public pressure, the junta lifted bans on political parties and restored other basic political liberties. Argentina experienced a generally successful and peaceful return to democracy.

On October 30, 1983, Argentines went to the polls to choose a president, vice president, and national, provincial, and local officials in elections international observers found to be fair, open, and honest. The country returned to constitutional rule after Raul Alfonsin, candidate of the Radial Civic Union (UCR), received 52% of the popular vote for president. He began a six-year term of office on December 10, 1983.

In 1985 and 1987, large turnouts for mid-term elections demonstrated continued public support for a strong and vigorous democratic system. The UCR-led government took steps to resolve some of the nation's most pressing problems, including accounting for those who disappeared during military rule, establishing civilian control of the armed forces, and consolidating democratic institutions. However, constant friction with the military, failure to resolve endemic economic problems, and an inability to maintain public confidence undermined the Alfonsin Government's effectiveness, which left office six months early after Peronist candidate Carlos Saul Menem won the 1989 presidential elections.

As President, Menem launched a major overhaul of Argentine domestic policy. Large-scale structural reforms have dramatically reversed the role of the state in Argentine economic life. A decisive leader pressing a controversial agenda, Menem has not been reluctant to use the presidency's extensive powers to issue decrees advancing modernization when the congress was unable to reach consensus on his proposed reforms. Those powers were curtailed somewhat when the constitution was reformed in 1994 as a result of the so-called Olivos Pact with the opposition Radical Party. That arrangement opened the way for Menem to seek and win reelection with 50% of the vote in the three-way 1995 presidential race.

The 1995 election saw the emergence of the moderate left FREPASO political alliance. This alternative to the traditional two main political parties in Argentina is particularly strong in Buenos Aires, but as yet lacks the national infrastructure of the Peronist and Radical parties. In an important development in Argentina's political life, all three major contestants in the 1995 race espouse free market economic policies.

Argentina held mid-term congressional elections in October 1997. The opposition UCR-FREPASO alliance made major gains in the number of seats it held and deprived the Peronists of an absolute majority. The elections are widely seen as setting the stage for the 1999 presidential race. The government's pro-market policies remain unchallenged, but continued high unemployment and growing public concern over perceived corruption have hurt the government's standing in public opinion polls.

FOREIGN POLICY

In foreign policy, Menem has dramatically made partnership with the United States the centerpiece of his approach. Argentina was the only Latin American country to participate in the Gulf war and all phases of the Haiti operation. It has contributed to UN peacekeeping operations worldwide, and has offered to send peacekeepers to Eastern Slavonia and police to the international Police Task force in Bosnia. It has recently offered to send a military medical unit to the Gulf in support of the effort to secure Iraqi compliance with United Nations resolutions. In recognition of Argentina's contributions to international security and peacekeeping, the U.S. Government designated it as a major non-NATO ally in January 1998. Menem was an enthusiastic supporter of the December 1994 Summit of the Americas. At the UN, Argentina is one of the U.S.'s closest collaborators. In regional fora, such as the OAS and Rio Group, Argentina has repeatedly advanced U.S. goals. The Menem Administration supports the U.S. campaign to improve human rights in Cuba and joins with the U.S. in international disarmament efforts from nuclear supply to control of missile technology.

Eager for closer ties to developed nations, Argentina has pursued relationships with the OECD and has left the Non-Aligned Movement. It has become a leading advocate of nonproliferation efforts worldwide. A strong proponent of enhanced regional stability in South America, Argentina has revitalized its relationship with Brazil; settled lingering border disputes with Chile; served with the U.S., Brazil, and Chile as one of the four guarantors of the Ecurador-Peru peace process; and restored diplomatic relations with the United Kingdom. In September 1995, Argentina and the UK signed an agreement to promote oil and gas exploration in the Southwest Atlantic, defusing a potentially difficult issue and opening the way to further cooperation between the two nations.

Principal Government Officials

President--Carlos Saul Menem
Minister of Foreign Affairs--Guido Di Tella
Ambassador to the United States--Diego Guelar
Ambassador to the Organization of American States--Alicia Martinez Rios
Ambassador to the United Nations--Fernando Petrella

Argentina maintains an embassy in the United States at 1600 New Hampshire Ave. NW, Washington DC 20009 (tel. 202-939-6400; FAX 202-332-3171). It has consular offices in the following locations:

Atlanta:
245 Peachtree Center Ave., Suite 2101
Atlanta, GA 30303
Tel: (404) 880-0805; Fax: (404) 880-0806

Chicago:
205 North Michigan Ave., Suite 4209
Chicago, IL 60601
Tel: (312) 819-2620; Fax (312) 819-2612

Houston:
1990 Post Oak Blvd., Suite 770
Houston, TX 77056
Tel: (713) 871-8935; Fax (713) 871-1639

Los Angeles:
5055 Wilshire Blvd., Suite 210
Los Angeles, CA 90036
Tel: (213) 954-9155 fax (713) 871-9076

Miami:
800 Brickell Ave. PH1
Miami, FL 33131
Tel: (305) 373-7794; Fax: (305) 371-7108

New York:
12 West 56th St.
New York, NY 10019
Tel: (212) 603-0400; Fax: (212) 541-7746

Washington, DC:
1718 Connecticut Ave., NW
Washington, DC 20009
Tel: (202) 797-8826

Office of the Economic and Trade Representative
1901 L St., NW
Washington, DC 20036
Tel: (202) 56-4475

OTHER CONTACT INFORMATION:

American Chamber of Commerce in Argentina
Viamonte 1133, 8th floor
Buenos Aires, Argentina
Tel: (54)(1) 371-4500; Fax: (54)(1) 371-8400
Home page: http://www.amchamarg.com

U.S. Department of Commerce
Office of Latin America and the Caribbean
International Trade Administration
14th and Constitution Avenue, NW
Washington, DC 20230
Tel: 202-482-2436; 1-800-USA-TRADE; Fax: 202-482-4726; Internet: http://www.ita.doc.gov

Automated fax service for trade-related information: 202-482-4464

TRAVEL AND BUSINESS INFORMATION

The U.S. Department of State's Consular Information Program provides Travel Warnings and Consular Information Sheets. Travel Warnings are issued when the State Department recommends that Americans avoid travel to a certain country. Consular Information Sheets exist for all countries and include information on immigration practices, currency regulations, health conditions, areas of instability, crime and security, political disturbances, and the addresses of the U.S. posts in the country.

Europeans arrived in the region with the 1502 voyage of Amerigo Vespucci. Spanish navigator Juan Diaz de Solias visited what is now Argentina in 1516. Spain established a permanent colony on the site of Buenos Aires in 1580. They further integrated Argentina into their empire following the establishment of the Vice-Royalty of Rio de la Plata in 1776, and Buenos Aires became a flourishing port.

Buenos Aires formally declared independence from Spain on July 9, 1816. Argentines revere General Jose de San Martin, who campaigned in Argentina, Chile, and Peru, as the hero of their national independence. Following the defeat of the Spanish, centralist and federalist groups waged a lengthy conflict between themselves to determine the future of the nation. National unity was established and the constitution promulgated in 1853.

Two forces combined to create the modern Argentine nation in the late 19th century: the introduction of modern agricultural techniques and the integration of Argentina into the world economy. Foreign investment and immigration from Europe aided this economic revolution. The investment, primarily British, came in such fields as railroads and ports. The migrants who worked to develop Argentina's resources came from throughout Europe, but mostly from Italy and Spain.

Conservative forces dominated Argentine politics until 1916, when their traditional rivals, the Radicals, won control of the government through a democratic election. The Radicals, with their emphasis on fair elections and democratic institutions, opened their doors to Argentina's expanding middle class as well as to elites previously excluded from power for various reasons. The Argentine military forced aged Radical President Hipolito Yrigoyen from power in 1930 and ushered in another decade of Conservative rule.

Using fraud and force when necessary, the governments of the 1930s attempted to contain forces for economic and political change that eventually helped produce the governments of Juan Domingo Peron (b. 1897). New social and political forces were seeking political power. These included the modern military and the labor movement that emerged from the growing urban working class.

The military ousted Argentina's constitutional government in 1943. Peron, then an army colonel, was one of the coup's leaders, and he soon became the government's dominant figure as minister of labor. Elections carried him to the presidency in 1946. He aggressively pursued policies aimed at giving an economic and political voice to the working class and greatly expanded the number of unionized workers. In 1947, Peron announced the first five-year plan based on nationalization and industrialization. He presented himself as a friend of labor and assisted in establishing the powerful General Confederation of Labor (CGT). Peron's dynamic wife, Eva Duarte de Peron, known as Evita (1919-1952), helped her husband develop his appeals to labor and women's groups. Women obtained the right to vote in 1947.

Peron won reelection in 1952, but the military deposed him in 1955. He went into exile, eventually settling in Spain. In the 1950s and 1960s, military and civilian administrations traded power. They tried, with limited success, to deal with diminished economic growth and continued social and labor demands. When military governments failed to revive the economy and suppress escalating terrorism in the late 1960s and early 1970s, the way was open for Peron's return.

On March 11, 1973, Argentina held general elections for the first time in 10 years. Peron was prevented from running, but voters elected his stand-in, Dr. Hector J. Campora, to the presidency. Peron's followers also commanded strong majorities in both houses of the National Congress, which assumed office on May 25, 1973. Campora resigned in July 1973, paving the way for new elections. Peron won a decisive victory and returned as President in October 1973 with his third wife, Maria Estela Isabel Martinez de Peron, as Vice President.

During this period, extremists on the left and right carried out terrorist acts with a frequency that threatened public order. The government resorted to a number of emergency decrees, including the implementation of special executive authority to deal with violence. This allowed the government to imprison persons indefinitely without charge.

Peron died on July 1, 1974. His wife succeeded him in office, but her administration was undermined by economic problems, Peronist intraparty struggles, and growing terrorism from both left and right. A military coup removed her from office on March 24, 1976. Until December 10, 1983, the armed forces formally exercised power through a junta composed of the three service commanders.

The armed forces applied harsh measures against terrorists and their sympathizers. They silenced armed opposition and restored basic order. The costs of what became known as the "Dirty War" were high in terms of lives lost and basic human rights violated.

Serious economic problems, defeat by the U.K. in 1982 after an unsuccessful Argentine attempt to forcibly take control of the Falklands/Malvinas Islands, public revulsion in the face of severe human rights abuses, and mounting charges of corruption combined to discredit and discourage the military regime. This prompted a period of gradual transition and led the country toward democratic rule. Acting under public pressure, the junta lifted bans on political parties and restored other basic political liberties. Argentina experienced a generally successful and peaceful return to democracy.

On October 30, 1983, Argentines went to the polls to choose a president, vice president, and national, provincial, and local officials in elections international observers found to be fair, open, and honest. The country returned to constitutional rule after Raul Alfonsin, candidate of the Radial Civic Union (UCR), received 52% of the popular vote for president. He began a six-year term of office on December 10, 1983.

In 1985 and 1987, large turnouts for mid-term elections demonstrated continued public support for a strong and vigorous democratic system. The UCR-led government took steps to resolve some of the nation's most pressing problems, including accounting for those who disappeared during military rule, establishing civilian control of the armed forces, and consolidating democratic institutions. However, constant friction with the military, failure to resolve endemic economic problems, and an inability to maintain public confidence undermined the Alfonsin Government's effectiveness, which left office six months early after Peronist candidate Carlos Saul Menem won the 1989 presidential elections.

As President, Menem launched a major overhaul of Argentine domestic policy. Large-scale structural reforms have dramatically reversed the role of the state in Argentine economic life. A decisive leader pressing a controversial agenda, Menem has not been reluctant to use the presidency's extensive powers to issue decrees advancing modernization when the congress was unable to reach consensus on his proposed reforms. Those powers were curtailed somewhat when the constitution was reformed in 1994 as a result of the so-called Olivos Pact with the opposition Radical Party. That arrangement opened the way for Menem to seek and win reelection with 50% of the vote in the three-way 1995 presidential race.

The 1995 election saw the emergence of the moderate left FREPASO political alliance. This alternative to the traditional two main political parties in Argentina is particularly strong in Buenos Aires, but as yet lacks the national infrastructure of the Peronist and Radical parties. In an important development in Argentina's political life, all three major contestants in the 1995 race espouse free market economic policies.

Argentina held mid-term congressional elections in October 1997. The opposition UCR-FREPASO alliance made major gains in the number of seats it held and deprived the Peronists of an absolute majority. The elections are widely seen as setting the stage for the 1999 presidential race. The government's pro-market policies remain unchallenged, but continued high unemployment and growing public concern over perceived corruption have hurt the government's standing in public opinion polls.

Argentina is organized as a constitutional federal democracy. The revised 1994 national constitution provides for a strong executive branch, a bicameral legislature and an independent judiciary. The executive traditionally has dominated federal politics. (Each province has its own constitution.) Many rights are reserved to the provinces under the constitution, in theory, producing a balance between federal and provincial authority that is more akin to that of Canada than to that of the United States. In practice, Argentina's Federal System is dominated by the center.

The President is elected to a four-year term and is eligible to run for one additional consecutive term of office. Under the new Constitution each province, including the Capital, will have three Senators, elected by popular vote to six year terms. Deputies are elected for four years, in alternate terms, with half standing for reelection every two years. The President appoints Cabinet ministers. The Constitution grants the President considerable power, including a line item veto.

The Constitution establishes a separate and independent judiciary. The President appoints the members of the Supreme Court of Justice with the Senate's consent. Under the new constitution, judges are to be appointed and removed by a yet undefined judicial council. The Supreme Court has the power, first asserted in 1854, to declare legislative acts unconstitutional.

On October 30, 1983, after nine years of dictatorship, Argentines voted for a president, vice president, and 14,000 other national, provincial and local officials in fair, open and honest elections. Raul Alfonsin, the candidate of the Radical Civic Union (UCR), won the presidency and began a six-year term of office on December 10, 1983. The Alfonsin Government took steps to resolve some of the nation's most pressing problems, including accounting for "missing" citizens during the era of terrorist groups, establishing civilian control over the armed forces and consolidating democratic institutions. Alfonsin, however, had serious problems getting the nation's economic house in order; by 1989 inflation reached four-digit proportions.

In May 1989, Carlos Saul Menem, the candidate of the Justicialist Party (PJ), was elected President; the PJ and its allies also won control of both houses of the new Congress, which took office in December 1990. The rapidly deteriorating economy and a resultant loss of confidence in the national government led Alfonsin to leave office five months early, allowing Menem to assume office in July 1989. This was Argentina's first transfer of power between democratically elected leaders in more than sixty years.

In 1994, political compromise between the two major parties paved the way for voters to elect a constituent assembly to revise the Constitution. The new constitution, approved in August 1994 provides for the direct popular election of the President and permits him to run for a second term. It also provides for the direct election of the Mayor of the Federal Capital and Senators.

In May 1994, following a first term marked by economic success and political stability, President Menem was reelected to a second four-year term with nearly 50% of the vote. The PJ also won an absolute majority in the Chamber of Deputies and retained control of the Senate.

ARGENTINE POLITICAL PARTIES

General Juan Domingo Peron, President of Argentina from 1946 to 1955, founded the Justicialist Party (PJ, known popularly as the Peronist Party) in the 1940s. He built his Peronist movement on a foundation of statist and strongly prolabor polices. Following its defeat in the 1983 presidential elections, control of the PJ passed to a reformist faction. They democratized the party's structure, which led it to victory in the 1987 congressional elections. The PJ joined the Christian Democratic International in early 1994 and has advocated a political opening to the developed world and close ties to the United States and Europe.

The Radical Civic Union (UCR), still Argentina's leading opposition party, is also the country's oldest. Since the turn of the century it has traditionally represented middle class interests. Its leader, economist and commentator Rodolfo Terragno, belongs to a pragmatic faction of the party that seeks to renew its flagging popular support. The party has moved away from statist and non-aligned policies, accepting the broad reforms of the Menem Administration while retaining a critical attitude toward their economic implementation.

In April 1994, many left of center politicians joined with former Peronists to create FREPASO. Their candidate, Jose Bordon, defeated the UCR candidate for second place in the 1995 elections. FREPASO also increased its representation in the Chamber of Deputies to twenty-nine members. FREPASO's diverse coalition remains more a political movement rather than a fully formed party.

Besides the PJ, the UCR and FREPASO, Argentina has many smaller parties that are regional or right and left of the centrist UCR and PJ. In aggregate, they can play an influential role in the national Congress and often control provincial governments. Most regional parties accept the general policy direction of the Menem Administration, but seek greater financial support and less interference in provincial affairs from the central government.

The Menem Administration has pursued wide-ranging economic reforms designed to open the Argentine economy and enhance its international competitiveness. Privatization, deregulation, fewer import barriers and a fixed exchange rate have been cornerstones of this effort. All these changes have dramatically reduced the role of the Argentine state in regulating the domestic market. The reform agenda, however, remains incomplete, including needed improvements in the judicial system and provincial administration.

As in most South American countries, three basic corporate vehicles are available: the Sociedad Anónima (S.A.), loosely an equivalent of the American corporation; the Sociedad de Responsabilidad Limitada (S.R.L.), essentially a limited liability partnership; and the Argentine branch of a foreign company.

The Sociedad Anónima (Corporation)

The Sociedad Anónima (S.A.) which receives its authorization to incorporate from the province (or the Federal District) in which it is located, is the only business entity entitled to issue shares to the public. Government supervision and reporting requirements are more intensive than those imposed on other companies or partnerships. It is considered an artificial person, distinct from those who hold its shares, and must be constituted by public deed. The related formalities take about 3 months.

The capital is represented by shares or "share deeds" and the liability of the shareholders (who must be at least two) is limited to the amount of the shares they have subscribed.

Capital

Corporate capital must be fully subscribed and at least 25% must be paid up at the time of incorporation; non-monetary assets must be fully contributed before the corporation control authority's approval is requested. Stockholders must pay the balance due of their subscribed capital within two years; they are held liable for interest and damages arising from any default in payment thereof, and all voting and other rights corresponding to shares whose payment is in default are automatically suspended. The minimum initial capital is $ 12,000.

The corporate capital may be increased fivefold, upon the decision of a Stockholders' Meeting followed by appropriate publications and inscriptions, without having to obtain official approval, if allowed in the bylaws and all previous issues have been fully subscribed. In other cases, any increases in the corporate capital require official approval. In general, existing stockholders are entitled to preference for subscribing new issues, and may even challenge subscriptions by outsiders when they have been bypassed. If a new issue is not fully subscribed, the stockholders who subscribed it and the company are held liable for all obligations undertaken in connection therewith. Shares corresponding to capital increases may be offered to the public.

Shares may not be issued below par (except in the specific cases contemplated by Law 19,550 and its amendments). Shares issued above par must be approved by an extraordinary meeting of stockholders, and entail the setting up of a special reserve that may not be distributed except in the event of a reduction in the corporate capital.

The corporate capital may be reduced upon the decision of an extraordinary meeting of stockholders, which must be supported by a special report from the in-house auditor, and entails the fulfillment of certain formalities designed to safeguard creditors' rights, unless it is accomplished using profits or free reserves to repurchase fully paid company shares. A reduction of the corporate capital is compulsory when the accumulated loss has eroded all free reserves and 50% of the corporate capital.

There may be different classes of shares or "share deeds"; they must all have the same par value, which must be stated in Argentine currency. Stock certificates may be issued to represent one or more shares. Shares may be issued to bearer or registered; they may be transferable through endorsement or non-transferable. Both ordinary and preferred shares are allowed. The first may carry privileges of up to five votes per share provided they do not also enjoy priority rights. Multiple vote shares may not be issued once the corporation has been authorized to issue its shares publicly. Preferred shares may be entitled to priority rights for dividends or upon the liquidation of the company, but may not carry voting rights (except in certain cases covered by specific legislation or the terms of issuance).

Corporations must maintain a special book called a Register of Shares, in which details of the shares issued are recorded, showing the names of the original subscribers and those of successive stockholders.

Only corporations that are subject to permanent government supervision may distribute interim dividends.

Main Corporate Vehicles

Sociedad Anónima (loosely the equivalent of a Corporation)

Artificial person whose capital is represented by shares

Incorporation takes about a months and a half to be complete

At least two shareholders are mandatory

Liability of shareholders is limited to the amount of shares subscribed

Requires regular filing of various financial and accounting statements, and keeping records detailing activities of the board of directors and shareholders' meetings. One in-house auditor ("síndico") is mandatory

Financial and insurance corporations, as well as corporations with stated capital over $2,100,000 have to meet additional requirements

Sociedad de Responsabilidad Limitada ( loosely the equivalent of a Limited Partnership)

Easier to form, subject to a lesser degree of supervision and required filings

Capital is represented by quotas

Composed of a minimum of 2 and a maximum of 50 partners

Liability of partners is limited to the amount of the quotas subscribed

A more personal vehicle, its smooth operation usually depends on congenial, efficient interaction between partners and a trustworthy manager

Income tax is applied on partners individually, not on the partnership

Argentine Branch of a Foreign Company Easiest formation process: simply establish a domicile, appoint a representative and show evidence of incorporation and good standing in the country of origin.

No minimum nor maximum stated capital

Financial statements must be filed only annually

Main corporation and Argentine branch need to keep separate accounting records

Joint Venture

Provided for in Argentine law, but not a legal entity in its own right

Business operations are conducted on behalf of partners individually

Third parties obtain legal rights before the partners individually, not before the joint venture

No incorporation or registration of the joint venture is required

Tax liabilities fall on individual partners, not on the joint venture

Stockholders' Meetings

An Annual General Meeting of Stockholders must be convened within 4 months of the annual fiscal closing date, to deal with the corresponding financial statements, the distribution of profits and the appointment, removal and compensation of the managing and control bodies. A General Meeting of Stockholders must also be convened (at any time) if it becomes necessary to determine the liability of the members of the aforementioned bodies, or for increasing the capital within the fivefold limitation.

Extraordinary meetings of stockholders are required to deal with all matters not incumbent on ordinary meetings of stockholders.

All stockholders' meetings must be convened through the publication of notices for 5 days (or 3 days in the case of a second meeting required due to lack of a quorum). The law does, however, waive the need to publish notices in the case of unanimous meetings (when stockholders representing all the outstanding capital attend and decisions taken are unanimous).

Stockholders may be represented by proxies at meetings, but neither members of the managing and control bodies nor company employees may hold proxies.

The directors, in-house auditors and managers have the right and duty to attend stockholders' meetings. They have a voice, and such voting rights as they may be entitled to as stockholders.

The law sets requirements concerning the quorum needed to hold meetings, and the majorities required for decisions, depending on whether the meetings are ordinary or extraordinary, and on whether they are being held for the first or second time; the requirements are more stringent when matters fundamental to the life of the corporation are dealt with.

In certain cases, the law guarantees the right of dissident stockholders to withdraw; in such cases they must be reimbursed on the basis of their equity according to the most recently approved financial statements.

Management and Representation

The management is vested in a board of directors composed of one or more directors (they must be at least three in the case of corporations subject to permanent government supervision), who are appointed by the stockholders' meeting or the surveillance committee, as applicable. Directors need not be stockholders. Their terms of office are limited to 3 years, but they may be re-elected. The bylaws may provide for the election of alternate directors. A majority of the directors must reside in Argentina.

The board must meet at least once every three months; half plus one of its members constitutes a quorum. The compensation of directors and members of the surveillance committee are restricted to 25% of the profits for any given year when the remaining profits are fully distributed as dividends; the limitation is 5% when no dividends are distributed; limitations for intermediate situations are apportioned accordingly. Compensation include salaries and other payments made in respect of technical and management functions carried out on a permanent basis. Additional remuneration are permitted when they are for the performance of special assignments or permanent technical and management functions, provided the matter is included on the agenda for the stockholders' meeting and meets with the latter's approval.

The position of director is personal and non-transferable; directors may not cast votes by mail.

A corporation is normally represented by the president of the board of directors; its bylaws may, however, authorize one or more directors to represent it.

Private Supervision

Private supervisory functions are normally vested in one or more in-house auditors appointed by the stockholders' meeting, which must also appoint a similar number of alternate in-house auditors. The use of in-house auditors is optional for corporations not encompassed by article 299 of the Company.

Corporations subject to permanent government supervision (except when this is only due to the amount of their capital) must have an odd number of in-house auditors, which must be at least three. Whenever there is more than one in-house auditor, they must act as a body.

The function of in-house auditor may be exercised by an individual holding a degree as a lawyer or public accountant, or by a firm composed exclusively by such professionals, and domiciled within Argentina.

The in-house auditors have the following rights and duties, among others: to examine the company's books and records and verify its funds, commercial paper and securities at least once every three months; to attend board meetings and stockholders' meetings with a voice but no vote; to report on the annual board report and financial statements; to check that the corporate bodies abide by the law, the bylaws and the decisions of stockholders' meetings. They are jointly and severally liable to an unlimited extent for the failure to fulfill their duties and are jointly liable with the directors for any acts or omissions of the latter causing damages that would not have occurred if they had discharged their duties properly.

The bylaws may provide for the appointment of a surveillance committee consisting of between 3 and 15 stockholders by the stockholders' meeting for terms of up to 3 years, to control the actions of the board of directors, either directly or through expert advisors. Such a committee also carries out the other duties normally performed by the in-house auditors, so there is no need for the latter. In such cases the committee must appoint independent auditors, whose annual report must be submitted to the stockholders' meeting. The existence of surveillance committees is uncommon among existing Argentine corporations.

Government Supervision

Article 299 of the Corporate Law provides that corporations encompassed in any of the following circumstances must be subject to permanent government supervision exercised by the appropriate control authority:

a. Those that offer their shares or bonds to the public;

b. Those whose corporate capital is above $ 2,100,000 (this limit is subject to adjustment at the discretion of the Executive Power);

c. State-controlled corporations and mixed ownership companies (these differ from standard business corporations, but are subject to similar regulations in many respects);

d. Those engaging in capitalization or savings and loan operations, or otherwise soliciting funds or commercial paper from the public with the promise of future consideration or benefits;

e. Those operating government concessions or public utilities;

f. Any corporation that controls or is controlled by another that is comprised in one of the foregoing situations.

Certain types of corporations are subject to a permanent form of control by government or semiofficial organizations other than the corporation control authorities: those whose shares or bonds are publicly traded come under the National Securities Commission; banks and finance companies are controlled by the Argentine Central Bank; insurance companies by the National Insurance Superintendent, and cooperatives by the National Institute of Cooperative Action.

All other corporations are subject to government control by the appropriate corporation control authority, but it is only exercised in connection with the incorporation contract, subsequent amendments thereof, and changes in the capital, although the corporations are also required to file their financial statements and other papers relating to annual stockholders' meetings.

Debentures and Corporate Bonds

Although the Corporate Law contains lengthy provisions regarding the issuance of debentures, these have never been broadly used in Argentina. Therefore, to provide a means of indebtedness more closely suited to the needs of companies and investors, law 23,576 was passed in 1988 instituting a system of negotiable (corporate) bonds. The issuance of negotiable bonds does not require to be provided for in the bylaws and may be resolved by a stockholders' meeting (except for some cases involving bonds convertible for shares). The act of issuance may be instrumented by public or private deed; the bonds may be issued in Argentine currency or foreign currency; they may carry floating, specific or general guarantees, and be guaranteed by banks or other financial entities, or not. The system involving negotiable bonds is already in use among top companies, which have issued them to bearer in U.S. dollars, through banks acting as underwriters, and a number have had them listed on the Stock Exchange. These negotiable bonds are in fact competing with dollar bonds issued by the National Government (BONEX) on the capital market.

The Sociedad de Responsabilidad Limitada (Limited Partnership)

In general, the formation and administration of a Sociedad de Responsabilidad Limitada (S.R.L.) is relatively uncomplicated. However, its effective continuity is dependent upon the relations existing among its members, since majority -and in some cases unanimous- consent is required for all changes. As compared with an S.A., the time of formation for an S.R.L. is shorter, and if the capital is below $ 2,100,000, there is much less government supervision or interference. Corporations may not be partners of S.R.L.'s.

The name of the partnership must include the words "sociedad de responsabilidad limitada" or the abbreviated form "S.R.L."; otherwise the manager is held jointly liable to an unlimited extent for all acts undertaken with the omission.

The capital is divided into quotas, and the liability of the partners (there must be between 2 and 50) is limited to paying up the quotas they have subscribed.

S.R.L.'s may be formed through a public or private deed, which must be registered in the Commercial Court of Record after being published in the Official Bulletin.

Capital

The capital must be stated in Argentine currency; it must be fully subscribed and 25% thereof paid up by the partners at the time the partnership is formed; the balance must be paid up within two years. Contributions consisting of non-monetary assets must be fully transferred to the partnership at the time of formation. The partnership contract may contemplate the issuance of additional capital quotas, applicable only upon the consent of partners representing more than half the partnership capital, and following the usual publication and registration formalities.

The quotas must be of equal value and equal voting right. Partners may hold more than one quota. Transfers of quotas are not restricted by law, but may be restricted under the partnership agreement. The remaining partners have the right of preference to purchase any quotas up for transfer.

Partners' Meetings

If the partnership contract does not contain specific rules for meetings, the rules set for corporate stockholders' meetings must be applied, except that instead of publishing notices convening the meetings, the notices must be sent to the partners at their addresses.

The law guarantees the right of dissident partners to withdraw, in the same way as it does for corporations.

Management and Representation

The partners must appoint one or more managers to assume direct liability for the business' operations. They need not be partners themselves. The managers have the same rights and duties as the directors of corporations, but their terms of office are not subject to the 3-year limitation. When there are several managers, the rules concerning corporate directors apply.

Supervision

In general, the creation of a supervisory body (consisting of one or more in-house auditors or a surveillance committee) is optional for S.R.L.'s, but when such a body is appointed, the rules applicable thereto in the case of corporations are applicable to the extent that they are compatible.

When the capital of an S.R.L. is above $ 2,100,000, the rules concerning permanent supervision by the Corporation Control Authority apply and the partners must appoint in-house auditors or a surveillance committee and hold their annual general meeting of partners within four months of the fiscal year end, to deal with the financial statements.

Argentine Branch of a Foreign Company

While the basic rule is that foreign companies are subject to the laws of the country in which they were formed, insofar as concerns their existence and formation, they are specifically authorized to carry out isolated business operations in Argentina and to be parties in legal suits.

Formation of a Branch

If a foreign company desires to engage regularly in its line of business, by setting up a branch, office or any other form of permanent representation, it must:

a. Prove its existence under the laws of its country (i.e., by filing its bylaws or articles of association and other related documents);

b. Establish a domicile in Argentina;

c. Fulfill the same publication and registration requirements as Argentine companies;

d. Support the decision to set up an Argentine branch;

e. Appoint a representative or manager;

f. If a branch is elected, it must have an assigned capital (there are no maximum or minimum limitations in this connection).

To speed up the formalities connected with the formation of a branch of a foreign company, it is helpful to show proof of the existence of reciprocity of treatment for branches of Argentine companies in the country of origin of the foreign company involved.

Management and Representation

The management and representation of a branch of a foreign company is vested in the person appointed in the deed of formation, or his successor, whose appointment must be suitably recorded in the Commercial Court of Record. In general, the managers of branches have the same responsibilities as the directors of corporations.

It is mandatory for foreign companies operating in Argentina to keep separate accounting records for their Argentine operations.

Branches of foreign companies are required to file their annual financial statements with the appropriate corporation control authority.

Joint Ventures

Accidental or Temporary Partnerships

The Argentine Corporate Law has a section on what is termed an "accidental or temporary partnership", which has the following characteristics:

• it is not a artificial person;

• it does not have a firm name;

• it is not subject to any formal requirements;

• it is not required to register with the Commercial Court of Record;

• its purpose consists in the conduct of one or more specific and transitory operations;

• its operations are carried out using contributions made by the partners, but in the personal names of one or more managing partners;

• outside parties acquire rights or undertake commitments only in relation to the managing partners.

• Such temporary partnerships have in the past been used principally as the best vehicle for the joint participation of different companies in proposals made pursuant to tenders called for by government entities or large private concerns.

Temporary Unions of Companies

The Corporate Law also recognizes Temporary Unions of Companies ("Uniones Transitorias de Empresas"), which are joint ventures for conducting and/or carrying out a specific job, service or supply within Argentina or outside it. Foreign companies may participate in these Temporary Unions of Companies provided they furnish proof of their existence under the laws of the country in which they are organized, establish a domicile in Argentina and register in the Commercial Court of Record.

It is important to highlight the fact that although it includes regulations governing the management and operation of these organizations, Argentine law does not consider them as legal persons in their own right.

Business Records

All businesses must maintain accounting records; their design may vary according to the preferences of the management and needs of the business. Two books are, however, mandatory: a journal and an inventory book, both of which must be bound and have prenumbered pages, and be initialized by the appropriate local commercial court. The journal should include an entry for each transaction, and the inventory book should contain very analytical, itemized annual financial statements. In practice, only monthly summary entries are made in the journal, and copies of any long lists may be press-copied into the inventory book.

The Commercial judge or the Securities Commission may authorize the use of modern E.D.P. or mechanized records to supplement the initialized books or to partially replace the journal, in which case the latter is written up with monthly summary entries, and a description of the system must be included in the inventory book.

A special book must also be kept to record the minutes of company meetings (i.e., board of directors, shareholders, etc.), as well as a Register of Share Ownership and a Record of Attendance at Shareholders' Meetings. These books must also be initialized.

All the official records and papers of business firms operating in Argentina must be kept in Spanish.

FRANCHISING

The franchise contracts are protected under the Argentine Commercial Code. The service, commercial trade market/name, expertise, and shared production elements are covered by contractual obligations on both franchisor and franchisee. Elements of the contract include the license, methods/systems or propietary information transferred to a franchisee, the supply of needed inputs, methods of sales, and quality standards, and ultimate control by franchisor of the contract elements. Franchises have been successfully used in Argentina, but obligations of the franchisor must be clearly delineated in the contract to avoid legal obligations associated with the operator, in case of default, bankruptcy, etc. Argentine law is unclear about franchisor obligations in case of bankruptcy or other commercial failings. Legal advice should be sought before contract signing.

LICENSING ARRANGEMENTS

Transfers of propietary information from a foreign individual or company to an Argentine individual or company and transfers of patents or trademarks are governed by Law 22,426. This law establishes two categories of transactions: those between related companies and those with third parties.

AGENT & DISTRIBUTOR ARRANGEMENTS

Principal-agent relations are governed by the Civil and Commercial Codes. No special legislation has been enacted to regulate the cancellation of agency agreements.

When the representative is a natural person, the agency may be regulated by Law 11,544 of 1929, as amended. In particular, Law 14,546 of 1958 extends Labor Law benefits to business agents. The parties may not elect foreign laws to govern the agreement. If a contract is executed abroad to avoid Argentine law, it will not be enforced by Argentine courts.

The Civil and Commercial Codes permit a principal to cancel an agency agreement at his or her discretion. However, the terminating party may be liable for damages resulting from a wrongful cancellation. All agreements, whether for a definite or undefined term should include a notice of a cancellation clause.

Labor laws similarly require the service of a cancellation notice sometime before the actual cancellation date; otherwise, the principal may be liable to the employee for earnings that would be accrued during the notification period. In all cancellation cases, except those based on a just cause, the agent is entitled to one month's compensation for each year of service, payable in a lump sum.

One of the main competitive advantages of Argentina is its human resources. The level of training of the average Argentine worker is high and continues to improve. For this reason, and due to the low rate of population growth, for many years Argentine wages have been higher than in other Latin American countries, although they are lower than in more industrialized countries. The government has begun an effort to modernize the labor laws -definitely a pending issue- as shown by the passage of the 1991 Employment Law providing for flexible and temporary contracts as well as costs reductions in regions declared as having "employment emergencies" due to the prevailing high unemployment levels.

Despite these efforts, labor environment in Argentina remains a mixed bag, and is therefore useful to describe its pros and cons, so as to allow for a proper evaluation by interested foreign investors:

Pros

• Availability of a skilled labor pool: a large, educated middle class (high literacy rate owing to free tuition available at elementary, high school and college levels) which translates into a

• good supply of good skilled and semiskilled labor, clerical employees and qualified professionals, the latter likely to have a reasonable working knowledge of English.

• Labor generally able and eager to learn so that they can be easily trained to competently perform new or additional tasks.

• No provisions against employment of foreigners (provided they hold a temporary or permanent resident visa); generally no specific job positions are earmarked to be performed exclusively by locals.

• No aversion or animosity to foreign management.

• Racial, religious or political discrimination are not an active or latent issue, whether in politics or in business.

• Cumbersome, often complex labor legislation designed to protect employees and workers by regulating working conditions and hours with differential pay rates for overtime and unhealthy conditions or occupations

• Expensive workers compensation and indemnity for job-related accidents and dismissals.

• Social security taxes and fringe benefits push employment costs up significantly.

• Strong, traditionally powerful labor unions (although today a shadow of what they used to be), activities include not only labor relations as such, but also health services, recreational facilities and vacation resorts.

• Despite specific labor union legislation provisions against engaging in political activities or support, unions still do play a conspicuous political role and affect proposed legislation in areas ranging from labor to international treaties.

Proposed labor legislation overhaul Highlights

Aware of the above described cons, the government is presently drafting legislation which if passed, would allow for the following:

Possibility for workers / management agreements that are firm-specific and, most importantly, completely independent from collective bargaining agreements. The agreements could be on the key issues of hiring, workday and vacation periods:

Measures conducive to more flexible hiring (quite short of American "employment at will", however), for instance three months probationary periods for new hirees (renewable for six months without union approval). Union approval-free, 6 mo. to 2 yr. temporary contracts, with the added benefit of a 50% lesser social security tax rate are proposed to be implemented.

Workplace-specific, negotiable workday and overtime treatment, albeit regular hours cannot be agreed longer than eight.

Firm-level agreements enough to extend layoff periods due to factors beyond the company's control. For dismissals deemed without reasonable cause, workers would receive one months of severance pay for each year of service.

National holidays are:

- January 1, New Year's Day
- April 11, Good Friday
- May 1, Labor Day
- May 25, Revolution (1810) Day
- June 10, Sovereignty Day
- June 16, Flag Day (Actual date: June 20)
- July 9, Independence (1816) Day
- August 18, Death of General J. de San Martin (Actual date:August 17)
- October 13, Columbus Day (Actual date: October 12)
- December 8, Immaculate Conception
- December 25, Christmas.

Atmosphere, water, soil and all natural resources of the planet, are humanity's heritage, and their damage, pollution or restriction, are an outrage against the well-being of its inhabitants.

The present generalization of environmental policies in industrialized countries, has revealed important modifications in productive practices and trade strategies of the Companies, thus setting up new standards constituting an incentive for the development of what is known as "Green Industry."

As regards environmental issues, the country offers excellent opportunities for prospective foreign investors. Argentina cannot be excluded from the international trend of environmental preservation; present trends of international trade and the new legal framework create important markets that can be developed through international experience.

In this framework, the National Government has expressed its political will to deal with the issue, through the creation of the Secretariat of Natural Resources and Human Environment, within the scope of the Executive Power. Their objective is to unite efforts in order to protect and improve environmental quality, thus improving the quality of life for the country's inhabitants.

LEGAL FRAMEWORK

Argentina possesses a great amount of legislation basically related to the usage of its natural resources.

Of the 16 laws passed within the period 1983-1991, 7 are ratification of international agreements on global topics affecting the whole planet and 4 concern the modification or creation of new national parks. The remaining laws set forth that it is obligatory for State companies to inform about tasks of soil exploration; it is obligatory for the Executive Power to evaluate the environmental consequences of the construction of dams; the creation of the Federal Council of Potable Water and Sanitation Measures (COFAPYS), etc.

Several important laws were passed recently, such as Law 24051 (dangerous waste), Law 24084 (substances exhausting the Ozone layer), and Law 24089 (ship pollution control).

The environmental regulations implemented in 1992 for the Oil Industry establish the necessity for: environmental analysis prior to drilling exploratory wells; environmental analysis of each oil field in operation, including contingency planning and mitigation programs; restoration of injection fluids and oil ponds; determination of limits to gas venting and construction of gathering systems for exploitation; regulations for abandoning wells temporarily or definitely.

The Forestry Development Plan recently put in force, proposes the creation and implementation of plans for the control of forest fires. With regard to the Mining Sector, Law 24585 for Environmental Protection, establishes rules and procedures for avoiding irreversible environmental damage caused by mining activities, by means of Environmental Impact Assessment (EIA) mechanisms.

It is clear that both these laws as well as others of importance, such as the Public Investment Law, require an Environmental Impact Assessment previous to the execution of the projects, this is spreading to other areas that are not yet covered by present legislation, but are rapidly being updated through rules and requirements of the projects' financial entities.

Article 41 -added to the National Constitution in 1994- sets forth that the National Government must issue the regulations containing minimum budgets for environmental protection, and the provinces the necessary ones corresponding to these. At the present time, and based on this distribution of domain, the National Congress, the Federal Council of Environment (COFEMA - Consejo Federal del Medio Ambiente) where the provinces are represented, organisms of the Executive Power such as the Ministry of Economy and the Secretariat of Natural Resources and Human Environment, and private institutions such as the Argentine Business Council for Sustained Development (Consejo Empresario Argentino para el Desarrollo Sostenible), are collaborating in the creation of these national regulations.

With respect to the MERCOSUR, section 13 of the Asunción Treaty, Decision Nº 4/91 of the Common Market Council, and Recommendation Nº1/94 of the Specialized Environmental Meeting of Mercosur, consider the necessity of creating a basic framework as regards environmental policy. Argentina, as a signatory of the DECLARACION DE RIO SOBRE EL MEDIO AMBIENTE Y EL DESARROLLO (Río Declaration on Environment and Development - Río de Janeiro, June 3-4, 1992) recognizes that all concern in relation to sustained development, is centered on human beings, who are entitled to a healthy and productive life in harmony with nature.

PROTECTED NATURAL AREAS

Since 1903, our country has a National System for Protected Natural Areas and since 1934 there is institutional development of the system, through the Administration of National Parks (APN). The six biosphere reserves of the country have been established since 1980. The Reserva Natural Isla de los Estados (Natural Reserve Island of the States) was created in 1990, constituting the first insular bioma to be protected in Argentina.

ENVIRONMENTAL POTENTIAL

Despite the predominance acquired by capital and technology as production factors in contemporary economy, natural resources continue to perform an irreplaceable role in productive processes.

The model for development adopted by Argentina since the middle of last century is based on the utilization of those comparative advantages due to abundant and high quality natural resources. One of the consequences of this has been the partial employment of environmental potential, favoring the growth of some areas and -in many cases- their excessive exploitation, and neglecting others whose economic and social growth remained postponed due to "under-utilization of resources".

There is a great environmental potential in Argentina: its climatic, biological and environmental diversity; availability of energy sources (oil, gas, hydroenergy, geothermic energy, etc.) and abundance of superficial and subterranean hydric resources; extensive sea coast; variety of landscapes and existence of unmodified environments among others.

The new emerging regional and international economic context, with the participation of Argentina in a common market that extends possibilities for local expansion (MERCOSUR), offers an opportunity for exploration and rational development (within a maintainable perspective) of environmental resources which were hitherto not fully made use of and for the adoption of new guidelines in the case of badly used resources. Examples of this would be: the extension of irrigated and of protected cultivated areas; the development of alternative energy sources based on the great hydroelectric, geothermic and aeolian potential; the use of the genetic potential that exists in wild flora and fauna; the expansion of organic production in environments that, due to their bio/geographic characteristics, possess the conditions required for same; the exploration and operation of mining resources (within the new legal framework); the existence of protected and almost unmodified natural environments offering attractive conditions for tourism activities; the exploitation of fishing resources. These, among others, constitute areas of interest for new investment.

The specialization that has taken place in regional economies during the Argentine development process, was aimed at employing comparative advantages within the national space. These advantages were annulled or neutralized by the predominance the model gave to the Pampean Region, and those economies remained postponed. At the present time, they may represent the basis for profitable exploitation of localized and specific resources for certain productions or services. Thus, the constitution of a focal center for rice growing, comprised by the Argentine Mesopotamia (provinces of Entre Ríos and Corrientes, traditional producers of this cereal), together with Uruguay and the south of Brazil, is a clear example of the increasing importance given to pre-existent environmental conditions not fully made use of.

REASONS FOR ENVIRONMENTAL IMPAIRMENT

The most relevant processes of environmental impairment in Argentina are the following:

• The pollution of underground waters is the most important contamination problem in Argentina, mostly because of the health risk it signifies to many inhabitants who depend on underground waters for their daily needs -including a great proportion of the population with low resources- and owing to the irreversible characteristics of the contamination. This is particularly important in urban areas of big cities with inadequate infrastructure for drinking water and sewerage services (World Bank Report No. 14070-AR, 1995). At the present time an important public investment, with private participation, is underway in the waterworks sector. An interesting private investment is expected from the important industries for the prevention and control of contamination -which will require international experience for its development-. It must be remembered that in Argentina 87% of the population lives in urban centers.

• Garbage dumps of uncontrolled solid waste are next in importance among the priorities, mainly because of the dangerous waste materials that are deposited there. Due to the absence of treatment and storage plants for dangerous wastes, it is believed that that an important part of these is illegally dumped out of doors, in septic tanks and in black wells, from whence they contaminate subterranean waters and local streams (ditto W.B. Report). In most large and medium towns and cities of the country the adequate disposal of solid waste has not yet been properly handled, this signifies an important gap in investment that must be speedily filled. There are not enough capable Companies with adequate experience for the handling and disposal of dangerous waste; recent national and provincial legislation on this matter opens an unexplored field for companies with international experience.

• The contamination of surface waters stemming from industrial residual waters and black waters without treatment is -in combination with floods- one of the principal causes of damage to property, loss of recreation spaces, and ecological damage near the principal urban areas and several inland lakes (ditto WBR). Contamination from agricultural pesticides that, through natural drainage, reach superficial water courses and then the sea. Possibilities for investment here are similar to those mentioned above.

• Air pollution and noise are also a problem in big cities, especially in the central areas, along the principal traffic routes and near industrial areas. A great many people may suffer the consequences with important repercussions affecting their health (ditto WBR).

• Degradation of natural forests and pasturelands is very important not only because of the loss of economic and natural resources, but also because it constitutes part of a desertification process, which is almost irreversible in some cases. Although about 70 % of the continental territory suffers from arid or semi-arid conditions, that make it unfit for agricultural use, nearly 88 % of the country is apt as natural pastureland for domestic and wild animals. This productive potential is diminished by ill use and inadequate exploitation techniques.

• Floods are another environmental problem that affects population as well as large productive areas. Besides the natural causes responsible for this phenomenon we must also add human activities: thus, for example, works of infrastructure such as roads and railroads limit the waters, agriculture reduces the soil's capacity of absorption, lack of territorial planning permits inappropriate settlements of population in flood areas, etc. At the present time, in order to solve some of these problems, projects of infrastructure are being developed. Due to their magnitude there will be international bidding processes.

• In urban areas, the high concentration of population and lack of planning have occasioned a housing shortage, insufficient drinking water and sanitary services, overcrowding, etc. Even though there is important and permanent investment in this area, the minimum requirements of an important sector of the population are not covered yet.

INDUSTRY AND ENVIRONMENT

The greater industrial centers are located on the outskirts of Greater Buenos Aires, in the urban/industrial area La Plata-Rosario, also including surroundings of the cities of Córdoba and Bahía Blanca.

The environmental impact produced by industry mainly affects waters that receive the wastes.

The highest degree of water pollution is found in the urban area of Buenos Aires, produced by different industries such as tanneries, paper and pulp production, textiles, footwear, metallurgy, chemistry, oil refineries, sugar and alcohol production, etc. It is important to mention that these activities represent 80% of the Industrial GNP, and that in Argentina 52% of the Industrial Sector is located in the province of Buenos Aires; consequently this region is mainly affected.

The industry of chemistry and oil derivatives -beyond the Federal Capital area- is concentrated near Bahía Blanca, in the so called Oil-Chemistry Pole. This industrial zone's collecting channel flows into the coastal waters of Bahía Blanca (Atlantic Ocean), occasioning an impact which affects the maritime ecosystem, and other types of pollution.

As regards air pollution, industrial sources are not considered a generalized problem nor one affecting a great part of the population. Mostly due to the low cost of natural gas, this relatively 'clean' fuel represents nearly 46% of the industrial sector's fuel requirements and 78% of the energy sector's. The use of coal -which is the most problematic from an environmental point of view- is limited to a 3% of industrial requirements in the cement sector and 3% in the energy sector. Fuel oil is used basically where there is no available gas, or in the winter season as a supplement for the energy sector of the city of Buenos Aires.

Basically, air pollution caused by industry (permanent sources) seems to be a problem of importance only around a few specific Plants, mostly in the metal, cement, petrochemical, oil and mining sectors. A pollution to be considered, affecting the air, is that caused by heavy metals and other chemical substances that contribute to contamination of environment, man, and other living beings; producing -in some specific cases-, serious intoxication. There has been an important increase of pollution produced by vehicles (automobiles), taking into account that since 1990 there has been an increase of 300,000 vehicles per year.

As regards soil, the increasing leakage of chemical substances is affecting its condition; industrial contamination of soil is generally very punctual and localized, and is transferred in many cases to the phreatic layer by means of water. The contamination of soil by agricultural pesticides is much more extensive and also affects the underground sheet of water and the products that are obtained. the as also industrial, and the excessive use of pesticides, are affecting its condition as also that of the ground water.

INVESTMENT OPPORTUNITIES

Among the activities and projects that at the present time represent market niches in the Environmental Sector the following may be mentioned:

• Projects for cleaning the rivers in the Federal district, as also the constant evaluation of the programs for treatment of solid wastes in the Province of Buenos Aires, make evident the intention to improve the development of this kind of activity. The most important project carried out is the cleaning of the drainage area Matanza-Riachuelo. Total cost of the research performed by an international group amounted to US$ 3,5 million and the proposed cleaning works bear a total cost of US$ 670 million. Environmental sanitation and control of the river Reconquista's floods are next in importance, and the final bidding process for the works is expected to take place by the end of 1996, with financial support from the Interamerican Developing Bank (IDB) and the Japanese government.

• The private sector must invest in this and in other important industrial areas, as a complement to the constant improvements to regulations and the implementation of environmental plans of action agreed upon with Industry. The traditional industries that develop activities which represent an important impact on environment, such as beef industries, tanning industries, paper industries, etc. constitute a major topic. The introduction of new technology, both for production and for the care of environment, may be considered one of the market's niches.

• Many urban areas require important investment for the improvement of disposal methods for solid wastes and for the construction of sanitary landfill.

• The World Bank and the Interamerican Developing Bank perform promotion activities for the study of the evaluation of environmental impact and rule application. The policies of international adhesion and the search for ISO certifications open new paths for the application of environmental technology.

• The great development of the agroindustrial sector creates an additional incentive for the introduction of environmental services and techniques.

• In the field of foreign trade Argentina exports a great amount of food stuff, although the participation of organic products in the total flow of exports is very small. The new international trade guidelines show that the demand for healthier and more ecological products increases. Therefore, producer companies will have to apply part of their efforts to the reconvertion of their industries in order to be able to satisfy international environmental demands.

• Even though there is no development of technology or regulations in the country, the international trend for recycling packaging and bottles constitutes an irreversible change that will create new opportunities for companies with experience in the sector.

• Argentina is developing its mineral resources, thus creating a substantial opportunity for the evaluation of the environmental impact. The same aspects are considered in order to favor the exploitation of gas, oil and hydroelectric energy. This constitutes an interesting field for those companies able to expand available technology.

• Tourism offers an enormous potential for investment, being not yet fully exploited and offering enormous resources such as still nearly unchanged natural areas and also numerous protected areas. This, added to the rich and varied landscapes throughout the country, shows present and future possibilities for the development of traditional tourism and ecology conscious tourism.

Source of Information: Secretariat of Natural Resources and Human Environment.

Continuing to build confidence in Argentina's banking system is a government priority for 1996. Peso and dollar deposits in the banking system grew strongly and reached more than $50 billion in June 1996. This represents a 32-percent increase from June 1995, when bank deposits reached a low of $37 billion because of the Latin American financial crisis. However, increased liquidity in the banking system in 1996 did not translate into increased lending. Credit is still very expensive in Argentina. As of mid-1996, lowest-risk borrowers paid real annual interest rates of at least 10 percent for loans in the local market. For higher-risk--typically small-and medium-sized businesses and consumers--annual interest rates often exceed 20 percent. Two government measures started in 1996 helped marginally to moderate lending rates. A small tax on interest used to finance union-managed health programs was eliminated, and the value added tax on some loans was halved from 21 percent to 10.5 percent.

The government continues to encourage privatization of provincial banks, but progress has been slow. Some provincial governments fear job losses and strongly oppose bank privatization. Only nine of Argentina's twenty-three provinces had completed privatization of their official banks by mid-1996. Government-owned banks still have an extremely large market share, and competitiveness of the financial sector suffers as a result.

In early 1996, to combat money laundering, Argentina set up a series of regulations requiring banks to keep records of large transactions. Later in this year the Argentine Congress will consider a proposal to make money laundering illegal.

The Argentine banking industry is still reestablishing credibility, however, following decades of mismanagement. Argentina's banks have been particularly vulnerable to negative external shocks. Following the Mexican financial crisis of December, 1994, bank asset values deteriorated sharply. The Government has encouraged consolidation of private banks and has begun reform of provincial banks.

Argentina is "over banked" but the system is very concentrated. As of mid 1996, the largest 10 of Argentina's 150 banks controlled about 62 percent of the market. Public sector banks retain a monopoly on public sector deposits and administration of public sector funds.

Eight U.S. -based banks have been active in the local banking market. Together, they operate 80 offices in Argentina. Two U.S. banks, Bank of Boston and Citibank, are among the oldest and largest foreign retail banks in Argentina.

FOREIGN EXCHANGE CONTROLS AFFECTING TRADING

Access to foreign exchange is free. There are no currency exchange controls in Argentina.

GENERAL FINANCING AVAILABILITY

Commercial banks offer loans to creditworthy importers, although interest rates are very high by U.S. standards. The U.S. Export- Import Bank (Eximbank) is on cover for public and private sectors, and Eximbank guarantees some of the many trade facilities from U.S. commercial banks.

The International Bank for Reconstruction and Development (IBRD) provides funding for projects in Argentina. It also provides technical assistance and policy advice. IBRD raises the money through the sale of AAA-rated bonds in international capital markets. Loans are made only to governments or to agencies that can obtain a government guarantee. The IBRD also provides partial risk or partial credit guarantees (with a counter-guarantee from their government) to private lenders on development projects. The interest rates are variable, set at half a percentage point above the Bank's average cost of borrowing or LIBOR. Repayment is usually over 12 to 15 years, including a grace period of three to five years. Opportunities for U.S. companies exist to supply goods and services in connection with these loans.

The International Finance Corporation (IFC) is an affiliate of the World Bank that also provides project financing for private investment in Argentina. IFC offers long-term loans and equity investments, as well as other financing services. IFC will generally invest up to 25% of the total project cost. In addition to project finance, IFC also provides legal and technical assistance to private enterprises. Unlike the IBRD and IDA, the IFC does not require government guarantees. U.S. companies seeking direct investment funds should contact the IFC.

The Multilateral Investment Guarantee Agency (MIGA) was establish in April 1988 to help investors overcome the problems of political risk. Investors' concerns about political risk had the effect of slowing down the flow of foreign direct investment which in turn slowed the creation of jobs, and the transfer of modern technology. MIGA's purpose is to promote the flow of foreign direct investment among member countries by insuring investments against non-commercial (political) risk and by providing promotional and advisory services to help member countries create an attractive investment climate. U.S. companies seeking investment guarantees should contact MIGA. For further information and assistance contact the Commercial Service Liaison Staff, Office of the U.S. Executive Director, The World Bank, 1818 H Street NW, Washington DC 20433, USA. Tel: 202-458-0118 or 0120, Fax: 202-477-2967 or Argentina:

World Bank Field Office (LA1AR):

Mr. Patricio Millan
Resident Representative
Banco Mundial
Av. Leandro N. Alem 628-30, Piso 12
Buenos Aires
Phone: (54-1) 313-6816, 313-6851, 313-4586
Fax: (54-1) 313-1233

IFC Field Office (CLAR2):
Mr. Pedro R. Batalla
Resident Representative
International Finance Corporation
Edificio Pirelli
Maipu 1300, Piso 12
1006 Buenos Aires
Phone: (54-1) 315-1666, 315-1707, 315-1353
Fax: (54-1) 312-9435

Following are some active projects for Argentina:

• $190 million. Student learning in seven selected provinces will
  be increased by financing investments designed to increase the
  quality and efficiency of secondary education. Total cost: $268,7
  million.
  
• $300 million. The government's effort to promote fiscal reform
  its provinces will be supported.
  
• $500 million. The government will be assisted in providing an
  orderly framework for costs associated with the
  privatization/closure of weak provincial banks.
  
• $225 million. Financial support and incentives will be provided
  for the provinces to undertake their own public sector-reform
  programs consistent with the national program. Total cost: $321
  million.
  
• $210 million. Public sector management at the provincial and
  municipal levels will be made more effective through improved
  financing mechanisms for municipal investments. Total cost: $600
  million.
  

WORLD BANK OFFICERS FOR ARGENTINA IN WASHINGTON D.C.

Country Officer:
Mr. Mark V. Hagerstrom (202) 473-9208

Economists:
Mr. Paul Levy (202) 473-0124
Mr. David Rosenblatt (202) 473-7930

Citibank and Bank of Boston have large retail banking operations in Argentina.

American Express Bank, Bank of America, Chase Manhattan Bank, Chemical Bank, Morgan Guaranty Trust, Bankers Trust, Republic National Bank, The Bank of New York, Norwest Bank, Firstar Bank of Milwaukee, and Republic National Bank of Miami have subsidiaries or representatives in Buenos Aires. Most Argentine banks maintain correspondent arrangements with U.S. banks.

CAPITAL MARKETS AND PORTFOLIO INVESTMENT

Argentine regulation of capital markets promotes free flow of financial resources. Credit is available to foreign investors on the local market, but is relatively expensive. Public offer of securities is generally regulated by Law 17118. The Argentine Securities and Exchange Commission, Comision Nacional de Valores, is the federal agency which regulates securities markets offerings. Deposits in Argentine banks totalled about $50 billion in June 1996. The private pension fund system consolidated in 1995 and has provided a growing base for capital markets. The private pension fund system is growing about $3 billion annually. The banking system is undergoing consolidation. The percentage of non-performing loans varies widely among banks. No discriminatory measures specifically target against foreign investors in finance and capital markets. A U.S. Commercial Officer in Buenos Aires works with Argentine industry standards-setting organizations.

In December 1989, the Argentine Government lifted all exchange controls and adopted a single foreign exchange market, on which the rate fluctuates based on supply and demand. Previously, differential rates were in existence, as well as exchange controls, with frequent changes in the related regulations. There is a forward exchange market.

Effective April 1, 1991, the National Government passed a law declaring the convertibility of the local currency in relation to the U.S. dollar ($1 = U$S 1 in terms of the "peso" adopted as the local currency effective January 1, 1992). In this connection, the Argentine Central Bank has undertaken to maintain backing for the currency, to be held in gold and freely available devised.

Private individuals may freely hold foreign currency, keep accounts in foreign currency with local banks, collect interest in foreign currency, or sell property against payment in foreign currency, but if they do so, they should be able to justify its source, considering the exchange controls that have existed.

Price stability and the return of investor confidence in 1996 have created a climate favorable to capital flows into Argentina. In addition, foreign investors are not required to register in Argentina, and the government does not report foreign investment data systematically. According to United Nations data, $3.9 billion in foreign direct investment was made in Argentina in 1995--more than three times that in 1994. U.S. direct investment in Argentina is concentrated in telecommunications, banking, electric energy generation, gas and petroleum production, food processing and motor vehicle manufacturing.

The U.S. and Argentina have an Overseas Private Investment Corporation agreement and an active EXIMBANK program. Argentina is one of the largest portfolios for both agencies.

The government is moving forward in the privatization of the National Airport System made up by 60 airports. U.S. consulting firms prepared the pre-feasibility study with World Bank financing. The regulatory framework has been approved by the Senate. Once the financial consultant is selected, the bid should be announced in 180 days, or first quarter of 1997.

Under the U.S.-Argentina bilateral investment treaty, U.S. investors enjoy national treatment in all sectors except shipbuilding, fishing, insurance, nuclear power generation, and uranium production. The treaty allows for international arbitration of investment disputes. Foreign investors need not obtain permission to invest, and may wholly own a local company. Investment in shares on the local stock exchange requires no government approval. Argentina has no restrictions on movements of capital or repatriation of funds. Customs procedures, however, are expensive and time consuming.

Corruption is getting increasing attention in the media as an issue in Argentina. The government affirms that corruption cases decreased dramatically following privatization of most state enterprises between 1989 and 1996. Private-sector corrupt practices are still unacceptably common in Argentina. A recent survey by Transparency International, and studies by other business and academic groups, have contributed to more open debate of corruption and fraud in Argentina. Argentina has regulations against bribery of government officials,but enforcenment is uneven. U.S. business has identified public and private-sector corruption in Argentina as obstacles to trade and investment. Procurement, regulatory systems, and health care administration are problem areas.

Argentina has regulations against bribery of government officials, but enforcement is uneven. U.S. business has identified public and private-sector corruption in Argentina as obstacles to trade and investment. Procurement, regulatory systems, and health care administration are problem areas.

FORECAST THROUGH 1997

President Menem's reelection in 1995 renewed his mandate to continue economic reform through 1999 and to retain monetary convertibility with the Argentine peso at par value with the U.S. dollar. Given the success of convertibility in providing stability and predictability for growth, the large share of dollar-denominated deposits and the country's impressive export growth, a devaluation of the Argentine peso is quite unlikely.

Legislation to be considered in 1996 to deregulate Argentina's labor union-managed health care system to permit employees free choice of health care plans could provide attractive new investment opportunities. Full deregulation of the telecommunications sector, which could happen as early as November 1997, would also broaden opportunities for U.S. firms.

Economic growth in Argentina--projected to be about 2 percent in 1996--will be driven by lower interest rates, continued low inflation, growth in productivity and the return of foreign capital. Argentina will likely register a second consecutive annual trade surplus in 1996--perhaps larger than the $1 billion trade surplus of 1995. Chile's association with MERCOSUR will generate new opportunities for Argentine exporters. Many Argentine agribusinesses are well positioned to benefit from improvements in productivity and world prices. On balance, Argentina is still one of the brightest stars among the big emerging markets.

OPENNESS TO FOREIGN INVESTMENT Foreign direct investment is an essential element of Argentina's economic growth. Argentina's climate for foreign investment is among the most favorable in Latin America. The administration of President Carlos Menem has encouraged foreign investment through national treatment under a free foreign exchange and capital movement regime without wage or price controls. Foreign investors, including many U.S. corporations, operate in major economic sectors.

Decree 1853, of September 8, 1993, governs foreign investment in Argentina. Foreign companies may invest in Argentina without registration or prior government approval on the same terms as investors domiciled in Argentina. A U.S.-Argentina agreement for reciprocal promotion and protection of investments entered into force in October 1994.

Investors are free to enter Argentina via the most convenient vehicle: merger, acquisition, greenfield investment or joint venture. Foreign firm