That means that if you live in Argentina right now, by this time next year everything will be 25% more expensive. Residents are clearly feeling the pain.
Now imagine you were a business owner trying to make a living in that environment. How would you deal with rapidly rising costs eating away at your profits?
That’s the position that mining companies in Argentina have found themselves in. The country’s rapidly deteriorating economy has spooked miners to reassess their investment plans in the Andean country.
Although the lure of massive gold, copper and other resource deposits is strong, companies are increasingly finding it hard to do business in an unstable environment – where their assets are constantly under threat.
Want to protect your savings by trading soon-to-be-worthless Argentine pesos for US dollars?
You can’t. President Cristina Fernandez has tightened currency restrictions that have made it virtually impossible for ordinary Argentines to obtain dollars through the official channels.
By the way, there’s also a ban on buying US dollars for savings
Do you take exception to these bad government policies and want to pull your capital out?
Too bad. The President recently moved to stem capital outflows and has forced the repatriation of export revenues for mining companies.
Not investing enough money into the country?
The President will simply seize control of your company. Just ask the people of Spain’s Repsol YPF.
She seized a controlling interest in the oil company back in April 2012, saying it was a “vital resource” for Argentina. YPF was not the first big firm to be nationalized by President Cristina Fernandez and people fear that it won’t be the last.
As you can imagine, this has caused a considerable amount of anxiety throughout the mining industry.
Mid-tier gold and silver producer McEwen Mining Inc. recently warned investors that the new policies to control capital flight could end up threatening its cash flow.
They’ve now been forced it to re-think how to fund their ambitious growth plans, including the development of the El Gallo project in Mexico.
Pan American Silver, now says it will now stagger investments in Argentina until the investment climate clears as well.
What was once a promising prospect for mining companies around the world, Argentina has now transformed into a difficult and confusing mess.
As such, I would caution potential investors to stay clear until the smoke settles.
This country may be rich in natural resources like gold, silver, oil and gas, but it’s poor in leadership.
And that’s enough to scare anyone away.
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