In the business community, one of the most anxiously-awaited segments of Milei’s Bases Law is the Large Investment Incentive Regime (RIGI, by its Spanish initials), which offers major investors a flurry of tax breaks, currency exchange perks, and other sweeteners. 

Advocates say it will provide the much-needed long-term legal guarantees necessary to attract multi-million-dollar investment that will ease the country’s international reserve crisis and economic dire straits. But its detractors argue that the legislation, in its anxiety to attract international investment, doesn’t do enough to help Argentina build reserves or develop local industry. 

The RIGI offers tax, customs, legal, and foreign exchange benefits for investments exceeding US$200 million. It is open to Argentine and international companies alike, but they have to invest in foreign currency. The deadline for signing up will be two years after the scheme enters into force.

While the bill initially said these investments could be in any economic sector, the version that passed in the small hours of Friday morning limited the scope to forestry, tourism, infrastructure, mining, technology, steel, energy, and the oil and gas industries. This change was seen as a concession to Argentina’s powerful agribusiness sector.

Corporate tax breaks

Investors with projects in the RIGI will pay 25% corporate income tax, instead of the current 35%, for thirty years. They will also be exempt from any new taxes created over the next 30 years. 

Projects in the regime will also benefit from special rules on foreign-currency export income. During their first two years, they will be required to liquidate just 80% of their dollar income in the official exchange market, in a setup similar to the current rules for agri-exporters. That proportion will fall to 60% after three years, and zero after four years. In other words, after four years, these projects will not bring any new U.S. dollars into the official exchange market.

Under the RIGI, projects will be exempt from import duty on capital assets, machinery, and spare parts, and exempt from paying export duties for three years.

The RIGI also contains provisions for disputes between Argentina and the companies in the scheme to be resolved in international courts. If a legal dispute cannot be settled within 60 days, companies can skip national courts and go straight to the International Centre for Settlement of Investment Disputes (ICSID), a World Bank institution for legal dispute resolution and conciliation between international investors and states.

Members of Javier Milei’s administration have advocated hard for the scheme. In May, presidential spokesman Manuel Adorni said it was essential to clinch key investment after a decade of flat exports for Argentina. Last week, Argentine energy company TGS presented a project before the Economy Minister, seeking to invest US$700 billion in the expansion of a pipeline that connects Vaca Muerta with Buenos Aires. If it materializes, it will be the first investment under the RIGI.

‘Extremely generous’

However, skeptics argue that in its haste to get the cash flowing, the government is giving too much away to companies, sacrificing Argentina’s share of the benefits — and its domestic development — in the process.

“The government’s motivation is probably that, in a context in which real wages are falling, it is seeking foreign investment to replace consumption as a driver of activity,” Carlos Freytes, director of natural resources at public policy think tank Fundar, told the Herald. The design, he argued, front-loads the economic payoff for Argentina, but then “provides extremely generous benefits for a very long period.” Some copper and lithium projects are waiting for the RIGI to be enforced before they get started, he added.

While tax breaks and free access to foreign currency can be useful tools to attract foreign investment, those included in the RIGI are “totally excessive and unnecessary,” argued Matías Kulfas, an economist and former production minister under Alberto Fernández.

Its biggest flaw, he argued, was that it fails to encompass the development of domestic supply and value chains. “All the literature and good international experiences show that, in countries that have natural resources, the best way to take advantage of them is to develop the entire chain — machinery, engineering, associated services, and more,” Kulfas explained. These, he argued, are missing from the RIGI.

“There is no incentive or request to investors to develop suppliers in the country,” he added. “The opposite is true — they are allowed to import capital goods, machinery, and spare parts free of tariffs, leaving them in unequal conditions compared to domestic industrial companies.”

Freytes added that governments developing investment incentives are recommended to collect “a significant part of the income generated by these activities such that they can use it for other development objectives,” adding that the new scheme goes in “exactly the opposite direction.”

The International Monetary Fund also chimed in, stating in its latest staff report on Argentina that the incentives “could be better targeted.” The RIGI has been compared to similar schemes enforced during Cristina Fernandez de Kirchner’s administration, but those were project or company-specific and not as generous.

Paradoxically, the scheme’s generosity could end up undermining it, according to Freytes. While the scheme is designed to last for 30 years, changes of government or a cycle of high commodity prices could prompt future policy-makers to scrutinize and pare back the comfortable conditions currently on offer, he said. This would likely descend into a high-level legal wrangle. “It is a regime that in its design includes a potential litigation against the Argentine state,” he said.

In January, then-chief of Staff Nicolás Posse met with representatives of the Malaysian gas and oil company Petronas, which reportedly asked for the approval of the LNG bill that had been partially passed. The bill included the free availability of 50% of the foreign currency resulting from its exports, but the RIGI proposes 100%. 

Kulfas believes the government did not need to offer such generous benefits to entice investors. “But, obviously, if you give them to them, they will take them gladly.”