Mar 11, 2016
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For U.S. companies, Argentine reforms may be worth the pain

Mar 11, 2016

U.S. companies hit hard by a 37 percent devaluation in the Argentine peso are nonetheless gearing up to do more business there, betting short-term pain as the South American country liberalizes its economy will lead to long term gains.

The rekindled relationship between the United States and Argentina, brought on by the country's new center-right government and its willingness to end a 14-year debt battle, is underscored by a visit later this month from U.S. President Barack Obama, the first of its kind in almost two decades.

IGE Group

A Reuters analysis of corporate statements made during the last round of earnings reports found companies ranging from Ford and Pepsi to Discovery Communications grousing that the devaluation put in play by new Argentine President Mauricio Macri would cost them dearly.

But many also noted the currency moves were part of a broader package of reforms that would in the long run help them grow in Latin America's third largest economy.

Macri lifted Argentina's currency controls less than a week after taking office on Dec. 10, seeking to revive an economy hobbled by the interventionist policies of his predecessor President Cristina Fernandez.

Already weak against the dollar, the peso has since fallen from a value of 10 U.S. cents to just over 6 U.S. cents.

Typical of U.S. companies that see a silver lining to the peso's weakness is Ford Motor Co. Ford "had over $100 million of bad news" from the currency's devaluation at the end of 2015, Chief Financial Officer Bob Shanks said on an earnings call.

Yet Shanks said Macri's restructuring "is good for the longer term."

Procter & Gamble also took a currency hit. Devaluations - mostly from Argentina but also Russia and Mexico - cost P&G roughly $300 million in December and January, Chief Financial Officer Jon Moeller told analysts.

Still, the consumer goods company said it was "well positioned to participate" in growth it expected to flow from Macri's reforms.

A former civil engineer, Macri has cut taxes and trade barriers and eliminated thousands of public jobs as he faces the challenge of reducing government spending while stimulating growth.

Seed and agrochemicals company Monsanto Co cut full-year ongoing earnings per share guidance to a $4.40-$5.10 range from $5.10-$5.60, due in part to the peso's devaluation.

Though Monsanto said currency pressure could persist through this year, it saw a possible bounce back in 2017.

Besides floating the peso, Macri has reached settlements to end legal disputes over the country's 2002 debt default. The deals should allow Argentina to return to global capital markets and ease credit conditions for companies and consumers.

Focus will sharpen on Argentina's improved business environment during Obama's March 23-24 visit. The agenda includes efforts to increase cooperation in trade and investment.

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