By Nicolás Misculin and Jorge Otaola


BUENOS AIRES (Reuters) - Argentina is making strides in opening up its economy to foreign investment after years of hostility to free enterprise but still has a way to go to catch up to some of its market friendlier neighbors, investors say.


Foreign investment is crucial to President Mauricio Macri's efforts to remake Argentina's economy along less statist and more entrepreneurial lines and rekindle growth, especially as many domestic companies have hesitated to deploy their cash despite expressions of support for his agenda.


Macri told a Reuters Summit event on Argentina this week that progress is being made, pointing to multinationals that he said were kicking off capital spending plans after economic uncertainty during the presidency of Cristina Fernandez.


"Those who export value-added services have begun to recruit thousands of young people," he said in an interview at the Casa Rosada presidential palace, citing the local units of German companies like Siemens <SIEGn.DE> and SAP <SAPG.DE>. "They recognize the enormous talent that exists in Argentina."


There is no question that Macri's moves to cut a deal with holdout bondholders from the country's 2002 default, ditch capital controls, let the peso float and even depoliticize the government's infamously unreliable economic statistics agency, have won applause from many investors and attracted a tide of short-term foreign inflows.

"The government is being very friendly (with foreign investors)," said Eduardo Costantini, chief executive of developer Consultatio <CON.BA> told the Reuters Summit, pointing to an embrace of capital markets and a visit by the International Monetary Fund in July.

He credited the Macri regime with "a shift toward opening various sectors, including energy where they're putting an emphasis on private investment and also public works projects, where they they're fostering foreign companies' inclusion."

In one victory for Macri, BP <BP.L> unit Pan American Energy LLC last month said it planned to invest $1.4 billion in exploring and producing Argentina's conventional and unconventional energy reserves.

The American Chamber of Commerce in Argentina also said earlier this year that U.S. firms would invest $2.3 billion in the country over the next 18 months, including more than $100 million each from General Motors Co <GM.N>, AES Corp <AES.N> and Ford Motor Co <F.N>.

Nevertheless, years of anti-market rhetoric and policies have left a wide gap between Argentina's capital markets and those of neighbors like Brazil, itself known as a bastion of state-controlled companies and banks that sometimes crowd out free enterprise.

Argentina's benchmark Merval index <.MERV> comprises only 15 stocks, lagging the wider composition of indexes in smaller Peru and Colombia, which have 32 and 25 companies on their key indexes, respectively.

Helping more Argentine companies go public will be a key goal of Ernesto Allaria, head of Argentina's Merval stock market, as the Merval merges with the smaller Bolsa de Comercio to form the new ByMA.

"That's where we're focusing our energies - in satisfying demand for IPOs to fund new economic projects," Allaria said in an email exchange with Reuters.

He noted that while Argentina's gross domestic product is roughly a quarter of Brazil's, the notional value of stocks traded daily is just $20 million, a one-hundredth of its giant northern neighbor's $2 billion per day.

Finance Minister Alfonso Prat-Gay told the Reuters Summit on Wednesday that the government plans to send a bill to Congress in the coming weeks to modify capital markets.

He declined to give details of the reform. But press reports have said it could facilitate foreign investment and reduce the scope for state interference in private companies in which the government acquired minority stakes through a state pension reform carried out almost a decade ago.

Eduardo Eurnekian, one of Argentina's wealthiest men and a big investor in energy and infrastructure, said in an interview that when he floats a controlling stake in his Aeropuertos Argentina 2000 airports operator, he will do so in New York, not local markets "because I think that will bring great advantages and capital support."

He added that while foreign investors were taking a fresh look at Argentina, many were also eager to see further progress on competitiveness and other economic shortcomings from high taxes and interest rates to weak links in infrastructure.

"Foreign investors are aware of these weaknesses," he said. "They know that it's interesting and positive to bet on Argentina as long as decisions are made that tackle those economic obstacles that make it uncompetitive."

(Corrects title of Ernesto Allaria in paragraph 12.)

(Reporting by Buenos Aires bureau; Writing by Christian Plumb; Editing by Kieran Murray and Tom Brown)