Lately the economic news out of Argentina has been gloomy: flat growth plus high inflation， against a backdrop of foreign exchange and trade restrictions and a tough international environment， according to Financial Times.

And yet foreign direct investment in the first half rose 33 percent year-on-year， according to the central bank. How come?

The answer is mining. Investment in the mining sector， which has been less affected by government restrictions than others， fuelled the rise in FDI in the second quarter， rising to $478m from $184m in the second quarter of 2011.

Overall， mining in the second quarter 2012 represented 43 per cent of the total. And the good news is that mining investment this year is forecast to grow 62 per cent to a new record.

Strip out mining and FDI overall in the second quarter actually fell 6.5 per cent. But still， investment in the quarter was near record highs – the bank reported foreign direct investment at $1.129bn， near the $1.25bn achieved in the fourth quarter last year and the $1.22bn reached in the first quarter of 2008.

Against that backdrop， Barrick Gold’s second-quarter results statement makes worrying reading. Referring to the Pascua-Lama project that straddles Argentina and Chile， it said， “Due to lower-than-expected productivity and persistent inflationary and other cost pressures， as previously disclosed， the company initiated a detailed review of the cost and schedule estimates for Pascua-Lama in the second quarter. Preliminary results currently indicate an approximate 50-60 per cent increase in capital costs from the top end of the previously announced estimate of $4.7-$5.0bn， with first production expected in mid-2014. The company will provide a further progress update with third-quarter results.”

That does not augur well if mining is the mainstay of foreign direct investment.

But in fact， the central bank’s report only tells part of the picture of foreign direct investment， notes Alejo Espora， an economist at Banco Ciudad.

He says that in this calculation， the central bank only counts dollars brought into the country and changed in the official currency market. Investment made by a foreign company based in Argentina， but in pesos， would not be included. That might explain some of the discrepancy between the bank’s figures and those from the UN’s Economic Commission for Latin America and the Caribbean.

Argentina strenuously defends its FDI record， though the ECLAC data reveal just how much Argentina is lagging smaller countries in the region (Colombia’s FDI growth in 2011 was a whopping 92 per cent and Chile’s 15 per cent， according to ECLAC data).

But when Argentina tallies FDI in its balance of payments， which are reported on an accrued basis， it will be able to compute remittances and dividends， that companies are no longer able to make due to government restrictions， as “investment”.

“Today， companies find it virtually impossible to remit profits， so what used to appear as remittances is now ‘reinvested’ domestically because it doesn’t leave the country，”said Eduardo Levy Yeyati， director of local consultancy Elypsis.

So BoP data “will most likely record an increase in FDI due to the forced reinvestment of dividends by foreign companies”， he noted.

And the clampdown on dollars flowing out of Argentina is a black cloud over new investment. “As things stand， corporate executives can’t convince their headquarters to invest fresh money because they can’t get it out.” Levi Yeyati said. “There’s no sign that the government will free up the currency restrictions and extreme limitations on the remittances of profits， so investors are potentially looking at three years without being able to remit profits.”

Boris Segura at Nomura noted that increasing talk of mounting support within the government bloc in favour of constitutional change in Argentina to allow the “re-reelection” of Cristina Fernández， the president is further likely to dampen investor sentiment. She was elected for a second term last October and is constitutionally barred from standing again.

“If Cristina Fernandez can get reelected， I see no light at the end of the tunnel for foreign investors – they will think， ‘Why should I risk investing?’，” he said.