BUENOS AIRES (Reuters) - Mutual funds, whose assets comprise the largest share of investment vehicles in Argentina, will expand “explosively” once regulatory changes are put in place by the pro-business government of President Mauricio Macri, an industry leader said on Friday.

Free markets champion Macri has promised to update laws that heavily restricted mutual fund activities and take other measures to open and restart the stagnant economy. Financial markets were stifled under the previous center-left government.

Valentin Galardi, president of the Association of Argentine Mutual Investment Funds, said in an interview that fund assets of $16 billion represent the equivalent of 2 percent of the country’s gross domestic product, compared with as much as 20 percent for other Latin American countries.

“Right now we have an industry with certain restrictions,” Galardi said. “But the world changed and Argentina is seeing it happening and that’s what the current government is taking notice of.”

Fund managers in the country’s small capital market hope the government will modify regulations to expand their investment options and allow Argentines repatriating money from abroad to escape penalties if they buy into mutual funds.

Only 140,000 Argentines, out of a population of 41 million, invest in mutual funds. Chile has some 2 million investors, Colombia 1.5 million and Brazil 20 million, Galardi said.

“The executive branch sent a law to Congress where mutual funds are included in a fiscal amnesty ... and another that would modernize to international standards, which Argentina has not done,” Galardi said.

In April the country sold international bonds, worth $16.5 billion, for the first time since its record 2002 default, marking a rare bright spot in gloomy emerging markets.

Most proceeds of the sale are set to go to settling the country’s messy legal dispute with investors over unpaid debt stemming from the $100 billion default that plunged millions of Argentines into poverty.

“We are at the precursor of an explosive development in the industry. In the short term it would be risky to predict growth, but the numbers may be surprising given measures that could unblock current regulations,” said Galardi.

“We have as a short-term goal that the design for an appropriate law gets finished, so mutual funds have the space they need to grow in Argentina, including the appearance of new assets to invest in,” Galardi said. “We are very optimistic.”