Economy and Trade
In the five years to 2009, the Argentinean economy enjoyed strong growth. However, in 2009 the economy faltered, expanding by just 0.9%. The country has rich resources and a highly literate population. It is famous for its agricultural exports and enjoys a diversified industrial base. The 21st century did not begin well for the country, with a severe depression and a run on the banks in 2001 culminating in savers not being allowed to withdraw their own money, while the government was forced to default on its foreign debt. However, abandoning the country’s policy of pegging the peso to the US dollar on a one-to-one basis was the start of a climb-back by the economy. Real GDP was 18% lower in 2002 than in 1998 and more than half the country was rated as below the poverty line. The next five years saw the economy picking up sustained momentum with growth averaging 9% per annum. Mounting inflation gave cause for concern, and the government responded by manufacturing more “reasonable” inflation figures, damaging its own credibility hugely in the process.
Economic Policy over 12 Months
Argentina’s economic policy over the past two years has been dominated by the government’s need for funds to meet its external debt payments. This search included Argentina’s president, Cristina Fernandez de Kirchner, taking the extraordinary step of nationalizing the country’s private pensions industry, which netted the government some US$29 billion, and provoked outrage among the populace. Argentina has been frozen out of all lines of international credit since it initiated the largest sovereign default in history, defaulting on US$95 billion of debt and interest payments in 2001.
Court rulings in March 2010 cleared the way for controversial government plans to use central bank reserves for servicing the country’s debt. The rulings overturned opposition efforts to stop President Fernandez from using US$6.6 billion. Argentina has US$15 billion of international debt that matures this year, and a hole in its budget of between US$2 billion and US$7 billion. In January 2010, central bank chief Martin Redrado resigned after a public argument with the president on the issue.
Some economists fear that the plan could help to stoke Argentina’s high inflation rate, which they say has been understated in the government’s widely mistrusted official figures and could reach 20% in real terms in 2010. Fernandez removed the independence of the national statistics office in 2007. A jump in inflation in February 2010 to 2.9%, according to private estimates, prompted the government to try to restrict meat exports, a move that further antagonized relations between the government and the powerful agribusiness industry.
The government, which is pursuing an expansionary fiscal policy, expects the economy to grow by 2.5% in 2010, according to its budget. That compares to official forecasts for 6% growth in Brazil, Latin America’s largest economy, and 3.9% in Mexico, the region’s second largest economy.
The credibility of the central bank has been significantly undermined in 2010 following the resignation of Martin Redrado. The bank’s failure to control inflation in recent years had already led many to question its authority.
Fortunately for Argentina, its entrepreneurial sector continues to demonstrate a great ability to innovate and succeed. Google made Buenos Aires its Latin American headquarters precisely because of the strength and innovation of Argentina’s software industry. The country is attempting a fiscal stimulus through a massive program of public works, but is struggling to fund projects, since external credit is not an option.
Economic Performance over 12 Months
The global economic slowdown has affected Argentina more than many other emerging economies. This is partly because of Argentina’s vulnerability due to its inability to access lines of international credit, as well as its dependence on the export of food commodities, the prices of which fell during the global downturn. Nonetheless, the country’s overall economic performance in 2009 remained reasonable. The budget surplus fell to an estimated 1% of GDP from 3.2% in the previous year, but this figure compared favorably with the large budget shortfalls seen in many advanced economies. Furthermore the current account remained in surplus at an estimated 1.5% of GDP, down from 2.5% in 2008. Meanwhile unemployment rose to 10% from 7.9% in 2008.
In 2010, there were signs that the economy was picking up more strongly than might have been expected. Industrial output grew by 11.5% in February, driven by car and steel plants meeting demand from neighboring Brazil, which is recovering faster than anticipated from the global crisis. Argentine GDP expanded by 2.6% in the last three months of 2009 versus growth of 4.1% in the same 2008 period, according to official figures. Meanwhile, the current account surplus widened to US$1.58 billion in the fourth quarter of 2009 from US$1.24 billion in the same period a year earlier, and the full-year current account surplus rose to US$11.29 billion last year from US$7.09 billion in 2008.
However, the inflation figures in 2009 did provide grounds for concern. Despite the sharp economic slowdown, inflation reached an official rate of 7.7% in 2009 and private forecasts put it at twice that level. As the economy rebounds, consumer spending is picking up again and many analysts warn that inflation will surge in 2010 to at least 20%. Public spending is not expected to slow ahead of the 2011 presidential vote, stoking inflation, while the use of central bank reserves would increase the money supply and could therefore fuel inflation further.
Argentina, Brazil, Paraguay, and Uruguay are all members of the Southern Common Market (MERCOSUR). Chile and Bolivia are partners. MERCOSUR represents a potential market of 200 million people and has a combined GDP in excess of US$1 trillion. Another trade grouping is the Latin American Integration Association (LAIA), which aspires to set up a Latin America-wide common market. Argentina is also a member of the Cairns Group, which includes Australia, a group of national agricultural exporters that do not subsidize their agricultural sectors.
Support for Inward Investment and Imports
Camara Argentina de Comercio is the Argentinean Department of Commerce, responsible for providing consulting services to Argentinean businesses interested in importing or exporting, and is also a good place for prospective importers to begin. The Bureau of Customs has responsibility for the enforcement of tariff and customs laws and regulations. There are a host of import regulations, which the importer needs to get to grips with, including anti-dumping provisions. According to a study by the US embassy in Argentina, the country’s import tariffs range from 0% to 35%, with an average applied tariff rate in 2007 of 14%, while the MERCOSUR tariff averages around 13.6%. There are complexities in exporting to Argentina associated with the government’s desire to clamp down on under-invoicing and fraudulent underpayment of customs duties. Contact the Argentinean Ministry of Economics and Public Finance (Ministerio de Economía y Finanzas Públicas, www.mecon.gob.ar, in Spanish) for specific advice.
There are no tax haven-type tax exemptions available. Certain civil associations and foundations can apply for tax-exempt status, but these are not-for-profit organizations, and tax-exempt status is not automatic.
GDP growth: −2.5% (2009 est.)
GDP per capita: US$13,800 (2009 est.)
CPI: 7.7% (2009)
Key interest rate: n/a
Exchange rate versus US dollar: AR$3.7639 (2009)*
Unemployment: 9.6% (2009 est.)
FDI: US$29.55 billion (December 31, 2009 est.)
Current account deficit/surplus: US$14.43 billion (2009 est.)
Population: 41,343,201 (July 2010 est.)
Source: CIA World Factbook except where stated