Economy and Trade
In the four years prior to 2008, the Argentinean economy enjoyed strong growth. However, 2008 saw the economy falter, although the country still managed a fiscal surplus of more than 3%. The country has rich resources and a highly literate population. It is famous for its agricultural exports and enjoys a diversified industrial base. The twenty-first 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 last 12 months can be characterized as being dominated, above all, by an increasingly desperate search by the government for funds to meet its external debt payments. This search has 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. In January 2009 Kirchner had a public approval rating of just 20%, one of the lowest ever for a serving president. The stock exchange in Buenos Aires fell to a five-year low as a reaction to the move. 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. The country has some US$12 billion of bonds maturing in 2009, which many thought would be impossible for it to meet. However, the country has made strenuous efforts to reassure creditors that it is willing and able to repay its debts and in its 2009 Budget announced a fiscal surplus equal to 3.3% of GDP, following a surplus of 3.15% during the previous year. The government also announced that it would be using foreign currency reserves to repay US$6.7 billion of debt to the Paris Club of lending nations, putting relations with the Paris Club on a much better footing.
The 2009 budget assumes an inflation rate of 8%, around a third of what most commentators believe the real figure to be. The country desperately needs some macroeconomic stability. One Argentinean entrepreneur famously summed up the situation over the last five years as consisting of “at least five or six different economic plans, with completely different politics, a closed economy, an open economy, privatization, non-privatization, a fixed dollar, a floating dollar, a controlled dollar, an uncontrolled dollar, brutal devaluations, increases in tariffs and frozen tariffs. You go mad or it turns you into a survivor.”
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 pubic works, but is struggling to fund projects, since external credit is not an option.
Economic Performance over 12 Months
At the end of 2008 and in early 2009 the country was in the grip of one of the worst droughts in its history, turning large swathes of arable land into dust bowls. The drought is damaging the country’s livestock industry, one of its prime export commodities, as well as food crops, and is adding considerably to the damage caused by the international financial crisis and plummeting commodity prices.
One of the government’s plans for funding the stimulus package involves tackling the notorious underreporting of foreign-held capital by Argentinean nationals involved in exports. The unreported capital held abroad is said to amount to in excess of US$120 billion, with a further US$50 billion of unreported capital within the country. If President Kirchner is successful in this bid, the government will generate a substantial tax windfall in 2009. However, repatriated funds will only be charged tax of 8%, and could be charged as little as 1% if the funds are reinvested locally.
Argentina is in the throes of implementing its own “New Deal” program, which began on 15 December 2008 and is estimated to be worth US$21 billion. The aim is to stimulate growth of up to 4% in 2009. According to government estimates, the program will double the number of public sector jobs to 770,000 in 2009.
The program is also designed to be a stimulus to businesses across the country as it pardons “off the books” labor practices, provided workers are registered and paid properly, generating more taxes for the government. There is a 50% tax holiday for employers who take advantage of the scheme in 2009 and a 25% holiday in 2010. The construction sector has been one of the biggest offenders with “off the books” labor, and was also one of the mainstays of Argentina’s outstanding economic performance from 2003 to 2007. It is set to benefit from both the New Deal and the amnesty program, which should stimulate growth again during 2009. The expectation is that growth will surge again in 2011 and 2012, provided the government’s highly interventionist economic policy does not go off the rails.
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-American-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 Argentine 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 Economic Ministry for specific advice.
Tax Exemptions
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.
Statistics
GDP growth: 6.6% (2008)
GDP per capita: US$14,500
CPI: 22% (est., not the official rate which lacks credibility)
Key interest rate: N/A
Exchange rate versus dollar: pesos per US dollar—3.1636
Unemployment: 7.8%
FDI: US$69.1 billion
Current account deficit/surplus: US$4.8 billion (first 9 months of 2007, source: Reuters)
Population: 40.482 million
Source: CIA World Factbook except where stated
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