Comprehensive Country Evaluation on Argentina 2006

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Following independence from Spain in 1816, Argentina experienced periods of political conflict between conservatives and liberals. Democracy returned in 1983 and has persisted despite numerous challenges ("CIA - The World Factbook"). The country over the past years has suffered from inflation, external debt, capital fight, and budget deficits; however, by mid-year 2002 the economy has stabilized and has been expanding thanks to revival in domestic demand, solid exports, and favorable external conditions ("CIA - The World Factbook").

The most formidable economic crises happened in 2001-2002 in which real GDP fell by 10.9 percent in 2002. After stabilization, GPD expanded by about 8 percent per ear year from 2003 to 2005 ("CIA - The World Factbook"). The economic stabilization is due to the benefits from rich natural resources, a highly literate population, an export-oriented agricultural sector, and a diversified industrial base ("TradePort"). In 2005, exports totaled $40 billion dollars, a 150 percent increase when compared to 2000 (Factbook, TradePort). Out of all exports, 15 percent goes to Brazil: Other top exporting partners include Chile (10%), US (10%), China (9%), and Spain (5%). Among the country's top exports were edible oils, fuels and energy, cereals, feed, and motor vehicles ("TradePort"). Export taxes average 5.3 percent, and exporters may claim reimbursement for some domestically paid taxes. The average reimbursement for exporters is 4.2 percent ("ARGENTINA").

Argentineans imports reported for 2005 were $28.8 billions ("CIA - The World Factbook"). The top imports consisted of machinery and equipment, motor vehicles, chemicals, metal manufactures, and plastics ("TradePort"). Argentina's top importing partners includes Brazil (36%), US (17%), Germany (6%), and China (4%). This large amount of imports and exports led to total trade reported in 2005 of $537.2 billion ("CIA - The World Factbook"). A statistical fee of 0.5 percent is added to most import. Argentina implemented a non-automatic import license requirement during 2004, which affects imports of textiles, refrigerators, and washing machines. However, import licenses are not required for textiles produced by companies in Brazil and Argentina ("ARGENTINA").

The trade regime of Argentina is characterized by the interaction of several instruments: tariffs, quantitative restrictions, and several special regimes. The government imposes several tariffs favoring certain industries over others. During 1997, the average nominal tariff rate was 15 percent, higher for Manufacturing and lower for Agriculture and Mining. About manufacturing, the activities for higher than average were: Food, Textiles, Wood, Fabricated Metal products and Machinery. The rate structure according to the types of goods show higher nominal rates for Consumer goods, followed by Capital and Intermediate products. Most non-tariff barriers were eliminated by 2000. However, the government has been known to erect trade barriers in time of economic crisis and to protect domestic industries. Regarding automobiles, since 1994, import quotas were set at 10%/15% of national production according to the type of vehicle (Berlinski). Effective protection to sales in the domestic market remained high, inhibiting exports and increasing the resistance of domestic users to further import-substituting industrialization (ISI.) The government desire to make domestic industry more competitive and modern is reflected in low tariffs for capital goods. However, there have been complaints that non-tariff barriers to imports, such as time-consuming certification and registration procedures, especially for electrical goods and automobiles, represent an obstacle to access of the domestic market (Berlinski).

One crucial concern when undertaking international business and trade is the exchange rate of the country in which one wishes to invest. Argentina's currency is the argentine peso. Between 1991 and 2002, the peso was pegged to the dollar. Under this system, interest rates and the money supply adjusted automatically to change in economic condition. The local money supply is limited to the level of foreign exchange reserves (Berlinski). Growth in 2000 was a negative due to skepticism raised from domestic and foreign investors about the governments' ability to pay debts and maintain the peso's fixed exchange rate with the US dollar. In 2001 the economic condition worsened and in January 2002 the peso's peg to the dollar was abandoned. The exchange rate plunged, but by mid-year the economy had stabilized ("CIA - The World Factbook"). However, dollarization remains desirable because the prospects are poor for making the peso into a stable currency that people will want to use without coercion. People trust the dollar; they do not trust the peso (Hanke).

It may no longer be possible to return to an exchange rate of 1 peso per dollar, but the government could certainly do what Ecuador did when it dollarized in 2000: establish a uniform exchange rate for converting local currency into dollars and apply it to all assets and liabilities denominated in local currency (Hanke). Either way, the government should focus on regaining peoples trust on whichever currency they decide to use.

Another key factor for the economic growth of Argentina is foreign direct investment (FDI), concentrated largely in the finance, manufacturing, and baking sectors. Foreign companies may invest in Argentina without registration or prior government approval, and on the same terms as investors domiciled in Argentina. Investors are free to enter Argentina through merger, acquisition, Greenfield investment, or joint venture. In June 2003, Argentina enacted legislation limiting foreign ownership of "cultural goods," which included media and Internet companies, to 30 percent. Foreign and Argentine firms face the same tax liabilities. In general, taxes are assessed on consumption, imports and exports, assets, financial transaction, and property and payroll. National taxation rules do not discriminate against foreigner or foreign firms. ("2005 Investment Climate Statement")

The Argentine privatization that began in 1992 was the most recent of a series of privattization. As early as the later 1950's and early 1960's, Argentina privatized some nationalized industries. Since privatization began in 1992, the growth rate of electricity production has doubled and created a stabler and stronger infrastructure, which demonstrates the exten of its effectiveness (Davis). Privatization is responsible for more recent foreign ventures. In addition to encouraging foreign direct investment, privatization also may be responsible for a more outward-looking Argentine oil industry ("EIA Argentina").

Argentina has recently completed several waterway transportation projects which have lowered the cost of transportation of Argentine grain in world markets. In addition to improvements in its waterways, the Argentine Government has privatized railroad operations in Argentina. This has resulted in reduced rail cost and improved services ("Infrastructure Improvements by International Competitors"). In comparison to the transportation infrastructure, the energy infrastructure needs improvements. The energy sector is fully privatized, from gas production through gas transportation, power generation, and electricity distribution; there is a cascading effect throughout the sector. In this type of policy environment, insolvent projects could go into bankruptcy, bankrupt project could be re-nationalized, and service to Argentine citizens definitely will be less efficient, more expensive and subject to disruptions ("Hearing on Argentina's Economic Crisis").

Argentine telecommunication has been experiencing a period of strong expansion since 2000. Internet usage is expected to grow exponentially in Argentina over the next years. Whereas the elevated price of phone calls had previously been an obstacle to growth in the sector, the cost of connecting is coming down as the number of service providers increases. The speed and reliability of the post have been a problem in the past, although current infrastructure projects should improve services. Many businesses prefer using courier companies (World of Information Business Intelligence Reports).

The Argentine economy suffered four years of deep recession from 1999 to 2002. GDP declined an estimated 10.9 percent in 2002, due to the combined impact of political instability, freezing of bank accounts, default, asymmetric pesification of debts, and devaluation that took place at the end of 2001 and the beginning of 2002 ("ARGENTINA MACROECONOMIC REPORT"). After stabilization, GDP expanded by about 8 percent per year from 2003 to 2005 ("CIA - The World Factbook"). Inflation increased by 44.5 percent between December 2001 and March 2003, following three years of minor deflation in 1999-2001. Prices of goods increased by 73.1 percent during that period, whereas prices of services rose by 13.6 percent; however, most of the inflation took place during the first six months following the end of the convertibility regime on January 11, 2002 ("ARGENTINA MACROECONOMIC REPORT").

Peso deposit interest rates rose sharply and varied widely from bank to bank following a government-imposed freeze on bank demand deposits in December 2001 and the end of the convertibility regime in January 2002. The rise also reflected the effort by banks to keep money in the banking sector following pesification in February and the gradual loosening of the "corralito," which was lifted entirely in early December 2002 ("ARGENTINA MACROECONOMIC REPORT"). In 2001, Finance Minister put pressure on Argentina's banks to cut loan interest rates in order to take full advantage of positive sentiment towards the country's economic outlook. Although banking sector representatives replied that only market forces can dictate interest rate levels, interest rates fell sharply at the start of 2001. Interbank interest rates for example, which peaked at 21 per cent in November 2000, fell to 7 percent by January 2001 (World of Information Business Intelligence Reports).

Labor markets are yet another factor that influences economic structure and performance. The labor force in Argentina consists of 15.34 million. Even though a large percentage of the population is employed the unemployment rate was still at 11.1 percent in 2005; this causes 38.5 percent of the population to be below the poverty line. Although a large percentage of people are below the poverty line, the literacy rate of the total population is 97.1 percent which makes them available for employment ("CIA - The World Factbook"). Education is compulsory and free from the age of six to 14. Approximately 113 percent of the relevant age group attends primary school. Argentina has one of the highest literacy rates in Latin America, with only 3 percent of males and females above the age of 15 classes as illiterate in 1999 ("ARGENTINA MACROECONOMIC REPORT").

Environmental problems in Argentina are typical of an industrializing economy such as deforestation, soil degradation, desertification, air pollution, and water pollution. However, Argentina is a world leader in setting voluntary greenhouse gas targets ("CIA - The World Factbook"). The government has struggled to curb the level of automobile emissions through stronger regulations on automobile exhaust system, planning for public transportation, and the promotion of clean-vehicle technoly. Today, Argentina is one of South America's largest polluters. Finding an appropiate balance between economic growth and environmental protection will represent a continuing challenge for Argentina in coming years ("Argentina: Environmental Issues").

Cultural complications are a problem in Argentina with all the tourism and different heritiges. The official language is Spanish; however, English, Italian, German, and French are also spoken ("CIA - The World Factbook"). English is generally spoken in business circles. There are 17 native Indian languages, the msot wideley spoken of which is Quechue. Religion is an important issue for Argentina. A vast majority are Roman Catholic, followed by 2 percent Protestan, 2 percent Jewish, and 4 percent in other religions (World of Information Business Intelligence Reports).

Argentina's government power is separated into executive, legislative, and judicial branches at federal and state level. Political stability is not at its best since the resignation of Vice President Carlos Alvarez in 2002 in protest against the presidents apparent unwillingness to tackle corruption signified a serious crediblity blow to the administration. The fragility of the government coalition has also been highlighted by the president of central blank, who is accused of having turned a blind eye to money laundering activities in Argentinian banks, a problem raiesd by a United States Senate report. Because of the economic crisis and instability in late 2000 social instability and inequality is still endemic in what has traditionally been one of the wealthies countries in Latin America; however, after the economy was stabalized, unemployment rate has gradually decreased with poverty rate (World of Information Business Intelligence Reports).

Argentina has experienced several economic crisis and its gradually recovering from its recent events. The future of the country depends on the governments ability to maintain the current economic recovery and to create a more attractive destination for foreigh investment. The country has overcome its instability and now all that needs to be done is convince the world that Argentina is open for business.


Berlinski, Julio. "INTERNATIONAL TRADE AND COMMERCIAL POLICIES OF ARGENTINA." 25 March 2000. Instituto and Universidad T. Di Tella. 25 March 2006.

Davis, Neal C. "A Historical Perspective for Argentine Privatization Efforts." 22 October 1997. Energy Information Administration - EIA. 25 March 2006.

Hanke, Steve H. "Testimony US House of Representatives Committee on Financial Services." 5 March 2002. House Committee on Financial Services. 25 March 2006.

"2005 Investment Climate Statement." 2005. U.S. Department of State. 25 March 2006.

"ARGENTINA." Office of the United States Trade Representative. 25 March 2006.

"ARGENTINA MACROECONOMIC REPORT." US Embassy Buenos Aires, Argentina. 25 March 2006.

"Argentina: Environmental Issues." Novermber 2002. Energy Information Administration - EIA. 3 4 2006.

"CIA - The World Factbook." 2006. Central Intelligence Agency. 25 March 2006.

"EIA Argentina." Energy Information Administration - EIA. 25 March 2006.

"Hearing on Argentina's Economic Crisis." 28 February 2002. US Senate Committee on Banking, Housing, and Urban Affairs. 25 March 2006.

"Infrastructure Improvements by International Competitors." October 1997. National Transportation Library. 25 March 2006.

"TradePort." TradePort Country Profile of Agentina from World Trade Press. 25 March 2006.

World of Information Business Intelligence Reports. Argentina Business Report, United Kingdom: Walden Publishing Ltd.