Economy of Argentina
Currency	Argentine Peso (ARS)
Fiscal year	Calendar year
'''Trade organisations	WTO, Mercosur, Unasur
Statistics
GDP (PPP)	$599,100 million (2006) (22th [https://www.cia.gov/library/publications/the-world-factbook/rankorder/2001rank.html])
GDP growth	8.5% (2006)
GDP per capita	$15,000 (2006)
GDP by sector	agriculture (10.5%), industry (35.8%), services (53.7%) (2004)
Inflation (CPI)	9.8% (2006)
Population below poverty line	26.9% (July-December 2006)
Gini index	0,483 (2006)
Labour force	15.35 million (2006)
Labour force by occupation	N/A
Unemployment	8.7% (2006)
Main industries	food processing, motor vehicles, consumer durables, textiles, chemicals and petrochemicals, printing, metallurgy, steel
Trade
Exports	$46,000 million (2006)
Export goods	N/A
Main export partners	Brazil 15.8%, US 11.4%, Chile 11.2%, China 7.9% (2005)
Imports	$31,690 million (2006)
Import goods	N/A
Main import partners	Brazil 35.9%, US 14.1%, China7.8%, Germany 4.5% (2005)
Public finances
Public debt	$US 124,000 million (62.2% of GDP) (January 2006)
Revenues	$52,100 million (2006)
Expenses	$47,600 million (2006)
Economic aid	$0 (paid Jan 2006)
[https://www.cia.gov/library/publications/the-world-factbook/geos/ar.html#Econ Main source] All values, unless otherwise stated, are in US dollars

Argentina benefits from rich natural resources, a highly literate population, an export-oriented agricultural sector, and a diversified industrial base. Historically, however, its economic performance has been very uneven. At the beginning of the twentieth century it was one of the richest countries in the world , but it is now an upper-middle income country. Despite this, Argentina remains the most economically developed country in Latin America (measured in GDP per capita and HDI).

This article also covers those historical periods of economic development, starting in the 1870s, which best bring to light the circumstances of Argentina's current economic situation.

Historic overview

Emergence into the world economy

Prior to the mid-1800s, Argentina was seen as a backwater region of the world. Around 1870 the Argentine economy began to experience swift growth through the exportation of its livestock commodities. This marked the beginning of a significant period of economic expansion. Between 1870 and 1914, the Argentine economy sustained an average rate of growth equal to 5% a year. In fact, by 1913, the country's per capita income had reached those levels held by France and Germany.

The development of land

Since its independence, Argentina, being the eighth largest country in the world, has held an advantage in this factor of production. In the nineteenth century the rural economy was almost entirely devoted to farming and livestock raising. Over the course of history each of these two sectors experienced periods of growth and contraction in their markets, though farming at first faced much poorer returns.

As a more labor-intensive activity farming was hard pressed to find a good supply of workers prior to 1870. Since livestock raising is particularly capital-intensive, it fared well vis-à-vis the farming sector in the event of labor shortages and quickly spread across the country. Moreover, during periods of falling prices for their products ranchers were able to maintain positive returns, proving their resilience in a volatile market, adding to the success of livestock raising in Argentina in the first half of the 19th century.

After the 1860s the arable sector boomed and tracts of lands once devoted to livestock raising were replaced with cereal crops. Much of this was made possible through an ease in the supply of labor

The development of the labor market

Immigration was central to Argentina's development. Prior to the 1860s, there was relatively little migration into the country; the population in 1869 was little more than 1.7 million and, due to the sparse population, vast tracts of land remained unutilized. Labour shortages became widespread, resulting in the growth of real wages and, consequently, an increasing gap between the wage rates of Argentina and Europe. This facilitated the mass immigration that was sustained every year until World War I (except in 1890, when the Argentine economy collapsed). While half the immigrants chose to stay in the city of Buenos Aires, their addition to the country's labour market as a whole helped alleviate the labor shortage. Subsequent internal migrations by both natives and foreigners helped to secure an efficient labor market.

This mending of the labor problem facilitated economic development. While real wages may have fallen for a time, immigrants, as an important factor of production, were able to help diversify the Argentine's commodity markets. Previously, the capital-intensive live-stock raising/pastoral sector had dominated production. Now, with the rise in labour supply, the arable sector saw development. As a result, Argentina's commodity market ceased to specialize in any one product. For the most part, this helped fortify the country against relatively minor world-market shocks (though certainly not internal, social or political disturbances), contributing to the overall, successful level of development the country experienced between 1870 and 1920.

The development of capital markets

Like immigration, foreign investment played a central role in Argentina's economic development. Prior to World War I, it could be said that Argentina's capital investment was foreign capital investment. Not only did foreign labor flock to the Argentina in droves, but foreign assets as well. In all considerations, Argentina was not a typical case for foreign investment, and hence it did not become a typical Latin American country. At the same time, however, it did not produce the characteristics of a typical developed country.

By far, Britain contributed the most funds of any foreign state to the Argentine economy, as it did for many other Latin American states. For Argentina's government, beginning in the 1870s, most investment was captured in foreign bonds. Private companies, however, collected most of their capital through direct foreign investment. Undoubtedly, Argentina stood alone in the absolute size of foreign fiscal contributions. Around 1914, its public external debt stood at $784 million, with a further $3.217 billion in direct foreign investment (DFI) (Bulmer-Thomas, 2003: 102). Much of the DFI from Great Britain flowed into Argentina's railways and the country's meat-packing industry, sectors of the economy in which local investment was severely limited relative due to the start-up costs of the firm. In contrast, the agricultural sector received virtually no foreign investment, and comparatively little domestic credit as well.

The most important aspect of foreign investment was its share in Argentina's capital stock relative to the size of domestic contributions. In the 1880s, foreign capital was pouring into the country; some estimates put Argentina's current account deficit at 30 percent of its GDP. It is important to note, though, that while foreign investment arrived in large amounts, its percentage of total investment and hence its influence on economic development was so great because domestic investment and savings were so small.

End of export-led growth

For the most part, Argentine economic growth before 1914 was achieved through exports to Europe. First beef and hides, then cereals and eventually some processed goods like beef jerky were sent off to Europe, which with a booming population found itself increasingly in need of imported foodstuffs. In return, Great Britain, France and Germany invested in the development of Argentina. For the most part, foreign funds were placed in sectors that were oriented toward exports; railways in particular were built with foreign capital. While many Argentines saw their booming export sector as central to the development of a national market, for the most part the country's economy remained deeply dependent on the performance of the international economy.

Foreign investment and the commodity market can be extremely volatile. Because Argentina's economy relied so heavily on foreign credit and a demand for its agricultural products, it was particularly susceptible to these periods of volatility, which brought about severe repercussions for the country's economic growth. Foreign investment for Argentina, then, was a double-edged sword. While it contributed to the long period of growth between the late 1800s and early 1900s, foreign investment dried up during World War I. Because national markets had not yet matured, the domestic economy was unprepared to make up for losses incurred by the international market shock and the economy as a whole saw a fall in performance.

Post-World War II

The period between 1914 and 1928,the economy of Argentine grew more than other world economies as Canada, reaching very good positions.But the period between 1929 and 1945 devastated the Argentine economy. Foreign investment disappeared during World War I to finance the European war effort. While the U.S. and Wall Street began to feature prominently on the international stage, the 1929 stock market collapse destroyed the Argentine economy, falling very highly the imports.

Import substitution industrialization

After World War II, a new model of economic growth began to emerge. Import substitution industrialization, or ISI, was adopted into Argentina's economic policy. Where the government had adopted a more laissez-faire approach with export-led growth, ISI meant direct government intervention. In an effort to limit the country's dependence on the international market, government-induced economic measures like the nationalization of domestic industry were aimed at encouraging a more internal, self-sustaining development.

While Argentina was able to harness a modest level of growth through ISI, the level economic development was not sufficient enough to bring Argentina to developed-level status. Analogous to export-led growth where Argentina experienced some industrialization but did not become "industrialized", in the mid-twentieth century Argentina underwent development but did not become fully "developed".

Modern era

Convertibility and liberalisation

When President Carlos Menem took office in 1989, the economy of the country was in a critical state. Argentina had piled up huge external debt, and output was plummeting. Inflation during had reached an annual rate of 3,080% in 1988, and in July 1989 it was almost 200%.

To combat the crisis, the government embarked on a path of trade liberalisation, deregulation, and privatisation. In 1991, it implemented radical monetary reforms which pegged the Argentine peso to the United States dollar and limited the growth in the monetary base by law to the growth in reserves. Inflation fell sharply in subsequent years. The 1991 "Convertibility Law" (Ley de Convertibilidad) established a quasi-currency board.

The government privatised most state-controlled companies, opened the economy to foreign trade and investment, and created private pension and workers compensation systems. As a result of these policies, Argentina experienced a boom in economic growth in the early 1990s, followed by a period of somewhat more erratic growth in the second half of the decade.

International crises

In 1995, the Mexican peso crisis produced capital flight, the loss of banking system deposits, and a severe, but short-lived, recession; a series of reforms to bolster the domestic banking system followed. Real GDP growth recovered strongly, reaching 8% in 1997.

In 1998, international financial turmoil caused by Russia's problems and increasing investor anxiety over Brazil produced the highest domestic interest rates in more than three years, halving the growth rate of the economy.

While macroeconomics recovered fairly quickly from the effects of the Mexican crisis of 1995 (known as the Tequila Effect), Argentina could not return to strong growth after the recession that followed the successive shocks from East Asia, Russia, and Brazil.

Effects

The structural reforms provided stability and boosted confidence after decades of decline and chronic bouts of high inflation, and fostered major new investment in services and industry in the 1990s, particularly in the telecommunications, food processing, banking, energy, and mining sectors. As a result, Argentina's exports more than doubled, from about $12,000 million in 1992 to around $25,000 million in 1999. However, one of the drawbacks of the fixed low exchange rate soon became evident, as the trade balance turned strongly deficitary (except for minor surpluses in 1995 and 1996).

The opening of the economy and the deregulation of the labour market also fostered unemployment, which went from less than 7% in 1991 to over 12% in 1994, then increased sharply propelled by the Mexican shock, and remained afterwards always over 12%.

In spite of these problems, Argentina was still considered a model for free market reforms among developing countries, and allowed to indebt itself to support this model. The national public debt, composed in large part by bonds denominated in dollars, increased continuously, growing by more than 60% between 1994 and 1999.

The crisis

Main article: Argentine economic crisis (1999-2002)

In 1999, following the 1998 international crisis, GDP fell by 3% and Argentina entered fully into recession. President Fernando de la Rúa, who took office in December 1999 following the 10-year administration of Carlos Menem, sponsored tax increases and spending cuts to reduce the deficit, which had ballooned to 2.5% of GDP. The new government also arranged a new $7,400 million stand-by facility with the International Monetary Fund for contingency purposes — almost three times the size of the previous arrangement. The new government passed laws intended to change the country's labour code, and attempted to address the precarious financial situation of several highly indebted provinces.

The issue of Argentina's massive public debt became a subject of considerable controversy, and increased tension between Argentine governments and the IMF. In 2001, capital flight increased, and the government found itself unable to meet debt payments. The crisis exploded after the corralito (an almost complete freezing of bank deposits) caused massive protests. After the December 2001 riots, President De la Rúa resigned.

On December 23 2001, interim president Adolfo Rodríguez Saá declared a short-lived debt moratorium. After a few days, Argentina officially defaulted on $93 billion of its debt.

In January 2002, the convertibility plan that pegged the Argentine peso to the U.S. dollar on a one-to-one basis was scrapped, after nearly 11 years. The peso was floated and suffered a swift and sharp devaluation (losing about 75% of its value), which in turn triggered a surge in inflation.

The poverty rate of Argentina grew from an already high 35.9% in May 2001 to a peak of 57.5% in October 2002; the last official report is 23% for the first semester of 2007, which means the country has just returned to pre-crisis levels.

The country has seen double-digit unemployment since the mid-1990s until the 4th quarter of 2006, peaking at 18.4% mid-year 1995. The May 2000 unemployment rate was 15.4%; it climbed to 18.3% in December 2001, and by the 4th quarter of 2006 it was around 8.7%.

In 2002, Argentina's GNP sunk by 10.9% with respect to the previous year. Soon, however, the country managed to return to growth, with surprising strength: 8.9% in 2003, 9.0% in 2004 and then again 9.2% in 2005. This was initially due to a surge in exports (over all previous historical records), and then also to the return of local and international confidence, which boosted local consumption and both local and foreign investment.

Debt restructuring and the role of the IMF

In a speech before the United Nations General Assembly in May 2004, President Kirchner asked for "a structural redesign of the International Monetary Fund", which has changed "from being a lender for development to a creditor demanding privileges".

Shortly after, at the meeting of the IMF and the World Bank, leaders of the IMF, the European Union, the Group of Seven industrialised nations, and the Institute of International Finance (IIF), warned Kirchner that Argentina must come to a debt-restructuring agreement, increase its primary budget surplus to pay more debt, and impose "structural reforms" to regain the trust of the world financial community.

The debt restructuring process was long and complex. Argentina offered a steep discount on its obligations (approximately 70%) and finally settled the matter with over 76% of its defaulted creditors (the default did not include the IMF, which has continued to be paid in due time).

In December 2005, Kirchner decided to liquidate the Argentine debt to the IMF in a single payment, without refinancing, for a total of $9,810 million. The payment was partly financed by Venezuela, who bought Argentine bonds for $1,600 million. [1]

In 2006, Argentina reentered international debt markets selling US$ 500 million of its Bonar V five year dollar denominated bonds, with a yield of 8.36%, mostly to foreign banks and Moody's boosted Argentina's debt rating to B from B-. [2]. However, the reliance of Argentina on Venezuela for a large portion of its financing needs has not been well received in Wall Street circles. On July 18, 2006 Goldman Sachs Emerging Markets Research noted: "Instead of trying to restore its credibility with the broad capital markets, the government keeps on relying on Venezuela as its main credit supplier" (as quoted in the Wall Street Journal on July 28, 2006). The total amount of Argentina's debt held by Venezuela is estimated at around US$ 4 billion.[3]

Economic expansion

With a high rated dollar in comparison with the local currency that allowed to produce goods with competitive prices in the international market, some industries in Argentina started re-flourishing after the crisis, mainly the construction (40% increase in 2005), textiles, food and car parts. The increment in the volume of exportations and their assossiated taxes also provided the country a positive balance of trade, cash flow and reserves.

According to the Heritage Foundation, a Washington-based conservative think tank, the state's role in the economy has expanded since the start of the Kirchner administration, primarily through price fixing in some industries and the creation of a state-owned airline and a state-owned energy company. The Heritage Foundation assigns Argentina a score of 3.3 (mostly unfree) in economic freedom on a scale of 1 to 5 of, which places the country in the 109th position of the 157 evaluated at the Index of Economic Freedom.

After the crisis

Nowadays Argentina is still recuperating from 2001's economic crisis and it has the highest economic growth per year, globalization index and human development in Latin America. World companies and governments are recuperating confidence on investments on Argentina.

Banking

Main article: Banking of Argentina

During the 1990s Argentina's financial system was consolidated and strengthened. Deposits grew strongly, even after the recession that started in 1998.

Yet, the banking system lent dollars and took deposits in pesos. When the economy crashed in 2001, there was a run against all banks in the system, a freeze in deposits, and an asymmetric devaluation of loans and deposits, which made many banks technically bankrupt.

Nowadays the Argentine banking sector is dominated by state-owned banks (the largest one being the Banco de la Nación Argentina). The banks are again gaining deposits, which amounted to more than $43,000 million by October 2005, and are starting to increase their lending portfolios.

Foreign trade

Main article: Foreign trade of Argentina

Argentine exports are mainly of the agricultural type. Soya products (soybeans, vegetable oil, etc.) account for more than one quarter of the total exports. Cereals (mostly maize and wheat) make up less than one tenth. Petroleum-related products take up roughly another 20% of the total. Next come automotive products, bovine products (beef, leather and milk), each accounting for 6% of total exports, and finally the products of the steel industry.

Investment

U.S. direct investment in Argentina is concentrated in telecommunications, petroleum and gas, electric energy, financial services, chemicals, food processing, and vehicle manufacturing. The stock of U.S. direct investment in Argentina approached $16 billion at the end of 1999, according to embassy estimates. Canadian, European, and Chilean firms — other important sources of capital — also have invested significant amounts. Since 2000 Brazil also became an important investor in Argentine assets. Spanish companies in particular have entered the Argentine market aggressively, with major investments in the petroleum and gas, telecommunications, banking, and retail sectors. Several bilateral agreements play an important role in promoting U.S. private investment. Argentina has an Overseas Private Investment Corporation (OPIC) agreement and an active program with the U.S. Export-Import Bank. Under the 1994 U.S.-Argentina Bilateral Investment Treaty, U.S. investors enjoy national treatment in all sectors except shipbuilding, fishing, nuclear-power generation, and uranium production. The treaty allows for international arbitration of investment disputes. In October, 2004 China announced that it will invest 20 billion USD in Argentina. An agreement was signed that time about Chinese investment in railway reconstruction (worth 8 billion USD) and oil research (5 billion USD). The agreement failed to materialize.

In 2005 Argentina attracted $2.4 billion in foreign direct investment (FDI). As percent of GDP, its FDI is one of the lowest in Latin America. Current policies of Kirchner's administration and difficulty in enforcing contractual obligations are blamed for this poor performance.

Other statistics

Investment (gross fixed): 21.7% of GDP (2006) ^[1]

Household income or consumption by percentage share:

• lowest 10%: NA%
• highest 10%: NA%

Agriculture - products: sunflower seeds, lemons, soybeans, grapes, corn, tobacco, peanuts, tea, wheat; livestock

Industrial production growth rate: 12% (2004 est.)

Electricity:

• production: 81.39 TWh (2002)
• consumption: 81.65 TWh (2002)
• exports: 2.818 TWh (2002)
• imports: 8.775 TWh (2002)

Electricity - production by source:

• fossil fuel: 52.2%
• hydro: 40.8%
• nuclear: 6.7%
• other: 0.2% (2001)

Oil:

• production: 755,000 barrel/day (2004 est.)
• consumption: 486,000 barrel/day (2001 est.)
• exports: NA
• imports: NA
• proved reserves: 2.9 billion barrel (2004 est.)

Natural gas:

• production: 37.15 billion m³ (2001 est.)
• consumption: 31.1 billion m³ (2001 est.)
• exports: 6.05 billion m³ (2001 est.)
• imports: 0 m³ (2001 est.)
• proved reserves: 768 billion m³ (2004)

Current account balance: $12.409 billion (2006)^[2]

Exports - commodities: edible oils, fuels and energy, cereals, feed, motor vehicles

Imports - commodities: machinery and equipment, motor vehicles, chemicals, metal manufactures, plastics

Reserves of foreign exchange & gold: Dec 2006: $31 billion ^[3], March 2007: $35 billion ^[4], May 2007: $40 billion ^[5]

Debt - external: $124.332 billion (2005 est.)

See also

Argentina by subject
Communications Culture Demographics Economy Education Foreign relations Geography Government History Military Politics Religion Tourism Transport

• Agriculture of Argentina
• Argentine economic crisis
• Argentine Currency Board
• Buenos Aires Stock Exchange
• Economy of South America
• Historical exchange rates of Argentine currency

References

•  • [ e] Economy of South America
Sovereign states	Argentina Bolivia Brazil Chile Colombia Ecuador Guyana Panama* Paraguay Peru Suriname Trinidad and Tobago* Uruguay Venezuela
Dependencies	Aruba* (Netherlands) Falkland Islands (UK) French Guiana (France) Netherlands Antilles* (Netherlands) South Georgia and the South Sandwich Islands (UK)