Population 41.028 million
GDP 474.812 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
| GDP growth (%) |
9.2 |
8.9 |
2.1 |
3.1 |
| Inflation (yearly average) (%) |
21.9 |
21.4 |
22.5 |
26 |
| Budget balance (% GDP) |
0.2 |
-1.7 |
-3.1 |
-2.4 |
| Current account balance (% GDP) |
0.8 |
0 |
0 |
-0.1 |
| Public debt (% GDP) |
49.2 |
44.9 |
45.2 |
42.8 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Abundant resources: agricultural (wheat, soya, beef, fruit), energy (gas, oil, hydroelectric) and mineral (gold, silver, copper)
- Tourist attractions
- Education and human development indicators above the regional average
- Skilled labour
- Democratic political system
WEAKNESSES
- Unpredictable business environment, state interventionism, price control
- Controlled imports and capital movements
- Relations with Paris Club of creditor countries not normalised
- Dependence on agricultural commodities and, therefore, climate
- Insufficient investment in energy and transport
- Very high inflation
- Loose fiscal policy
- Poverty, great inequality and social tensions
Risk assessment
Despite accelerating slightly, growth will remain modest
Weather back to normal after the severe drought of the austral summer 2011-2012 (la niña impact), activity will benefit from the 25% increase in agricultural output (10% of GDP). Exports of agricultural products (20% of total) will increase in volume and value, while those of automotives and textiles will benefit from recovery in Brazil. Meanwhile, investments are expected to rally, but private consumption will be hit by the slowdown in real wages and higher inflation, despite the index-linking of wages which, however, applies only to wages in the formal sector.
Alternative methods to stem deterioration in public and external accounts
In 2013, the fiscal deficit is expected to narrow. Revenues will benefit from higher customs duties resulting from the recovery in exports and imports. Current spending will remain high, due to subsidies, and the indexation of civil service salaries and pensions. The deficit is mainly financed by borrowing from the Central Bank, whose statutes were revised accordingly, and by episodic withdrawals from pension funds. Such funding generates significant inflation, which officially stands at 10%, but in reality is around 26%.
The peso’s depreciation can not compensate for high inflation, resulting in a loss of competitiveness. This, added to the high proportion of imports in domestic demand, has led to a diminution in the trade surplus and has wiped out the current account surplus. The Argentine government, having defaulted on its bilateral public debt with the creditor-nation Paris Club, is de facto unable to access the financial markets. The country needs to balance its current account in order to maintain a level of foreign exchange reserves that will allow it to meet its external commitments. The authorities have, therefore, taken several restrictive measures to preserve the Central Bank’s reserves.
The deterioration in the trade account has accordingly been stopped by ongoing import restrictions. Importers are obliged to request import authorisation from the tax authorities, which is granted on the say so of the administration. Over time, given that 80% of imports consist in intermediate goods and capital goods, these restrictions will adversely affect industrial output. Although the balance of services is only slightly negative, with tourism revenues offsetting freight expenses, the revenue balance is clearly in deficit due to the extent of profit repatriation by companies to their country of origin. Finally, the current account balance is almost in equilibrium. Foreign investments are not a great help (1.4% of GDP) as investors have been put off by the government’s interventionist policy, which recently led to the expropriation of the Repsol subsidiary, YPF.
The authorities have also introduced foreign exchange controls requiring special authorisation for every withdrawal of dollars. The spread between the official exchange rate and the rate on the black market is currently 30%, which clearly illustrates the Argentines’ belief that the peso is overvalued and that it could be in for a sharp devaluation. People still remember the forced “pesoisation” of 2001.
Increased isolation internationally and social tensions
Argentina’s conduct of foreign policy has increased its isolation. Official bilateral creditors of the Paris Club, as well as some private creditors (hence their name as "hold-outs"), refused debt restructurings that occurred in 2005 and 2010 following the default on sovereign debt of 2001. These private creditors obtained in 2012 an American court ruling that Argentina could not service its restructured debt unless it made payments in escrow of a sum equivalent to what it owed these creditors. The case went to appeal and Argentina and the restructured bondholders obtained a stay until judgment on the merits. Meanwhile, the expropriation of the oil subsidiary, YPF, and the introduction of protectionist measures have led to complaints being lodged by various countries with the WTO. There is a risk of a breakdown in relations with the IMF and expulsion from the G20, as the authorities have not explained how inflation is calculated.
The popularity of President Cristina Kirchner, re-elected for a second term in 2011, is in sharp decline (only 28% of Argentines approve of her policies). Her approach to constitutional reform aimed at allowing her re-election in 2015 is very haphazard. Despite populist measures like price controls and subsidies, there have been massive strikes carrying major claims. In this context, the government will probably lose its parliamentary majority in the mid-term elections in 2013.
