Economic Affairs

Argentina: Economic Affairs

In 2006, according to estimates by the World Bank, Argentina’s gross national income (GNI), measured at average 2004–06 prices, was US $201,410m., equivalent to $5,150 per head (or $15,390 on an international purchasing-power parity basis). During 1996–2006, it was estimated, Argentina’s population increased at an average rate of 1.0% per year, while gross domestic product (GDP) per head increased, in real terms, by an average of 1.5% per year. Overall GDP increased, in real terms, at an average annual rate of 2.6% in 1996–2006. Real GDP increased by a preliminary 8.5% in 2006.

Agriculture (including forestry and fishing) contributed an estimated 8.4% of GDP in 2006 and employed 8.7% of the economically active population in 2005, according to FAO estimates. The principal cash crops are wheat, maize, sorghum and soybeans. Beef production is also important. During 1995–2006 agricultural GDP increased at an average annual rate of 2.3%. According to official estimates, the GDP of the sector increased by 11.1% in 2005, and by 2.6% in 2006.

Industry (including mining, manufacturing, construction and power) engaged 18.4% of the employed labour force in 2001 and provided an estimated 35.6% of GDP in 2006. During 1995–2006 industrial GDP increased, in real terms, at an estimated average annual rate of 3.1%. According to official estimates, sectoral GDP increased by 10.1% in 2006.

Mining contributed an estimated 6.0% of GDP in 2006, and employed 0.3% of the working population in 2001. Although Argentina used to possess substantial deposits of petroleum and natural gas, as well as steam coal and lignite, few hydrocarbon deposits have been discovered since the mid-1990s. The GDP of the mining sector increased, in real terms, at an average estimated rate of 1.0% per year during 1995–2006; the sector’s GDP decreased by 3.0% in 2006.

Manufacturing contributed an estimated 22.3% of GDP in 2006, and employed 11.4% of the working population in 2001. During 1995–2006 manufacturing GDP increased, in real terms, at an estimated average annual rate of 2.5%. According to official estimates, manufacturing GDP increased by 8.9% in 2006.

Energy is derived principally from natural gas, responsible for the production of 54.8% of total primary energy consumption in 2004. However, in early 2004 a critical shortage in the gas supply prompted the Government of President Néstor Carlos Kirchner to reduce the voltage in the national grid, ration gas supplies to various corporations and reduce exports of gas. Hydroelectricity produced 30.4% of Argentina’s total energy requirements in 2004, while the country’s two nuclear power-stations produced 7.8%. In 2005 imports of mineral fuels comprised an estimated 5.1% of the country’s total imports.

Services engaged 69.3% of the employed labour force in 2001 and accounted for an estimated 56.0% of GDP in 2006. The combined GDP of the service sectors increased, in real terms, at an estimated average rate of 2.7% per year during 1995–2006; sectoral GDP increased by 8.1% in 2006.

In 2006 Argentina recorded a visible trade surplus of US $13,976m., and there was a surplus of $8,053m. on the current account of the balance of payments. In 2006 the principal source of imports was Brazil (34.4%), followed by the USA (12.6%). Brazil was also the principal recipient of exports, accounting for 17.6% of total exports in that year, again followed by the USA (8.9%). Other major trading partners in 2006 were the People’s Republic of China, Chile, Spain, the Netherlands and Germany. In late 2004 President Kirchner and the Chinese President, Hu Jintao, signed a joint statement of intent to increase bilateral economic co-operation. In November 2005 Kirchner and Venezuelan President, Lt-Col (retd) Hugo Rafael Chávez Frías, signed several agreements to promote economic co-operation, including plans for a gas pipeline between the two countries, and for Venezuela to buy more Argentine debt bonds and to supply discounted petroleum to Argentina. The principal exports in 2006 were, according to provisional figures, mineral fuels, lubricants and related materials. The principal imports were, according to provisional figures, nuclear reactors, boilers, machines and mechanical appliances, vehicles and electrical machinery.

In 2008 there was a projected central government budget surplus of 7,976.3m. new pesos. Argentina’s total external debt was US $114,335m. at the end of 2005, of which $61,952m. was long-term public debt. In that year the total cost of debt-servicing was equivalent to 20.7% of revenue from exports of goods and services. The annual rate of inflation averaged 5.4% in 1995–2006; consumer prices increased by 10.9% in 2006. The national unemployment rate was 11.4% in 2006.

Argentina is a member of the Latin American Integration Association (ALADI) and of Mercosur (Mercado Común del Sur). In December 2004 Argentina was one of 12 countries that were signatories to the agreement, signed in Cusco, Peru, creating the South American Community of Nations (Comunidad Sudamericana de Naciones, which was renamed the Union of South American Nations—Unión de Naciones Suramericanas, UNASUR, in April 2007), intended to promote greater regional economic integration.

From 1998 international prices for certain commodities fell, causing the trade and budget deficits to widen. The devaluation of the Brazilian currency in January 1999 exacerbated the situation and the economy entered recession. Throughout 2000 and 2001 the economic situation worsened. Faced with declining tax revenues, the Government failed to secure any further international funding, and in January 2002 a major default on the country’s sovereign debt (estimated at US $155,000m.) to the IMF and a 30% devaluation of the peso inevitably ensued. In November 2002 the Government of Eduardo Duhalde announced its intention to default on payment obligations to the World Bank and the Inter-American Development Bank (IDB), in the absence of a new agreement with the IMF. Both institutions ceased to disburse funds with immediate effect. A new $6,700m. stand-by agreement was eventually reached with the IMF in January 2003, but in September, one month after the stand-by agreement expired, Argentina failed to repay $2,900m. owed to the IMF. In spite of what was effectively the largest default in the Fund’s history, the IMF extended a new, favourable three-year deal to the Argentine Government, and in March 2004 the IMF agreed to release a further $3,100m. in loans, after the Government agreed to continue negotiations with private sector creditors. None the less, the Government of President Néstor Kirchner remained reluctant to honour international obligations at the expense of Argentina’s fragile social stability, and negotiations with the IMF were suspended in the middle of the year after the Government refused to accede to the Fund’s demand that Argentina increase its fiscal surplus. Nevertheless, following the implementation of a debt-conversion programme, by the end of February 2005 76.6% of Argentina’s privately held debt (estimated at some $82,000m.) had been converted into several new types of bond. The plan was central to the Government’s economic policy and its success facilitated Argentina’s readmission to international financial markets. Economic growth of 9.2% and a preliminary 8.5% was recorded in 2005 and 2006, respectively. Much of this improvement was owing to low international interest rates, record agricultural production, in addition to high world prices for Argentina’s agricultural exports, and the devalued currency’s positive impact on export levels. In an effort to liberate economic policy from IMF regulation, the Government repaid outstanding loans of some $9,500m. to the Fund in 2007. Nevertheless, at the end of that year, Argentina remained heavily indebted to both the ‘Paris Club’ of creditor nations and private creditors, with outstanding loans estimated at $6,000m. and $20,000m., respectively. Furthermore, concerns remained that continued economic growth was unsustainable without increased foreign investment, which largely depended on a reduction in the debt burden. It was estimated that the rate of investment would need to increase at an annual rate of 24% if Argentina was to be able to maintain high rates of growth. The economy was forecast to have expanded by 7.6% in 2007. The continued use of price controls eroded profitability in the energy sector and the resultant power shortages led to a downturn in industrial output as firms were unable to operate at full capacity, deterring investment in both the energy and industrial sectors. Argentina was also forced to import electricity from neighbouring Paraguay. The private sector hoped that the Government would remove tariffs on utilities in 2008, a move which was likely to lead to a substantial increase in the rate of inflation. In 2007 the administration revised methodology used to calculate consumer prices, consequently the rate of inflation quoted by official sources was far lower than that calculated by independent organizations.

Citation: Economic Affairs (Argentina), in Europa World online. London, Routledge. Retrieved 09 January 2009 from http://www.europaworld.com/pub/entry/ar.is.57