Economic Affairs

Argentina: Economic Affairs

In 2007, according to estimates by the World Bank, Argentina’s gross national income (GNI), measured at average 2005–07 prices, was US $238,853m., equivalent to $6,050 per head (or $12,990 on an international purchasing-power parity basis). During 2000–07, 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 2.8% per year. Overall GDP increased, in real terms, at an average annual rate of 3.8% in 2000–07. Real GDP increased by 8.7% in 2007.

Agriculture (including forestry and fishing) contributed an estimated 9.4% of GDP in 2007 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 2000–07 agricultural GDP increased at an average annual rate of 3.8%. According to official estimates, the GDP of the sector increased by 2.6% in 2006 and by 9.8% in 2007.

Industry (including mining, manufacturing, construction and power) engaged 19.2% of the employed labour force in 2001 and provided an estimated 33.7% of GDP in 2007. During 2000–07 industrial GDP increased, in real terms, at an estimated average annual rate of 4.7%. According to official estimates, sectoral GDP increased by 7.5% in 2007.

Mining contributed an estimated 4.8% of GDP in 2007, and employed 0.4% 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 0.9% per year during 2000–07; the sector’s GDP decreased by 0.5% in 2007, according to preliminary figures.

Manufacturing contributed an estimated 21.3% of GDP in 2007, and employed 11.9% of the working population in 2001. During 2000–07 manufacturing GDP increased, in real terms, at an estimated average annual rate of 4.4%. According to official estimates, manufacturing GDP increased by 7.6% in 2007.

Energy is derived principally from natural gas, responsible for the production of 52.3% of total primary energy consumption in 2005. 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 32.4% of Argentina’s total energy requirements in 2005, while the country’s two nuclear power stations produced 6.5%. In 2006 imports of mineral fuels comprised an estimated 4.8% of the country’s total imports.

Services engaged 72.1% of the employed labour force in 2001 and accounted for an estimated 56.9% of GDP in 2007. The combined GDP of the service sectors increased, in real terms, at an estimated average rate of 3.1% per year during 2000–07; sectoral GDP increased by 8.7% in 2007.

In 2007 Argentina recorded a visible trade surplus of US $13,255m., and there was a surplus of $7,113m. on the current account of the balance of payments. In 2007 the principal source of imports was Brazil (32.5%), followed by the USA (12.0%). Brazil was also the principal recipient of exports, accounting for 18.8% of total exports in that year, again followed by the USA (7.8%). Other major trading partners in 2007 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 2007 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 2009 there was a projected central government budget surplus of 9,121.3m. new pesos. Argentina’s total external debt was US $122,190m. at the end of 2006, of which $64,711m. was long-term public debt. In that year the total cost of debt-servicing was equivalent to 31.6% of revenue from exports of goods and services. The annual rate of inflation averaged 10% in 2000–07; consumer prices increased by 8.8% in 2007. The national unemployment rate was 8.4% in 2008.

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 deteriorated 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 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 agreement expired, Argentina failed to repay $2,900m. owed to the organization. In spite of what was effectively the largest default in the Fund’s history, the IMF extended a new, 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. Nevertheless, following the implementation of a debt-conversion programme, in early 2005 some 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. In an effort to liberate economic policy from IMF regulation, the Government repaid outstanding loans of some $9,500m. to the Fund in 2007. None the less, Argentina was observed to be at risk of a second default on its sovereign debt in late 2008. Consequently, the country suffered significant outflows of domestically and internationally held capital, while the exchange rate declined sharply as investors converted their peso holdings into dollars. Plans to renationalize the country’s largest airline, Aerolínas Argentinas, from the Spanish company Grupo Marsans received congressional approval in December 2008. In November the Government announced the first of two crisis packages intended to alleviate the impact of economic downturn. The first plan aimed to create around 400,000 jobs in the construction industry by means of a major programme of public works (estimated to cost some $32,000m.). In addition a series of tax incentives offered to small- and medium-sized enterprises, together with the extension of full employment status to workers in the informal sector, was announced with the intention of increasing employment. The second plan, announced in December, was devised to improve access to credit and thereby strengthen consumption and investment (both of which had declined sharply in response to the ‘credit crunch’ and associated global financial crisis). However, it seemed likely that Argentina’s economy in 2009 would be adversely affected by a continued decline in the international prices of its principal commodities (particularly its important soybean crop), by ongoing disputes with the farming unions and by the worst drought to affect the country in some 70 years. Real GDP, estimated by the IMF to have increased by 6.5% in 2008, was projected to increase by just 3.6% in 2009.

Citation: Economic Affairs (Argentina), in Europa World online. London, Routledge. Retrieved 13 March 2010 from http://www.europaworld.com/pub/entry/ar.is.57