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. Conditions worsened in 1999 with GDP falling by 3%. President Fernando de la Rua, who took office in December 1999 following the 10-year administration of former President Carlos Menem, sponsored tax increases and spending cuts to reduce the deficit, which had ballooned to 2.5% of GDP in 1999. The new government also arranged a new $7.4 billion stand-by facility with the IMF for contingency purposes - almost three times the size of the previous arrangement. Key challenges facing the new government include reforming the country's rigid labor code and addressing the precarious financial situation of several highly indebted provinces.
Structural reforms based on macroeconomic stabilization, trade liberalization, privatization, and public administrative reform placed the country on a relatively sound economic footing after decades of decline and chronic bouts of high inflation. These reforms 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 billion in 1992 to around $25 billion in 1999. Imports also grew rapidly during the same period, from $15 billion to over $25 billion. However, Argentina's international trade still remains a relatively small part of its economy. This is in part a heritage of decades of import-substitution policies, but it also reflects the country's relatively diversified economy.
One of Argentina's challenges is to generate growth with more equitable distribution of income and reduced unemployment. The country has seen double-digit unemployment since the mid-1990s (peaking at 18.4% mid-year 1995); the May 2000 unemployment rate was 15.4%. Argentina has resumed modest economic growth in 2000. Over the long term, significant declines in unemployment will come slowly; labor productivity will rise as major private investments are implemented, and future growth will be strongest in capital-intensive sectors. There is broad support for the key elements of Argentina's economic model. However, a growing awareness exists that important structural reforms are still needed, primarily in the labor market, tax administration, and delivery of public services. Inefficiencies in these areas need to be addressed to ensure stable growth. Public sector corruption, commonly acknowledged as being widespread, is another subject of public debate. The Argentine justice system can be politically influenced, is often inefficient, and provides slow due process.
The past few years have seen a significant consolidation and strengthening of Argentina's banking system, in large part through foreign investments. In addition to high reserve and capital-adequacy requirements, the Central Bank of Argentina maintains a repurchase agreement with a consortium of international banks to provide a $6 billion safety net in the event of a liquidity squeeze. Mergers and acquisitions, which decreased the number of Argentine banks from nearly 300 in 1990 to fewer than 100 at the end of 1999, are expected to continue and lead to improvements in management and efficiency. The foreign currency reserves of the Central Bank stood at nearly $25 billion in December 1999, or over 9 months of imports. However, by law, these reserves are used to back the monetary liabilities of the Central Bank and are not available for conducting monetary policy.
Despite the recession, bank deposits continued to grow during 1999, although at a much slower rate than in previous years. Total deposits in the banking system stood at nearly $80 billion in December 1999--twice that of June 1995, when deposits hit a low of $37 billion. Foreign-controlled banks now hold over 40% of total deposits, and six of the top 10 commercial banks are in the hands of U.S and European financial institutions. Still, the level of bank utilization in Argentina remains relatively low, and bank intermediation represents only about 30% of GDP--a much lower ratio than that in Chile, Mexico, or Brazil, for example. Financing and lending costs, high by industrialized country standards, were further increased by the late-1990s turmoil in emerging markets. Annual interest rates which banks charge large preferred businesses were around 10% in 2000. For consumer overdrafts or higher-risk firms (typically small businesses), annual rates approach 25%. Given Argentina's extremely low rates of inflation, those interest rates, which reflect lenders' risk calculations, are very high in real terms.
Strong growth in Argentina's foreign trade since 1990 has been key to meeting its external payments. Foreign trade now equals about 17% of GDP--up from 11% in 1990--and plays an increasingly important role in Argentina's economic development. Still, exports represent only 8% of Argentine GDP, almost unchanged since 1990. The U.S. recorded trade surpluses with Argentina every year from 1993-99, as Argentina's firms increased capital goods purchases during that period. This trend reflected the Argentine Government's policy of encouraging modernization and improved competitiveness in Argentine industry through lower tariffs on capital goods.
Argentina's trade deficit dropped from $5 billion in 1998 to $2.2 billion in 1999, primarily because the recession lowered demand for imports. The overall value of 1999 Argentine exports fell 12%, due mainly to low international commodity prices, while imports dropped 19% from 1998. Argentine exports began to increase significantly in the last months of 1999 and continued their upward trend in early 2000. Exports should continue to rise throughout 2000 as rebounding economies in Brazil and Asia increase demand and prices for Argentine commodities move upward; rising oil prices have been particularly significant. The U.S. trade surplus with Argentina was $2.4 billion in 1999, down from 1998 as U.S exports to the country declined from $5.9 to $5.0 billion. Fresh Argentine beef was exported to the U.S. market in 1997 for the first time in over 60 years, and in 1999 its export quota of 20,000 tons was filled. However, beef exports to the U.S. were suspended in August 2000 when some Argentine cattle (near Paraguay) were discovered to have anti-bodies for hoof and mouth disease.
Mercosur, the customs union that includes Argentina, Brazil, Paraguay, and Uruguay, entered into force January 1, 1995. Chile and Bolivia joined the pact subsequently as associate members. Close cooperation between Brazil and Argentina--historic competitors--is the key to Mercosur's integration process, which includes political and military elements in addition to a customs union. Brazil accounts for more than 70% of Mercosur GDP and Argentina about 27%. Mercosur has been one of the largest and most successful integrated markets in the developing world, with substantial foreign investment going to its members. Intra-Mercosur trade also rose dramatically from $4 billion in 1991 to over $23 billion in 1998. More than 90% of intra-Mercosur trade is duty-free, while the group's common external tariff (CET) applies to more than 85% of imported goods. Remaining goods will be phased into the CET by 2006.
Argentina adheres to most treaties and international agreements on intellectual property. It is a member of the World Intellectual Property Organization and signed the Uruguay Round agreements in December 1993, including measures related to intellectual property. However, extension of adequate patent protection to pharmaceuticals has been a highly contentious bilateral issue. In May 1997, the U.S. suspended 50% of Argentina's GSP benefits because of its unsatisfactory pharmaceutical patent law. In May 1999, The U.S. Government initiated consultations under WTO procedures to address these inadequacies and expanded the consultations in May 2000.
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. 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.
GDP: purchasing power parity - $367 billion (1999 est.)
GDP - real growth rate: -3% (1999 est.)
GDP - per capita: purchasing power parity - $10,000 (1999 est.)
GDP - composition by sector:
services: 64% (1999 est.)
Population below poverty line: 36% (1998 est.)
Household income or consumption by percentage share:
lowest 10%: NA%
highest 10%: NA%
Inflation rate (consumer prices): -2% (1999 est.)
Labor force: 15 million (1999)
Labor force - by occupation: agriculture NA%, industry NA%, services NA%
Unemployment rate: 14% (December 1999)
revenues: $44 billion
expenditures: $48 billion, including capital expenditures of $NA billion (2000 est.)
Industries: food processing, motor vehicles, consumer durables, textiles, chemicals and petrochemicals, printing, metallurgy, steel
Industrial production growth rate: -7% (1999 est.)
Electricity - production: 75.237 billion kWh (1998)
Electricity - production by source:
fossil fuel: 42.71%
other: 0.27% (1998)
Electricity - consumption: 75.57 billion kWh (1998)
Electricity - exports: 250 million kWh (1998)
Electricity - imports: 5.85 billion kWh (1998)
Agriculture - products: sunflower seeds, lemons, soybeans, grapes, corn, tobacco, peanuts, tea, wheat; livestock
Exports: $23 billion (f.o.b., 1999 est.)
Exports - commodities: edible oils, fuels and energy, cereals, feed, motor vehicles
Exports - partners: Brazil 24%, EU 21%, US 11% (1999 est.)
Imports: $25 billion (c.i.f., 1999 est.)
Imports - commodities: machinery and equipment, motor vehicles, chemicals, metal manufactures, plastics
Imports - partners: EU 28%, US 22%, Brazil 21% (1999 est.)
Debt - external: $149 billion (1999 est.)
Economic aid - recipient: $2.833 billion (1995)
Currency: 1 peso (ARS)= 100 centavos
Exchange rates: EUR 1 = ARS 3.60 (September 2002), USD 1 = ARS 2.85 (October 2003). A fixed rate USD 1 = ARS 1 until January 2002.
Fiscal year: calendar year