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Page history last edited by Brian D Butler 8 years, 5 months ago


Understanding Argentina:




Economy of Argentina

Argentina benefits from rich natural resources, a highly literate population, an export-oriented agricultural sector and a diversified industrial base. Historically, however, Argentina's economic performance has been very uneven. Early in the twentieth century it was one of the richest countries in the world,[11] though it is now an upper-middle income country. Argentina is considered an emerging economy by the FTSE Global Equity Index and still benefits from Latin America's highest Human Development Index....read more from:  http://en.wikipedia.org/wiki/Economy_of_Argentina



Table of Contents:




Recommended reading


On the Latin America EconoMonitor, Alan Beattie provides his final thoughts to the debate with Eugenio Diaz-Bonilla over whether the U.S. and Argentina were in fact economically comparable 100 years ago and whether policy decisions by the respective countries are mainly responsible for where these countries find themselves today. Read USA and Argentina - Alan Beattie's Final Response.





Argentina trailed only the U.S. in corn exports in 2007, and was behind both the U.S. and Brazil in soybeans, according to U.S. Department of Agriculture data.


Soy Beans:  Buenos Aires Grain Exchange said that that country’s soybean production will fall to 40 million tonnes in the ‘08/’09 season. This estimate is at the


read more:


Potential Nationalization of Grain Trade - 2009:


see:  http://www.bloomberg.com/apps/news?pid=20601086&sid=abMGi41MW53k&refer=latin_america


Core issue:  govt wants tax revenues (estimated at $1bn) of grains that are not being sold....due to fallling prices, farmers are stockpiling rather than selling, and holding for prices to go up.  Also, due to government tax issues on exports.  So, gov't threatens to nationalize to try and force grain exporters to sell, so govt can collect tax revenues.


Global trade issue:  one more threat of nationalization.  But, with strategic food market an issue, this could spart more protectionism from other countries...worried about food security.




Recent food crisis 2008:


The government of President Cristina Fernandez de Kirchner claimed that high prices for agricultural commodities justified its imposition of a sliding tax on agricultural exports that can reach 40%. It further claimed that the money produced by the new tax would be used to help the poor. It chose to decree the tax rather than submit it to Congress for approval. And when the farmers protested against the tax that they regarded as arbitrary and unfair, the government-supported piqueteros (lower-class street mobs) took to the streets..After the farmers showed that they could sustain and attract more supporters to their protest movement than the government-supported piqueteros could attract to theirs, President Fernandez de Kirchner submitted the tax reform to Congress. It was ultimately defeated because many members of the president's Peronista party voted against it. This was mainly a reflection of the increased economic clout of the farmers, who had pressed their elected representatives to support the interests of their constituents back home. But it also reflected unhappiness with the Kirchners' failure to adapt to the changed global and domestic circumstances confronting Argentina.



Budget issues: 


Averting Crisis in 2009:


“Argentina has solved its rollover problem for this year and maybe the next,” said Igor Arsenin, an emerging-market strategist at Credit Suisse in New York. “They will muddle through. There’s still quite a bit of upside.”


Debt was coming due in 2009:


In all, about $4 billion of the $12 billion outstanding of guaranteed loans was set to mature this year, according to Credit Suisse. Sandy estimates that yesterday’s swap will reduce Argentina’s principal payments by as much as $1.5 billion a year through 2011.


GDP growth slows...


Growth will slow to 2 percent this year from an estimated 6.7 percent in 2008, according to the median forecast in the central bank’s most recent survey of economists. Growth topped 8 percent every year from 2003 to 2007.


Budget troubles...


due to a lack of growth, from less exports (see our discussion on the global credit crisis )....


Argentina’s financing needs climbed to $18.4 billion this year from $4.7 billion in 2008 as a six-year economic expansion fueled by commodity exports faltered amid the global credit crisis, according to Royal Bank of Scotland calculations.


Bonds re-scheduled

see http://www.bloomberg.com/apps/news?pid=20601086&refer=latin_america&sid=aOxxD5yaqzf4


Debt reduced:  The exchange will reduce the government’s 2009 debt payments by 5.4 billion pesos


Guaranteed loans:  Argentina issued the guaranteed loans -- which were initially backed by revenue from a financial transactions tax -- in a 2001 exchange that sought unsuccessfully to stave off the $95 billion default that year.


The new five-year bonds will pay an interest rate of 15.4 percent in the first year and 2.75 percentage points over the Argentina’s Badlar interbank rate after that


Good signal to foreign investors:


The swap “sends the signal that the authorities will look for market-driven transactions rather than moving straight into unfriendly restructurings,” Barclays analysts Guillermo Mondino and Donato Guarino said in a report yesterday. They recommend investors buy Argentine dollar bonds due in 2013, known as Bonars.



Bonds at a (huge) discount:


The price on the government’s 8.28 percent dollar bonds due in 2033 has climbed to 34.75 cents on the dollar today from 32.25 cents on Dec. 31, according to JPMorgan Chase & Co. The yield dropped to 21.66 percent from 32.25 percent. The bonds had sunk to 22.5 cents, the lowest since they were issued in a 2005 debt restructuring, on Oct. 27 after Fernandez said she’d nationalize the pension funds. They traded at 74 cents at the end of August.


see our discusssion of bond  and bond valuation for more...


Privatization of pensions 2008:


maybe averted collapse of Argentina (so, maybe it was a good thing....for now):  "While the pension seizure hurt investor confidence, it also helped Fernandez cobble together financing by giving her access to more funds. The pensions held almost $30 billion in October.  “The main danger was a dent in confidence,” Arsenin said. “In a more narrow sense, it’s been positive. It has ensured flexibility in their short-term financing.”


2001/2002 crisis....lingering effects....


Argentina has been shut off from international markets since the 2001 default because some bondholders rejected the government’s restructuring offer and filed lawsuits in New York in a bid to recoup their money.



Should benefit from recent macro trends

Trends: higher prices of food, commodities


Grain prices are soaring. The country is strategically positioned to be one of the greatest beneficiaries of the soybean bonanza. In addition to natural endowments, such as fertile soil and abundant water resources, 150 years of infrastructure investment gave it one of the best transportation grids in all of Latin America. Railroads crisscross the pampas and penetrate deep into the Andean sierra. The deep channels of the Parana, Paraguay and Uruguay Rivers provide it with a fluvial system that allows it to sharply reduce transportation costs.


Upcoming Elections:


midterm elections scheduled for 2009


Foreign Reserves


Given the enormous level of international reserves, the Kirchners believe that they can hold out for a very long time (in the battle between the government and the farmers)



Interesting business models


becoming a center for design


outsourced advertising







Creative-Class Meccas




Population > 12.6 million

Leading indicator > Named UNESCO's first-ever City of Design; more than 14,000 students are enrolled in the University of Buenos Aires's design and architecture programs

Fast company > Pol-ka Producciones

It took an economic catastrophe for Argentina's capital to realize its creative destiny. Since 2001, the nation has played down historic ties to Europe in favor of homegrown culture. So Buenos Aires's Palermo SOHO district has emerged as a design hub, with more than 300 new shops and studios and a slew of upstart film- and television-production companies. The Centro Metropolitano de Diseño promotes and funds innovators in art and design





Argentina - Macroeconomic issues



see our discussion on : Argentina - Macroeconomic issues


for economic data & analysis:  http://www.latin-focus.com/latinfocus/countries/argentina/argentina.htm





Price controls - Energy


The government’s tough stance with international creditors has won it much support at home. Inspired by this success, the government has turned its attention to negotiations with foreign-owned utility companies. Buenos Aires refuses any rate increases for residential users, but has offered overall tariff increases of mostly under 20%. Most firms have rejected them. The utilities have taken the dispute to the International Centre for Settlement of Investment Disputes but the government has already indicated that it will ignore any ruling against it.    The government refuses any rate increases for residential users and has indicated that it will ignore any rulings against it, even though failure to comply could lead to trade sanctions



Economic issues


Other highly politicised issues include a high level of unemployment, and increased crime. Argentina's judiciary continues to be dominated by the Peronist Party and is also highly politicised.




International disputes


In 2004, the government broke a natural gas export contract to Chile and began importing natural gas from Bolivia. The crisis threatened to stifle Argentina’s nascent economic recovery and severely strained the country’s relations with Chile. Argentina has a dispute with Uruguay over its plan to construct two large paper mills on the river dividing the two countries. The Argentines argue that the move is in violation of the treaty governing the Uruguay River.




Main industries


The country's favourable climate and fertile soils have traditionally made Argentina a leading agricultural power. In comparison with other parts of the economy, agricultural output has remained buoyant with good harvests for both wheat and maize. One reason is the large investments farmers have made in new technologies and techniques. Argentina is also the world's fifth largest producer of wines. Altogether, agricultural exports are growing by several billion dollars per year, thanks mainly to higher prices.


In manufacturing, the Argentinean automotive sector is a key player but is heavily dependent on the Brazilian market for exports.


In the banking area, there are welcome signs of return to overall profitability, and measures have been introduced to reduce weaknesses in bank balance sheets.


Tourism is traditionally a big earner of foreign exchange and the number of visitors rose sharply in 2006.







Energy shortages are a serious threat to Argentina’s recovery. Factories have suffered power cuts forcing the government to impose a 15% cut in exports of natural gas to Chile. Some progress has been made with utility sector reform – including the initiation of electricity and gas tariff increases for large users. However, in many of these markets competition is still limited. Fears of energy shortages still deter investment in several energy-intensive industries such as steel, aluminium and petrochemicals.



Argentina has 2.8 billion barrels of proven oil reserves. The country produced an estimated 665,000 barrels per day (bbl/d) of oil in 2006. Oil production has declined from a peak of 890,000 bbl/d in 1998, as oil producers have not brought enough new capacity online to replace declining production from mature fields. The oil sector is completely privatised. Most oil is produced in two onshore basins in the southeast.


Natural gas is the dominant fuel source in Argentina, accounting for 46% of the country’s primary fuel supply. The country has the third-largest proven reserves of natural gas in Latin America at 16.1 trillion cubic feet in 2007. Natural gas consumption has risen significantly in the past decade and is now the country’s dominant fuel source. In July 2006, Argentina doubled a tax on natural gas exports to Chile, a move seen by many as a means to offset higher costs for natural gas imports from Bolivia.


At home, the energy industry suffers from price controls which have reduced revenues and discouraged investment.






The economy collapsed in 2001 and 2002 but has recovered and is now growing strongly.


Since then, GDP has increased by 33% and now exceeds its 1997 peak. Poverty has also been halved. Investment is growing but government officials estimate that investment must increase by at least two percentage points of GDP to sustain the pace of growth. Some analysts are concerned that the turnaround depends too heavily on external factors such as high commodity prices and low global interest rates rather then durable productivity gains. To this group, any further rise in US interest rates could snuff out the recovery.


Bottlenecks in the economy are beginning to emerge, and inflation is on the rise.


Both private consumption and investment have strengthened. Export receipts have increased – initially reflecting higher commodity prices – and imports remain below pre-crisis levels. International reserves have recovered, and bank deposit and external payments restrictions have been progressively dismantled.


In 2007, Argentina faced its worst energy shortage in two decades. The imposition of price controls has resulted in energy prices that are around 40% lower than in neighbouring countries. As a result, private investment in the energy sector has slowed to a trickle. Forced rationing is hurting industry. No significant additions to capacity are expected before the end of 2008.





Imports and Exports

Major export destinations 2007 Share (%) Major import sources 2007 Share (%)
Latin America 38.7 Latin America 42.9
Europe 26.3 Europe 24.0
Asia-Pacific 17.1 Asia-Pacific 16.1
Africa and the Middle East 8.8 North America 15.6
North America 8.6 Africa and the Middle East 1.0
Australasia 0.4 Australasia 0.3



Places in Argentina



Rank City Province Population Region
1 Buenos Aires City + 24 partidos in Buenos Aires Province 11,453,725 Pampean
2 Rosario Santa Fe 1,513,200 Pampean
3 Córdoba Córdoba 1,295,100 Pampean
4 Mendoza Mendoza 1,009,100 Cuyo
5 La Plata Buenos Aires 857,800 Pampean
6 San Miguel de Tucumán  Tucumán 833,100  NOA (northwest) 
7 Mar del Plata Buenos Aires 699,600 Pampean
8 Salta Salta 531,400 NOA (northwest)
9 Santa Fe Santa Fe 524,300 Pampean
10 San Juan San Juan 456,400 Cuyo
11 Resistencia Chaco 399,800 Gran Chaco
12 Neuquén Neuquén 391,600 Patagonian
13 Santiago del Estero Santiago del Estero  389,200 Gran Chaco
14 Corrientes Corrientes 332,400 Mesopotamia
15 Bahía Blanca Buenos Aires 310,200 Pampean





External Links



Link An Introduction to Argentina
Link El Clarín
Argentina´s most broadly distributed newspaper
Link Patagonia-X
Tourism Engineering
Link Invertir
The complete guide to doing business in Argentina
Link Tourism secretariat
Link Lonely Planet - Argentina
Travel guides
Link Travel and vacation in Argentina


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