ECONOMY
Argentina's economy has sustained a robust recovery following the severe 2001/2002 economic crisis, with five consecutive years of over 8% real growth in gross domestic product (GDP). Argentine GDP reached an estimated U.S. $255 billion in 2007, approximately U.S. $6,540 per capita, with investment increasing an estimated 13.5% for the year and representing approximately 23% of GDP. Economic expansion is creating jobs, with unemployment down from over 21% in 2002 to 8.8% in the third quarter of 2007. Poverty levels have also dropped dramatically. According to government statistics, 23.4% of the population in the 28 largest urban areas remained below the poverty line in the first half of 2007, down from over 50% in the immediate aftermath of the economic crisis.
Argentina benefits from rich natural resources, a highly educated population, a globally competitive agricultural sector, and a diversified industrial base. Argentina's post-crisis move to a flexible exchange rate regime, along with sustained global and regional growth, a boost in domestic aggregate demand via monetary, fiscal, and income distribution policies, and favorable international commodity prices and interest rate trends were catalytic factors in supporting renewed growth. This economic resurgence has also enabled the government to accumulate substantial official reserves (over $46 billion as of January 2008) to help insulate the economy from external shocks. A higher tax burden, improved tax collection efforts, and the recovery's strong impact on tax revenues have supported the government's successful efforts to maintain primary fiscal surpluses since 2003.
Argentina is expected to continue to perform well in 2008 with GDP growth projected at 6.9%, according to the Argentine Central Bank's consensus survey. A range of economic experts have identified challenges to sustaining high levels of economic growth in the future, including capacity constraints; the need for substantial new investment in primary infrastructure; potential energy shortages in the face of high growth and energy prices maintained by the government below international market levels. Other challenges include the increasing scarcity of skilled labor, inflation (8.5% in 2007 according to official statistics, but estimated by independent analysts to be significantly higher), and the heterodox policies employed to contain inflation. These include pressure on the private sector to limit price increases via "price stabilization" agreements, delays in addressing the post-crisis renegotiation of public service contracts, export trade taxes, and export bans.
Argentina's exchange rate policy is based on a managed float that appears to be targeting a nominal exchange rate in the 3.15-3.20 Argentine pesos (ARP) per U.S. dollar range. Market analysts consider the peso's real exchange rate broadly undervalued. This, along with historically high global commodity prices, has helped lift export volumes and value to record levels, resulting in a $12 billion trade surplus in 2006, falling to $11.2 billion in 2007 due to a strong increase in imports. Foreign trade equaled approximately 39% of GDP in 2007 (up from only 11% in 1990) and plays an increasingly important role in Argentina's economic development. Exports totaled approximately 22% of GDP in 2007 (up from 14% in 2002), and key export markets included MERCOSUR (22% of exports), the EU (18%), and NAFTA countries (11%). Two-way trade in goods with the U.S. in 2006 totaled almost $9 billion (according to both U.S. and Argentine government statistics). Total two-way trade in services in 2006 exceeded $3.2 billion (according to the Bureau of Economic Analysis, U.S. Department of Commerce). The production of grains, cattle, and other agricultural goods continues to be the backbone of Argentina's export economy. Energy products, high technology goods, and services are emerging as significant export sectors.
Over 450 U.S. companies are currently operating in Argentina and employ over
150,000 Argentine workers. U.S. investment in Argentina is concentrated in the
manufacturing, information, and financial sectors. Other major sources of
investment include Spain, Chile, Italy, France, Canada, Japan, and Brazil.
Continuing Argentine arrears to international creditors (including over $20
billion in default claims by international bondholders and over $6 billion owed
to official creditors) and a large number of arbitration claims filed by foreign
companies are legacies of the 2001/2002 economic crisis that remain to be
resolved and adversely impact Argentina's investment climate.
Economy (2007)
GDP: $255 billion (estimated).
Annual real growth rate: +8.5%.
Per capita GDP: $6,540 (estimated).
Natural resources: Fertile plains (pampas); minerals--lead, zinc, tin, copper, iron, manganese, oil, and uranium.
Agriculture (8% of GDP; including agribusiness, about 55% of exports by value): Products--grains, oilseeds and by-products, livestock products.
Industry (22.3% of GDP): Types--food processing, oil refining, machinery and equipment, textiles, chemicals and petrochemicals.
Trade: Exports ($55.4 billion)--oilseed by-products, vegetable oils, cars, fuels, grains. Major markets--MERCOSUR 22%; EU 18%; NAFTA 11%. Imports ($44.8 billion)--machinery, vehicles and transport products, chemicals. Major suppliers--MERCOSUR 36%; EU 17%, NAFTA 16%. Imported goods from the United States totaled approx. 13% of Argentine imported goods.
