June 2009Julie Thébault

A00750116

Country report

ARGENTINA

International Trade 1

TDMT 1104

Katja Pecarevic

Executive summary

In the very end of 2001, the media largely spread the images of a country falling into chaos, as the banks

were bankrupted, the people desperately tried to cash out their money, the government collapsed, three

presidents came and left office between December 20, 2001 and January 3, 2002. The shops in the major

cities were ransacked by a population who was left with nothing. Some reports stated that in the midst of

the crisis, over 55% of Argentineans had fallen below the poverty line.

Since those dramatic times, Argentina has quite disappeared from the front line of the media. Some

journalists even underline the isolation it suffers on the international scene and the absence of major

official visits to government officials in the past years1.

This imbalance is a sign that the situation of the country must be assessed very carefully and with

important methodological precautions: both the images and the figures can be deceiving in such a situation,

when a country strives to recover from a major financial and social crisis following more than three years

of economic recession. On the one hand, the data provided by traditional economic analysis tools needs to

be repositioned in a specific context in order to be meaningful. This is the reason why, in this situation, the

comparisons with neighboring countries or other states that have not suffered from a recent economic

collapse must be interpreted cautiously. The impressive rate at which GDP grew since 2003 cannot fully be

measured against the growth of Brazil or Chile: it is only a sign that the economy is on a recovery path, and

only complementary information can give us a more precise idea of how to evaluate this growth and its true

meaning. The Article IV 2005 from the IMF is one of the documents that provide us with those tools, as it

compares Argentina’s recovery with Korea and Turkey and significantly shifts our mode of interpretation.

On the other hand, one major characteristic of the data regarding Argentina is that its origin must be

thoroughly evaluated. Both the IMF, independent sources (Transparency International, Global Integrity

Report) and local journalists have denounced corruption within the country. The reliability of official

reports has been contested, especially when it comes to figures given by the National Institute for Statistics2

(INDEC) for inflation3. This is the reason why, in this report, as a necessary precaution, no data was

directly taken from official transcripts, and only from global independent institutions (knowing that, of

1 MercoPress, “The Kirchners Under Increased International Isolation”, May 21, 2009, http://en.mercopress.com/2009/05/21/the-kirchners-under-increased-international-isolation 2 INDEC, www.indec.mecon.ar 3 Two articles underline this issue. Global Integrity Commons Notebook, “Argentina inflation is low because I say so”, March 6, 2009, http://commons.globalintegrity.org/2009/03/argentina-inflation-is-low-because-i.html; and the newspaper Clarín, “Crísis en el INDEC”, March 10, 2007, http://www.clarin.com/diario/2007/03/10/elpais/p-02201.htm

2 Julie Thébault – TDMT 1104 – June 2009 Argentina

course, no risk of bias can be fully eliminated, since the IMF or World Bank staffs build up their figures

from both their own evaluations and the information given to them by officials in the country).

The main issue the country suffers from directly derives from this: a general lack of trust in the government

that affects the domestic and the international context. Domestically, Argentina’s long past of social and

political unrest led the population to lose confidence in the institutions and official representatives.

Internationally, this lack of confidence has affected businesses, who chose for many years to prioritize

short-term financial investments over an actual business presence on the Argentine soil. The aim was to

reduce their risks, but the absence of government policy to address the problem and create a safer context

for investment eventually led to the capital flights that triggered the crisis in 2001. The IMF staff also

stresses out the recurrent problem of trust, and their uncertainty about the government’s will to commit to

some of their recommendations.

All these factors must be kept in mind while trying to determine the characteristics of the Argentine

economy and its underlying trends. Since 2003, the successive governments have strongly asserted their

commitment to an open economy and built up the recovery on an improvement in the terms of trade. They

are providing foreign businesses with a number of incentives to attract investment and skills into the

country, but at the same time, a certain amount of barriers to trade are still in place and fluctuating over the

years, under domestic or international pressure.

3 Julie Thébault – TDMT 1104 – June 2009 Argentina

Argentina

* Data gathered from the Argentine National Bureau of Statistics, Instituto Nacional de Estadisticas y Censos de la Republica Argentina (www.indec.gov.ar), the World Bank World Development Indicators 2008 (p. 14) and the US Department of State (http://www.state.gov/r/pa/ei/bgn/26516.htm).

4 Julie Thébault – TDMT 1104 – June 2009 Argentina

General data*

Capital city: Buenos Aires

Population: 39 million (2006)

Language: Spanish

Republic (Independence: 1816)

President: Cristina Fernández de Kirchner (2007)

Religions

Roman Catholic: 70 %Protestant: 9 %Muslim: 1.5 %

Area: 2 780 million sq. km

(Second largest country in Latin America)

Extension:

North-South: 3 694 kmEast-West: 1423 km

Highest mountain: Cerro Aconcagua, 6959 m.

Climate: mostly temperate, from subtropical in the North to sub-Antarctic in the South.

Frontiers:

Chile: 5 308 kmParaguay: 1 699 kmBrazil: 1 132 kmBolivia: 742 kmUruguay: 496 km

Atlantic coast: 4 725 km

Brazil

Chile

* Data gathered from The Economist website (www.economist.com/countries), the US Department of State (ibid.) and the World Development Indicators 2008 (ibid.).

5 Julie Thébault – TDMT 1104 – June 2009 Argentina

General data*

Capital city: Brasilia

Population: 189 million (2006)

Language: Portuguese

Federative Republic (Independence: 1822)

President: Luis Inacio Lula da Silva (2002)

Area: 8 515 million sq. km

General data*

Capital city: Santiago

Population: 16 million (2006)

Language: Spanish

Republic (Independence: 1810)

President: Michelle Bachelet (2006)

Area: 757 million sq. km

Predominance of the Andes mountains on the Eastern

border.

General presentation of the country1. Population basic data

TABLE I. 1 SELECTED CHARACTERISTICS OF THE POPULATION – Argentina, Brazil, Chile, 2006

Country Argentina Brazil Chile

Population (millions) 39.1 189.3 16.4Population density (people per sq.km) 14 22 22Average annual growth (1990-2006) 1.1 1.5 1.4

Age composition (%)Ages 0-14 26.1 27.6 24.3Ages 15-64 63.6 66.2 67.4Ages 65+ 10.3 6.3 8.3

Crude birth rate (per 1000 people) 18 19 15Crude death rate (per 1000 people) 8 6 5

GDP ppp per capita (2005) 14 280 8 402 12 027Unemployment (% of total labor force) 10.2 8.9 6.9

(2003-2005)

Literacy rate (pop. 15 and over, %) 97 88.5 96

Source: The World Bank, World Development Indicators, 2008 (p. 14; 40; 56; 64).

Argentina’s population is the fourth biggest in Latin America, after Brazil, Mexico (104 million) and

Colombia (46 million). It is quite similar to the population of a middle-range European country such as

Poland. Overall, the characteristics of the population make it closer to European standards than Latin

American ones. Its GDP ppp per capita is the highest in Latin America, providing an interesting

compensation for the lower size of the population: despite being more contracted than other countries the

Argentinean market actually beneficiates from a greater purchasing power.

2. Geography

a. Topography and Climate4

Argentina is located in the South cone of Latin America, a position that gives the country a wide variety of

geographical characteristics: subtropical jungles in the North, arctic regions in Patagonia, temperate ocean

coastline along the Atlantic, steep mountain line of the Andes in the West forming the border with Chile,

vast plains in the center that made extensive cattle breeding possible.

4 Argentine government website, http://www.argentina.gov.ar/argentina/portal/paginas.dhtml?pagina=1483

6 Julie Thébault – TDMT 1104 – June 2009 Argentina

Warm climates: subtropical with no dry season (Misiones, Corrientes, northern Entre Rios, eastern Chaco),

high temperatures and abundant rain falls; tropical with dry season (Salta, West Formosa and Chaco, eastern

Tucuman…); tropical highland climate in the northwest mountain area.

Moderate climates: moderate pampeano climate (banks of Parana and La Plata rivers); moderate with ocean

influence (province of Buenos Aires, Mar del Plata, Necochea); mild climate in Cordoba hills and valleys.

Arid climates: arid mountain climates (high plateau and the Andes from Catacama to Mendoza); arid

climates of hills and fields (Pampas hills); arid steppe climate (down South towards Patagonia).

Cold climates: humid strip of Patagonian Andes; humid-austral climate (province of Santa Cruz and Tierra

del Fuego); snowy climate of high mountains.

b. Major cities

TABLE I. 2 MAJOR CITIES OF ARGENTINA, ranked by population, 2006

City Population

Buenos Aires 2 965 403La Matanza (greater Buenos Aires)

1 120 088

Cordoba 1 157 507Rosario 907 718Quilmes 511 234San Miguel de Tucuman 470 809La Plata 521 936

Source: UN Demographic Yearbook 2006, Table 8, http://unstats.un.org/unsd/demographic/products/dyb/dyb2006.htm

The core of Argentina’s economic activity is set along the Rio de la Plata: the city of Buenos Aires, to which

must be added the extended suburbs of La Matanza, concentrate an important part of the country’s

population and industry, with the port of Buenos Aires opening on the Atlantic for overseas transportation.

The province of Cordoba is the second area of importance.

3. History5

In the case of Argentina, an historical overview seems an absolute necessity. Any business wishing to invest

in the country should know this basic outline, for several reasons. First of all, since the 19th century,

Argentina has been subject to series of political turmoil, economic instability and social unrest – the crisis of

2001 being the latest example of this pattern. This is a characteristic that definitely must be taken into

consideration. Second, the events that have taken place in Argentina since the 1960s are still a vivid issue for

5 Historyworld.net, http://www.historyworld.net/wrldhis/PlainTextHistories.asp?historyid=ac09.

7 Julie Thébault – TDMT 1104 – June 2009 Argentina

most Argentineans and knowing about those major stages in the country’s history may help avoid

embarrassing situations or misplaced comments.

a. 18th-19th centuries

Argentina was a late addition to the Spanish empire in Latin America (gold or silver concentrated in Peru).

Buenos Aires is then no more than a minor port, until the growing smuggling activity in the Rio de la Plata

leads to an administrative reorganization of the area in 1776, when the Vice-Royalty de La Plata is created.

The first moves towards independence occur around 1810, and a formal declaration is made on July 9, 1816,

stating the creation of the United Provinces of the Rio de La Plata.

During the 19th century, the power of the wealthy landowners herding cattle in the vast plains of the country

(the gauchos) starts building up. The first strong man of Argentina, Juan Manuel de Rosas, is elected and

imposes a nationalistic policy through a repressive regime (1829-1851).

The new railways open up the remote areas of the country, making it cheaper to transport goods: wheat and

corn, cattle and sheep. Due to an increasing need for farm laborers, the government encourages immigration

from Europe (mainly Italy and Spain) until the 1940s.

b. 20th century

The first years of the century show an important development of oligarchy (wealth concentrated in the hands

of a few influential landowners) and an important political unrest. After the crash of 1929, exports of beef

and wheat fall. The army takes this opportunity to grab power in 1930 and introduces 16 years of military

rule.

1943, power shifts again during another military coup and Juan Peron is given the position of secretary of

labor and social welfare. He cultivates the support of the masses, becomes the hero of the Descamisados, and

finally wins the elections of 1946. He nationalizes banks and railways, prioritizes social welfare, speeds up

industrialization until he starts losing his populist touch and is forced into exile in 1950.

During the 1970s, the economy is plummeting, inflation reaches 600%. In 1976, General Jorge Videla leads

a new military coup and introduces the most oppressive regime in the country’s history. After the disaster of

the Falkland’s war in 1982, Raul Alfonsin is elected and faces a period of economic troubles. 1991: Carlos

Menem moves the country towards a free-market economy with numerous privatizations. Inflation falls but

unemployment rises. In August 1997, the people manifest their opposition through a general strike.

Fernando de la Rua is elected in 1999, until the financial crisis forces him to leave office in December 2001.

c. 2001-2002, the financial crisis

The outline for the latest political and economical events is detailed page 10, as it is closely related to the

current economic situation of the country.

8 Julie Thébault – TDMT 1104 – June 2009 Argentina

4. Political structure6

Argentina is a Federative republic consisting of 23 provinces and one autonomous federal district (the

Autonomous City of Buenos Aires).

The Executive power belongs to the President (Cristina Fernández de Kirchner, from the Justicialist Party),

elected every 4 years by universal adult suffrage. The President may be re-elected for one term. He appoints

the Chief of the Cabinet of Ministers, the Ministers and the Secretary-General of the President’s Office;

concludes and signs treaties and international agreements; issues directives and regulations necessary to

implement the country’s laws.

The Legislative power lies in the Congress, which is composed of two houses, the Chamber of Deputies and

the Senate. The Deputies are elected by universal suffrage for 4 years and may be re-elected. The Senators

are elected on a provincial basis by direct vote for a six-year term, may be re-elected indefinitely. The

Congress is – among others – enabled to legislate on custom matters, establish import and export duties

impose indirect taxes (concurrently with the provinces), impose direct taxes for a specified term, establish

the annual general budget, regulate trade with foreign nations, approve or reject treaties concluded with other

nations and international organizations (but not amend their contents), approve integration treaties which

delegate powers and jurisdiction to supranational organizations.

The Judiciary power belongs to the Supreme Court of Justice and the lower courts constituted by Congress.

The members of the Supreme Court and judges are appointed by the President with approval of the Senate.

Regarding the provinces, the Constitution recognizes the autonomy of each province in the political,

administrative, institutional, and financial spheres; they are authorized to enter into partial treaties with each

other (justice, economic interest...); they may also promote the introduction and establishment of new

industries or the importation of foreign capital.

6 World Trade Organization, Trade Policy Review on Argentina, 23 April 2007 (Trade and investment regime, p. 2 sqq). The

document is available on the SICE (Foreign Trade Information System) website, http://www.sice.oas.org/ctyindex/ARG/ARGNatlDocs_e.asp

9 Julie Thébault – TDMT 1104 – June 2009 Argentina

Economic outlook1. The crisis

a. Factors

In 1991, Argentina had entered a currency board and set up a fixed exchange rate, pegging the peso on the

dollar and giving both currencies the same legal rights. Until the end of the 1990s, this system was

considered sound and beneficial for the country7, but at the turn of the century the combination of several

factors8 – both internal and external – led to the deep financial crisis of 2001-2002.

A poor record of fiscal performance: large off-budget expenditures, strong resistances from the provinces,

the absence of healthy primary surpluses led to a continuous increase in the public debt ( Table II. 4) which

became unsustainable.

The government failed to address domestic structural rigidities, particularly in the labor market, making it

impossible for the market to adjust to the appreciating real exchange rate of the late 1990s in the context of

the currency board (strong US dollar and depreciation of the Brazilian real after 1999). As a consequence, it

had to face a sudden and significant increase in the cost of borrowing and weakened prospects for economic

growth.

The IMF also stressed the fundamental lack of credibility in the national currency, leading to a high level

of dollarization that increased the overall vulnerability of the financial sector. The banking system became

very exposed to credit risk in the case of a devaluation9. Since any exit from the convertibility plan would be

extremely costly and disruptive, government officials kept delaying addressing the problem of switching to

another exchange rate regime. Generally, because of an absolute lack of political consensus or cohesion, the

necessary decisions to redirect the economic policy were not taken or sustained.

Imbalance between trade and capital integration: Argentina’s low trade share contrasted sharply with an

open capital account that made it dependent on foreign capital and creating a vulnerability to sudden

reversals of capital flows (capital flights).

2001 was the third consecutive year of negative growth (Table II. 1), a prolonged recession that led to a

significant decline in consumption and private investment.

7 Jérôme Sgard, “Le Currency Board argentin et sa fin tragique”, Ceepi et Université Paris-Dauphine, avril 2004,

http://www.cepii.fr/francgraph/publications/divers/sgardargentineexpost.pdf 8 The sources for the whole outline of the economic crisis of 2001 and its consequences are the following: IMF Article IV

Argentina, 2002; IMF Article IV Argentina, 2005; WTO, Trade Policy Review on Argentina (Economic environment).9 Banks issued US$ denominated loans to clients whose earnings were in pesos. Mortgage loans in US$ accounted for about 80%

of all mortgages outstanding by the end of 2001. (IMF Article IV Argentina, 2002, p.8).

10 Julie Thébault – TDMT 1104 – June 2009 Argentina

TABLE I I. 1 EVOLUTION OF GDP, UNEMPLOYMENT RATE AND INFLATION – Argentina, 1998-2006

Source: WTO, Trade Policy Review on Argentina (Economic environment, p.9).

Other structural weaknesses added to the general incapacity to adjust to the situation. On the financial side,

the Central Bank lacked the tools to intervene in the market10. On the business side, gaps in the legal

framework made Argentina a very poor environment for innovation (weak anti-monopoly policy for

instance), to which we must add overall low levels of education in mathematics and science and problems of

corruption11.

b. The events

Both the public finances and the financial conditions of banks had sharply deteriorated, triggering price

deflation and a rise of unemployment to 19% in 2001. The increasing fears of devaluation and of a possible

confiscation of deposits led to gradual outflows of deposits in mid-year. The government utilized the banks

to finance its fiscal deficit, reducing even more their liquidity. In June, the governor of the central bank was

dismissed, confirming the fears that the institutions were at risk.

In the end of 2001, the sharp acceleration of deposit withdrawals led the government to impose a partial

freeze on deposits and limit financial transactions involving checks (the “corralito”), debit or credit cards.

Political and social turmoil exploded, forcing President de la Rua from office on December 20. President

Duhalde abandoned the currency board arrangement on January 3, 2002. To dampen inflation, prices of

privatized utilities (gas, electricity, telephone, water – previously set in US$ and indexed on US inflation)

were frozen indefinitely.

Assets and liabilities were pesoized asymmetrically on February 4.

10 “There was no money market and, given the sovereign default, the central bank could not perform any open market operations

because there were no financial instruments to sell or buy.” Interview of Mario Blejer, ex-governor of the central bank of Argentina, www.centralbanking.co.uk/publications/journals/pdf/Blejer_interview.pdf 11 Transparency International, Global Corruption Barometer, http://www.transparency.org/news_room/in_focus/2009/gcb2009

11 Julie Thébault – TDMT 1104 – June 2009 Argentina

1998 1999 2000 2001 2002 2003 2004 2005 2006GDP (million current US$) 298.9 283.5 284.2 268.7 102.0 129.6 152.2 182.2 211.1

Real GDP growth rates (%)Real GDP 3.9 -3.4 -0.8 -4.4 -10.9 8.8 9.0 9.2 8.5

Total consumption 3.5 -1.3 -0.5 -5.2 -12.9 7.0 8.3 8.5 7.3Private 3.5 -2.0 -0.7 -5.7 -14.4 8.2 9.5 8.9 7.7Government 3.4 2.6 0.6 -2.1 -5.1 1.5 2.7 6.2 5.2

Unemployment rates 12.4 13.8 14.7 18.3 17.8 14.5 12.1 10.1 8.7Underemployment rates 13.6 14.3 14.6 16.3 19.9 16.3 15.2 13.0 10.8

InflationConsumer price index 0.7 -1.8 -0.7 -1.5 41.0 3.7 6.1 12.3 9.8Wholesale price index -6.3 1.2 2.4 -5.3 118.0 2.0 7.9 10.7 7.1

2002 saw the collapse of economic activity, a prolonged loss of monetary control, the quick rise of inflation

and a considerable worsening of poverty levels.

GRAPHS II.1 AND II.2.

INDUSTRIAL PRODUCTION AND INFLATION, Argentina, 1996-2002

Source: International Monetary Fund, Article IV Argentina, 2002, p. 42.

Real GDP fell by 13%, unemployment rate rose up to 23% in October 2002, monthly inflation peaked in

April (10.5%, 19.9% for consumer and wholesale prices), interest rates rose to 100% in March and then

gradually lowered, the bank lending to the private sector fell by 50% in 2002.

c. Consequences and the beginning of the recovery12

The IMF targeted the following as necessary steps for recovery: obtain a political consensus in order to

achieve the structural reforms needed in the country. The major concern was the fiscal policy, where three

goals were identified: strengthen the social safety net to address the social dimension of the crisis; fully

incorporate the provincial governments into the adjustment effort; make a start on fiscal structural reforms

needed to put the public finances on a path toward sustainability through a more robust tax base (Table II. 4).

New presidential elections were held in May 2003 and Nestor Kirchner quickly gathered high approval

ratings and popularity. He addressed the mistakes of the 1990s and human rights issues, publicly denounced

corruption and gave government support to labor groups, the pensioners and the unemployed. He firmly

implemented fiscal and monetary policies to rebuild consumer and business confidence by stabilizing

financial markets, steadily reducing interest rates, unwinding the restrictions on bank deposits and lifting

exchange controls. His policy was supported by favorable environment, namely an improvement in the terms

of trade due to higher prices for key export commodities, robust economic activity in Argentina’s main

trading partners (especially Brazil), low world interest rates.

12 IMF Article IV Argentina, 2005.

12 Julie Thébault – TDMT 1104 – June 2009 Argentina

2. The new economic situation

In the years following the economic collapse of 2001-2002, Argentina’s GDP grew strongly, as it is common

to see in countries recovering from a crisis. As in Korea or Turkey after the 1999 financial crisis, a strong

rebound followed the sharp drop in real GDP. Still, the IMF stresses the point that despite the important rate

of growth in the Argentine GDP, its recovery appeared to be somewhat slower than it is usually observed13 in

such situations. Nonetheless, unlike other countries, Argentina somewhat managed to control the inflation

rate, in spite of the almost 300% nominal depreciation of the currency. In the end of 2006, though, it reached

9.8%, proving that it remains an area of concern for the economy and an issue the government must

constantly monitor and address.

The country’s real output has gone back to the pre-crisis levels and the financial markets have regained a

certain stability.

TABLE II . 2 MAIN ECONOMIC DATA – Argentina, Brazil, Chile, 2007

Country Argentina Brazil ChileGDP (million current US$) 262 331 1 314 170 163 915GDP (million current ppp US$) 523 169 1 833 601 230 423GDP (% growth) 8.5 3.7 4Current account balance (million US$) 7 122 1 551 7 200Trade per capita (US$, 2005-2007) 2 520 1 483 6 625Trade to GDP ratio 44.8 25.8 76.2GDP implicit deflator (average annual % growth)

1990-2000 5.2 211.9 7.92000-2006 12.2 9.2 6.8

Source: The World Bank, World Development Indicators, 2008 (p. 14-16) and WTO Trade profiles, http://stat.wto.org/CountryProfile/WSDBCountryPFView.aspx?Language=E&Country=AR,BR,CL

Since 2003, the growth of GDP was sustained by an increased domestic demand as well as by the rise in

exports (made possible by the depreciation in the exchange rate that followed the fall of the currency board

system).

TABLE I I. 3 STRUCTURE OF OUTPUT – Argentina, Brazil, Chile, 2006

Country Argentina Brazil Chile United States

Germany

GDP (million current US$)1995 258 032 768 951 71 349 7 342 300 2 522 7922006 214 241 1 067 472 145 843 13 163 870 2 896 876

Agriculture (% of GDP)1995 6 6 9 2 1

13 Ibid. p 7.

13 Julie Thébault – TDMT 1104 – June 2009 Argentina

2006 8 5 4 1 1Industry (% of GDP)

1995 28 28 35 26 322006 36 31 48 23 30

Manufacturing (% of GDP)1995 18 19 18 19 232006 22 18 14 14 23

Services (% of GDP)1995 66 67 55 72 672006 56 64 48 76 69

Source: The World Bank, World Development Indicators, 2008 (p. 202).

Argentina’s historical major comparative advantage relies in the agricultural sector, and concerns especially

cereals and livestock. Its main products are, in order of importance, soybeans, corn, wheat, sunflowers,

sorghum, grapes, lemons, apples, rice and cattle.

The manufacturing and industrial sectors have increased their share in the past years: following the

devaluation of 2002, they became increasingly competitive on the international market and the growing

demand in the domestic market supported this expansion. The main products are food processing, petroleum,

chemical industry, steel and metallurgy, and the automotive industry. These activities are mostly

concentrated in the provinces of Buenos Aires, Santa Fe and Cordoba. In 2005, the manufacturing sector

employed 26% of labor force14. Argentina is the fourth largest producer of crude oil in Latin America, and

the third largest producer of natural gas.

The loss of share in services is due to this increase in goods production. The sector is driven by commercial

services and real estate, transport and communications, and finally, financial services.

TABLE II. 4 NON-FINANCIAL PUBLIC SECTOR FINANCIAL ACCOUNTS – Argentina, fiscal years 1998-2006(% of GDP and US$)

Source: World Trade Organization, Trade Policy Review on Argentina, 23 April 2007 (Section 1, p.6-7).

After years of fiscal deficit partially due to a weak tax policy and tensions between the federal government

and the provinces, Argentina has finally managed to run a sustainable surplus, by improving its balance of

14 WTO, Trade Policy Review on Argentina (Trade policies by sector, p.11).

14 Julie Thébault – TDMT 1104 – June 2009 Argentina

1998 1999 2000 2001 2002 2003 2004 2005 2006

Current revenues 18.7 19.3 19.4 18.7 17.6 20.5 23.4 23.7 24.2Tax revenues 13.5 13.6 14.3 13.8 12.8 16.2 18.7 19.2 19.0Current expenditures 19.0 20.8 20.9 21.0 18.4 19.2 19.6 20.1 19.9Economic result -0.3 -1.5 -1.5 -2.3 -0.8 1.3 3.9 3.6 4.2

Total public debt (US$ bill.) 112.4 121.9 128.0 144.4 137.3 178.8 191.3 128.6 129.6Total public debt (% of GDP) 38.0 43.0 45.0 57.0 127.7 139.6 125.7 70.6 60.3

trade and running effective new fiscal policies. At the beginning of 2006, the government repaid the totality

of its debt to the IMF (US$ 9.6 billion)15.

3. Complementary data

Those economic tools provide us with one side of the picture, but need to be complemented by other data

such as those provided by the Human Development Index. It seems all the more necessary as the aftermaths

of a financial crisis leave deep scars on the social level that could be hidden under an economic rebound that

does not benefit the society as a whole.

TABLE II. 5 HDI INDEX – Argentina, Brazil, Chile, 2007-2008

Country Argentina Brazil Chile United States

Human Development Index value, 2005 0.869 0.800 0.867 0.951Rank 38 70 40 12

Life expectancy at birth, 2005 74.8 71.7 78.3 77.9Combined gross enrolment ratio for

primary, secondary and tertiary education (%)89.7 87.5 82.9 93.3

Population living below $2 a day, 1990-2005 17.4 21.2 5.6 NAPublic expenditure on health (% of GDP), 2005 4.3 4.8 2.9 6.9Public expenditure on education

(% of total government expenditure), 2002-200513.1 10.9 18.5 15.3

Homicides (per 100 000), 2000-2004 9.5 NA 1.7 5.6

Cellular subscribers (per 1 000), 2005 570 462 649 680Internet users (per 1 000), 2005 177 195 172 630R&D expenditure (% of GDP), 2000-2005 0.41012 0.98033 0.60517 2.68Patents granted to residents (per million), 2005 4 1 1 244

Source: Human Development report, HDR 2007-2008, Country Fact sheets for Argentina16, Brazil17 and Chile18.

Argentina’s GDP ppp per capita is the highest in Latin America, according to the Human Development

Record for 2007-2008 (Table I. 1). Still, the proportion of the population living below $2 a day gives another

perspective on the social situation of the country and shows the gap between the reality of the population and

global economic data. The Research and Development expenditure is extremely low, as well as the number

of patents granted to residents, which points towards one of the causes of the lack of competitiveness in the

manufacturing sector. The government’s efforts to provide incentives to foreign investment in several high-

tech areas might express its wish to benefit from knowledge transfers from foreign businesses to local

workers and managers, in order to increase future productivity and economic growth.15 Ibid., Economic environment, p. 7.16 http://hdrstats.undp.org/en/countries/data_sheets/cty_ds_ARG.html 17 http://hdrstats.undp.org/en/countries/data_sheets/cty_ds_BRA.html18 http://hdrstats.undp.org/en/countries/data_sheets/cty_ds_CHL.html

15 Julie Thébault – TDMT 1104 – June 2009 Argentina

Trade1. International trade objectives

Argentina has insisted many times on its commitment to an open economy19, striving for better economic

integration through trade negotiations and cooperation with the private sector. Its trade development

strategy20 was defined along the following lines after the crisis period: boosting exports by diversifying both

its supply and markets; designing support policies to help the smaller businesses enter foreign markets;

improving commercial information available to enterprises; participating in several bilateral, regional and

multilateral negotiations through the WTO, the Mercosur and the Free Trade of the Americas in order to

increase its worldwide opportunities. The global aim is to create a more favorable climate for investment and

productivity growth to increase the country’s competitiveness.

2. Main trade-related official institutions within the country

The Ministry of the Economy and Public Finances21 (MECON) is in charge of formulating objectives and

policies relating to economic issues, public finances, industry, agriculture, livestock, fisheries, and trade22.

Through its Secretariat of Industry and Trade, two agencies are operating and responsible for carrying out

trade investigations: the under-secretariat for trade policy and management (in charge of determining the

dumping margin or subsidy and issuing recommendations to the secretariat) and the National Foreign Trade

Commission (CNCE).

The Ministry of External Relations, International Trade and Worship23 (MRECIC) handles economic

and trade negotiations as part of the implementation of Argentina's foreign trade policy, defined in

coordination with the MEP; it is also responsible for regional integration and export promotion. The

MRECIC's Secretariat of Trade and International Economic Relations is in charge of relations with

international economic and trade organizations, including the WTO.

The Ministry of Federal Planning, Public Investment and Services determines objectives and policies in

the areas of transport, communications, mining, energy, sanitation and public works and plays a part in the

development of tariff structures.

19 WTO, Trade Policy Review on Argentina (Economic environment, p.4 sqq).20 “National strategy for the strengthening of trade-related capacities of FTAA countries – Argentina”, by the FTAA consultative

group on smaller economies, August 15, 2003. Available on the SICE website, http://www.sice.oas.org/ctyindex/ARG/ARGNatlDocs_e.asp 21 http://www.mecon.gov.ar/ 22 Julián Peña, Global Competition Review, The Handbook of Trade Enforcement 2008, Argentina,

http://www.globalcompetitionreview.com/_files/_handbooks/_hte08/396.pdf 23 MRECIC, http://cei.mrecic.gov.ar

16 Julie Thébault – TDMT 1104 – June 2009 Argentina

3. Legal aspects of trade

a. Foreign investments24

Foreign investors are widely protected by the law and foreign investment is legally defined as follows by the

Foreign Investment Act. Investors from abroad may invest in Argentina without prior approval, under the

same conditions as investors with an address in the country; transfer abroad liquidated profit from their

investment and take their investment back to their country of origin; take any of the corporate structures

recognized by the Argentinean law; access the domestic credit market with the same rights and conditions as

the domestic companies of domestic capital.

This information is provided by a government institution aiming at attracting foreign investment in the

country: it is important to balance this information with more precise data, such as those provided by the

WTO, and confront it with the past history of Argentina. The transfer of profits is a very sensitive matter: in

late 2001, a set of measures imposed prior authorization requirements for external transactions involving

interest and dividend payments. According to the authorities, these restrictions have been lifted, but the

repatriation of direct investments is subject to the approval of the central bank insofar as it exceeds US$ 2

million per month25.

Foreign investments may be made in: freely convertible foreign currency; capital goods, their parts, and

accessories; earnings or equity in local currency belonging to foreign investors, whenever these funds may

be transferred abroad, under the law; capitalization of foreign credit in freely convertible foreign currency;

intangible assets, in accordance with specific laws; any other type of investment contemplated in special or

promotional systems.

b. Types of business organizations26

Corporation (Sociedad Anonima – S.A.)

Limited liability partnership (Sociedad de Responsabilidad Limitada – S.R.L.)

General Partnership (Sociedad Colectiva)

Non Commercial General Partnership

Limited Partnership (Sociedad en Comandita)

Joint ventures

Foreign corporations: foreign corporations that carry out occasional transactions in the country do

not need to be registered; those setting up branches, agencies or permanent representation offices

should be registered (control by the Companies Inspections Board, Inspección General de Justicia)

24 PROSPERAR, Investing in Argentina, Legal aspects, http://www.inversiones.gov.ar/home.php?page=aspectoslegales 25 WTO, Trade Policy Review on Argentina (Economic environment, p.6).26 Deloitte, Doing Business in Argentina – Executive summaries, http://www.deloitte.com/dtt/whitepaper/0,2312,sid

%253D33622%2526cid%253D45116,00.html

17 Julie Thébault – TDMT 1104 – June 2009 Argentina

c. Intellectual property and transfer of technology27

Authors’ copyrights can be obtained through voluntary registration in the Intellectual Property Registry (Law

11723). The general term for a copyright is the life of the author plus 70 years after his death.

The National Institute of Industrial Property (Instituto Nacional de la Propietad Industrial) is the

government’s agency responsible for the application of the regulations on the protection of industrial

property. The law on trademarks and patents was modified in 2004 to increase its protection. Through a

patent the State provides the inventor with an exclusive right; this right is for a 20 years term during which

the owner can prevent third parties to exploit his invention. The registration in the case of a trademark is for

periods of 10 years, which can be renewed for similar consecutive periods.

The Law 22426 of 1981 rules the transfer, assignment or licensing of technology and or trademarks by

foreigners. These transactions are dealt with by the “Instituto Nacional de la Tecnología Industrial - INTI”

(National Institute of Industrial Technology).

d. Incentives28

In the past years, the government has developed a program of incentives destined to both domestic and

foreign businesses: investment incentives on capital goods and infrastructure; financial programs; promotion

of capabilities (jobs, quality, etc); innovation and technological development incentives; export promotion;

incentives to localization (provincial promotion instruments and customs-free areas); sectorial incentives

(public infrastructure works, mining, forestry, software industry, biofuel, hydrocarbon exploration and

exploitation, biotechnology development and production).

Complementary information and lists of trade-related national authorities are available on the SICE and

FTAA websites29.

e. Disputes

Disputes can be addressed through administrative procedures and local courts, or through international

arbitration. Argentina is a member of the Multilateral Investment Guarantee Agency30 (MIGA), the Overseas

Private Investment Committee31 (OPIC) and the International Center for Settlement of Investment Disputes32

(ICSID).

27 Deloitte, http://www.deloitte.com/dtt/whitepaper/0,2312,sid%253D33622%2526cid%253D45263,00.html 28 Prosperar, http://www.inversiones.gov.ar/home.php?page=incentivos and Government website Argentina.gov.ar,

http://www.argentina.gov.ar/argentina/portal/paginas.dhtml?pagina=1334 29 SICE, http://www.sice.oas.org/ctyindex/ARG/ARGDisciplines_e.asp; Free Trade Area of the Americas, National sources for

information – Argentina, http://www.ftaa-alca.org/busfac/ctyindex/ARG_e.asp 30 MIGA, http://www.miga.org/ 31 OPIC, http://www.opic.gov/index.asp 32 ICSID, http://icsid.worldbank.org/ICSID/Index.jsp

18 Julie Thébault – TDMT 1104 – June 2009 Argentina

4. Measures affecting foreign trade

a. Restrictions to foreign participation

These restrictions concern the following sectors: fisheries, communications media including radio

broadcasting and Internet access (through a law on cultural property and assets, which imposes a 30% cap on

foreign participations), arms and ammunitions.

For national security reasons, some restrictions are also imposed on a number of security border zones:

foreign investors should address the National Security Zones Commission (Comisión Nacional de Zonas de

Seguridad) which is part of the Ministry of Justice, Security and Human Rights33.

b. Price controls

The government controls prices in the following sectors34: urban transport, local telephone services,

electricity, water and gas distribution at the retail level; it also applies tolls on highways and rivers.

c. Exchange controls

Foreign investors should closely follow up with the regulations regarding exchange controls, which belong to

a blurry area of the Argentine foreign trade policy. According to the authorities, all the regulations

implemented during the economic crisis and its aftermaths have been lifted. Still, the Deloitte International

Tax and Business Guide for Argentina (revised in June 2008) gives different information: “Argentina is

under a complex foreign exchange control regime. Transfer of funds out and into the country must be made

abiding by Central Bank regulations. In general terms exporters are required to transfer the collection of (he

exportation) their exports into the country. Restrictions are imposed on inward and outward investment and

interest and other amounts payable in foreign exchange. It may be necessary to provide documentation or

obtain authorization from the Central Bank, and 30% of certain inbound loans may be frozen for 1 year as a

legal reserve deposit (meaning that that portion of the incoming funds will be held in a non-remunerated

bank account). Loans granted to investments in fixed assets and inventories are exempted from 30%,

minimum terms required35.”

d. Measures affecting imports

Tariffs: The 2006 tariff schedule consisted of 9 784 lines, with rates ranging from 0 to 35% (92% of which

consisted in ad valorem duties). The products concerned are, among others, textiles, clothing, footwear,

certain types of toys, and some items related to information technology and telecommunications products.

The overall average tariff has decreased over the years, from a level of 13.8% in 1998 to around 10.4% in

2006. The average tariff applied for agricultural products is 9.9%.

33 Secretary for Interior Security, Secretaría de Seguridad Interior, http://www.jus.gov.ar/ministerio/sec_seguridad_interior.shtml 34 Deloitte International Tax and Business Guide – Argentina, p.3,

http://www.deloitte.com/dtt/cda/doc/content/arg_dbia_argentina-inter-tax-guide-ing_30102008%281%29.pdf 35 Idem, p. 5.

19 Julie Thébault – TDMT 1104 – June 2009 Argentina

During the years of recession, a number of additional tariffs were raised on consumer goods in order to

protect the domestic industry. They have been substantially lowered in the years that followed.

Import prohibitions: A list of the prohibited items (for environmental, health, security or domestic industry

protection) is available in the WTO Trade Policy Report36.

Standards and technical regulations: They are set and monitored by two non-profit associations: the

Argentine Standards Institute (IRAM) which is the official standardization body and acts as a certification

organization for products and systems, and the Argentine Accreditation Agency (OAA).

Administrative procedures: Since 1999, Argentina has unified its customs procedures and eliminated

preshipment inspection. Still, a set of informal processes may still add weight to the international trading

process. One example consists in the required registration for sanitary and phytosanitary purposes some

products or importers must undergo.

Argentina has also made use of numerous anti-dumping measures over the years (ceramic tiles from Italy,

poultry from Brazil37…), but in many cases, the WTO arbitration dismissed those measures as inconsistent.

e. Measures affecting exports38

Procedures, documentation and registration: all exporters must be registered in the Register of Exporters

and Importers maintained by the Directorate-General of Customs. The number of requirements to be met has

increased in recent years.

Export taxes and duties: after 2002, all export were again made subject to export duties (as a way to raise

more fiscal revenues for the government) and the export tax rates have increased on a significant number of

products. These taxes have been point at by the IMF staff, who required that a timeline is set for their

removal, with little success. They have also led in the past years to several conflicts between the Argentine

producers and Cristina Fernandez de Kirchner’s government.

Export prohibitions: a number of measures have been reintroduced in 2005-2006. In 2005, temporary

export bans were decided on tailings of copper and aluminum. In 2006, exports of certain types of bovine

livestock were suspended, in order to maintain the stability of domestic beef prices in the face of increases

due to the rise of external demand. The government has also concluded an agreement with wheat exporters to

ensure that the domestic market is supplied first.

5. Trade agreements and institutions

a. WTO

Argentina became a WTO member when the institution was founded on January 1st 1995, but had been a

member of GATT since October 11, 1967. The WTO sets the global legal framework for Argentina’s trade

36 WTO, Trade Policy Review on Argentina (Trade policies by measure, p. 19-20).37 Ibid., p.26.38 Ibid., p. 37.

20 Julie Thébault – TDMT 1104 – June 2009 Argentina

policies. Since 1995, the country has made an intensive use of anti-dumping complaints and investigations in

the WTO, targeting mostly China and Brazil.

b. Mercosur

Mercosur39 (Mercado Común del Sur) was created on March 26, 1991, when Argentina, Brazil, Paraguay and

Uruguay signed the Asuncion Treaty. The four countries were seeking to open the dimensions of their

national markets and increase their economic development opportunities. The institution’s target is the free

flow of goods, services and factors of production, and the implementation of a common trade policy.

The regional agreements40 of Mercosur are a priority concern of Argentina’s foreign trade policy. Its

integration project aims at the consolidation of the free trade area (FTA) and the development of the customs

union. Chile and Bolivia are now associate members of Mercosur and Venezuela’s full membership is in the

process of legislative ratification.

c. FTAA

The negotiation round leading to the creation of the Free Trade Area of the Americas41 was launched at the

Summit of the Americas in December 1994 in Miami. It aims at progressively eliminate barriers to trade and

investment.

d. Other important organizations and institutions

Latin American Association for Integration42 (ALADI): it was established in August 1980 by the treaty of

Montevideo. It seeks to develop economic cooperation between its members, through regional trading

agreements and sectorial agreements. Its members include Argentina, Brazil, Bolivia, Cuba, Chile,

Colombia, Mexico, Paraguay, Peru, Uruguay and Venezuela.

Organization of American States43 (OAS): it was established in April 1948 by 21 nations of the American

continent. Among many other goals (justice, human rights…) it supported the creation of the Free Trade

Area of the Americas.

Inter-American Development Bank44: Argentina was one of its founding members in 1959. Its aim is to

support economic and social developments in Latin America and the Caribean. It operates through different

39 Mercosur, http://www.mercosur.int/t_generic.jsp?contentid=655&version=1&channel=secretaria&seccion=2 40 A list of the different agreements in available on the SICE website,

http://www.sice.oas.org/ctyindex/ARG/ARGagreements_e.asp 41 FTAA, Free Trade Area of the Americas, www.ftaa-alca.org 42ALADI, Latin American Association for Integration, www.aladi.org 43 OAS, Organization of American States, www.oas.org 44 IDB, Inter-American Development Bank, http://www.iadb.org/aboutus/. For specific data about Argentina, see

http://www.iadb.org/countries/home.cfm?id_country=AR

21 Julie Thébault – TDMT 1104 – June 2009 Argentina

tools such as loans and grants, research, advice, technical assistance to key areas such as education, poverty

reduction and agricultures. It is also involved in trade, infrastructure and energy issues.

6. International trade data

a. Imports and exports of goods and services

The data about Argentina’s foreign trade balance must of course be studied in the light of its very specific

situation in the beginning of the 21st century. The figures by themselves will be deceiving if not confronted to

comparative analysis, such as those provided by the IMF Article IV 200545 report that we mentioned before.

The slump in exports and imports due to the crisis was indeed followed by a vigorous growth. Still, as the

examples of Korea and Turkey have shown, the path of recovery in Argentina has been somewhat slower

than could have been expected in such a situation. The explanatory factors identified by the IMF point

towards the country’s lower degree of openness to international trade, as well as its concentration on

commodity and agricultural exports (Table III.3). Moreover, the creation and increase in export taxes levied

on those same agricultural exports noticeably slowed down the pace of potential expansion.

TABLE II I. 1 EXPORT OF GOODS AND SERVICES – Argentina, Brazil, Chile, 2001-2006(average annual % growth)

Country Argentina Brazil Chile

2001 2.9 12.1 9.72002 3.1 7.8 5.62003 6 10.4 5.72004 8.1 15.3 6.12005 13.8 9.3 4.82006 7.4 4.7 4.2

Source: The World Bank, World Development Indicators, 2003 to 2008,WTO Trade Policy Review for Argentina (Economic Environment, p. 3), and WTO Trade Policy Review for Brazil46 (Economic Environment, p. 2).

TABLE III. 2 IMPORTS OF GOODS AND SERVICES – Argentina, Brazil, Chile, 2001-2006(average annual % growth)

Country Argentina Brazil Chile

2001 -13.9 0.7 -1.32002 -50.1 -12.8 0.42003 37.6 -1.6 7.12004 40.1 13.3 20.42005 20.1 8.5 8.92006 15.2 18.3 9.4

45 IMF Article IV Argentina, 2005, p. 7.46 Document available on the SICE website, http://www.sice.oas.org/ctyindex/BRZ/BRZNatlDocs_e.asp

22 Julie Thébault – TDMT 1104 – June 2009 Argentina

Source: The World Bank, World Development Indicators, 2003 to 2008, WTO Trade Policy Review for Argentina (Economic Environment, p. 3), and WTO Trade Policy Review for Brazil (Economic Environment, p. 2).

TABLE I II. 3 STRUCTURE OF MERCHANDISE EXPORTS AND IMPORTS – Argentina, 1995 and 2006

Year 1995 2006

Merchandise exports ($ million) 20 967 46 569Food (% of total) 50 45Agricultural raw materials 4 1Fuels 10 15Ores and metals 2 5Manufactures 34 32

Merchandise imports ($ million) 20 122 34 158Food (% of total) 5 3Agricultural raw materials 2 1Fuels 4 5Ores and metals 2 3Manufactures 86 87

The manufacturing sector, as we saw previously, constitutes a specific target for the government’s trade

policy as it tries to increase its competitiveness internationally. The automotive industry is under special

focus and several bilateral or multilateral agreements have been implemented (with Uruguay and Mexico,

specifically47).

TABLE I II. 4 STRUCTURE OF COMMERCIAL SERVICE EXPORTS AND IMPORTS – Argentina, 1995 and 2006

Year 1995 2006

Commercial service exports ($ million) 3 676 7 542Transport (% of total) 27.4 18.9Travel 60.5 43.9Insurance and financial services 0.2 0.1Computer, information, communication and other

11.9 37.2

Commercial service imports ($ million) 6 992 8 222Transport (% of total) 30.1 27.8Travel 46.9 38.1Insurance and financial services 7.1 4.4Computer, information, communication and other

15.9 29.7

Source: The World Bank, World Development Indicators, 2008.

47 http://www.sice.oas.org/ctyindex/ARG/ARGagreements_e.asp

23 Julie Thébault – TDMT 1104 – June 2009 Argentina

b. Foreign Direct Investment

According to the WTO, Argentina is a net recipient for Foreign Direct Investment flows. In 1999 and 2000

the privatization processes attracted an important amount of investment from abroad. Even though the flow

fell substantially during the crisis and the year that followed, it has regained strengths since that time. In

2004, the stock of FDI amounted to US$ 50.583 billion.

The main investors and activities are as follows:

TABLE I II. 5 FOREIGN INVESTMENT POSITION, BY INVESTOR AND BY ACTIVITY – Argentina, 1998-2004( US$ million)

Source: WTO, Trade Policy Review on Argentina (Economic environment, p.14-15).

In 2006, the situation still presents a strong predominance of FDI inflows over outflows: the net inflows

represent 2.3% of GDP, against 1% for outflows – the opposite of Brazil, where inflows amount to 1.8% of

GDP and outflows reach 2.6%.

GRAPH III. 1 FDI INFLOWS, MERCHANDISE TRADE AND GDP PER CAPITA – Argentina, 2001-2006

24 Julie Thébault – TDMT 1104 – June 2009 Argentina

1998 1999 2000 2001 2002 2003 2004

By investorEurope 20 056 31 263 36 873 44 029 23 714 26 234 27 482North America 16 206 17 402 17 641 21 777 12 321 12 232 12 491Central America & Caribbean 5 043 7 170 6 388 5 014 1 267 3 607 3 324South America 5 629 5 056 5 113 6 638 4 899 5 391 6 141Total 47 797 61 926 67 601 79 504 43 146 48 298 50 583

By activityOil 6 294 14 813 16 888 18 104 11 749 12 951 13 976Mining 1 091 1 083 769 938 356 421 743Manufacturing 17 345 18 610 19 919 22 562 13 721 14 818 16 497Electricity, gas and water 7 346 8 306 7 951 9 043 3 969 4 876 5 053Total 47 797 61 926 67 601 79 504 43 146 48 298 50 583

Foreign Investment Flows (net) 7 291 23 988 10 418 2 166 2 149 1 652 4 274

Source: FDI.net, country factsheet Argentina, http://www.fdi.net/country/sub_index.cfm?countrynum=11

7. Trade between Argentina and Canada

Over the past years, Canada has benefited from the new economic and legal conditions in Argentina which

opened its border to a wider international cooperation. In 1993, both countries had signed a Foreign

Investment Promotion and Protection Agreement (FIPA), the first of an important series of Canadian

agreements with Latin America, destined to build up economic development through both trade and

investment.

In 2008, Canadian exports to Argentina have amounted to $ 267 814 96648. The main products were

machinery and electrics, followed by transportation materials, chemicals and base metals.

Imports from Argentina ($ 640 424 158) consisted in base metals, food, chemicals, metals.

FDI stock in Canada was $ 44 million and FDI stock in Argentina reached $ 3 643.

8. Risk assessment

According to the World Bank Business Environment Snapshots49, the three areas of concern for doing

business in Argentina are policy instability (this is also a factor highlighted many times by the IMF in its

Article IV reports), access to financing and corruption.

The data available on the Doing Business website show a degradation in several indicators from 2007 to

2008, among which Starting a business (from rank 117 to rank 135, a drop in 18 ranks), Closing a business

(68 to 83), Registering property (87 to 95) or Getting Credit (51 to 59). The number of procedures and time

necessary to file the appropriate requests are often pointed at, in the legal or financial sectors.

48 Embassy of Canada to Argentina, country factsheet, http://www.international.gc.ca/world/embassies/factsheets/argentina-FS-

fr.pdf 49World Bank Business Environment Snapshots, http://rru.worldbank.org/BESnapshots/Argentina/default.aspx

25 Julie Thébault – TDMT 1104 – June 2009 Argentina

The Global Competitiveness Report 2008-200950 from the World Economic Forum also shows a concerning

picture of the country, where is seems to be at a disadvantage in an important number of factors among

which all those related to Market Efficiency (except Buyer Sophistication), Labor Market Efficiency,

Financial Market Sophistication, and most of Business Sophistication.

The selected factors in this report fall into two categories: advantage and disadvantage. On the total list of

items that are studied, Argentina is at an advantage in 18 items, and at a disadvantage in the remaining 95. A

comparison with the scores of Brazil (advantage: 35 – disadvantage 78) is an evidence of the fact that

Argentina will have to increase its overall competitiveness in order to reach a stable economic development.

Political risks, on the medium to long-term, are also an important concern for future business investment in

Argentina. Its history has shown a repetitive pattern of turmoil and social unrest, leading to political

instability. The consequence is the impossibility to sustain a given policy on the long-term and the risk that

government officials will fall for populism, demagogy, and delay necessary reforms to maintain their popular

base.

GRAPH I II. 2 RISK ASSESSMENT – Argentina, 2009

Source: ONDD, Office National du Ducroire, The Belgian Export Credit Agency, http://www.ondd.be/webondd/Website.nsf/AllWeb/Argentina?OpenDocument&Disp=1&Language=en

50 Global Competitiveness Report 2008-2009, http://gcr.weforum.org/gcr/

26 Julie Thébault – TDMT 1104 – June 2009 Argentina

Corruption issues must also be addressed, as shown by the latest Global Integrity Report available51. This is

essential in order to build confidence in the country, its government officials and the policies that are

implemented. Concerns for corruption practices make it difficult to build projects on the long-term and

significantly weigh down the opportunities of doing business in the country.

RecommendationsArgentina’s economy has recovered at a steady path since the second half of 2002 and its output has regained

its level of the 1990s. This recovery, as stressed out by the IMF, was somewhat slower than that of countries

with a similar background, but it also occurred in a context of lack of external financing, giving it a stronger,

more stable basis. The improvement in the terms of trade is now the main asset and the core of Argentina’s

economic policy, illustrating the country’s commitment to an open free trade market economy. The exchange

rate has remained at a competitive level since the devaluation and small- to medium-sized businesses have

created new jobs, contributing to the overall decrease in the unemployment rate.

Given its reliance on the competitive advantage it has in the agricultural sector, Argentina has everything to

gain from the WTO negotiations on the matter, provided the government will accept to play its part and

lower in turn – as the IMF staff repeatedly required – its tariffs and restrictions on a certain number of

products. The position of Argentina towards the WTO should be followed carefully: the decisions it will take

regarding agriculture might trigger other changes in the way it deals with international trade as a whole. If it

commits to the WTO rules in order to gain from the decrease in subsidies and tariffs in other nations,

Argentina might be induced to lower its own protective barriers to imports and restrictions. These barriers,

whatever form they take, are a main area of concern and uncertainty when dealing with the country. It is

clear that the different governments have used them and modified them quite frequently in order to reach

domestic goals and compensate for internal flaws or problems.

The predominance of foreign direct investment inflows over outflows, the low levels of research and

development, as well as the necessity to develop the manufacturing sector have led the government to offer

various incentives to foreign businesses, which represent a major opportunity for those companies, provided

all the details are carefully assessed. Since the crisis, it seems that Argentina has decided to attract skills

from abroad, even more than funds, in order to compensate for its intrinsic lack of competitiveness and gain

from exposure to foreign firms. The necessity to recur to incentives, though, proves that the situation

involves risks. Argentina will clearly gain more from FDI than from imports, which could explain this

scheme of incentives to investment vs. barriers to trade of goods. Each company must then assess to what

51 Global Integrity Report, Argentina, 2008, http://report.globalintegrity.org/Argentina/2008

27 Julie Thébault – TDMT 1104 – June 2009 Argentina

extent they are vulnerable to those barriers if they must make a decision between simple exports or a deeper

involvement in the country, through FDI, licensing, joint ventures or portfolio investment.

Since the economy is highly dependent on politics, any foreign company entering this chain of dependency

becomes vulnerable to the political instability that has affected Argentina for, literally, two centuries. In the

end of June 2009, the mid-term legislative elections will be held. Cristina Fernández de Kirchner’s

government could be put at a trial on this occasion once again, as many complaints and conflicts have risen

in the past year about the export tariffs and duties imposed on agricultural producers. These elections, again,

might lead to some changes in the international trade policy of Argentina.

28 Julie Thébault – TDMT 1104 – June 2009 Argentina

How it would be to live in Argentina

Argentina, with its exceptional geographical setting, is at the confluence of different cultures and

influences, making it absolutely unique on the continent. The strong immigration from Europe at the

beginning of the 20th century created an atmosphere where Latin American and European heritages are

deeply intertwined, leading most people to say that in Argentina, tango is the only thing that is not looking

towards Europe... The national music and dance is literally part of Buenos Aires' everyday life and it is a

common experience to see Argentineans join a milonga in the evening or in the week-end, regardless of their

origins or age. Culture is a strong national pride, the main cities display an impressive number of bookstores

or theaters and the news-stands in the train or bus stations will sell quite naturally books by Freud, Plato or

Michel Foucault. Psychoanalysis is extremely developed in the country and Buenos Aires is known for

hosting an extremely high number of psychoanalysts. Psychotherapy is almost an individual necessity and

most people undergo one, for both personal and cultural reasons. Not doing it would be considered abnormal.

Food is another national pride, given the quality of the meat provided and the traditional parillas

(barbecued meats) are the main item on the restaurant menus. Following its Spanish origins, life in Argentina

runs on a late schedule: an early evening dinner will be served around 10 pm and on a Saturday night, people

are quite likely to decide to meet in a bar at 1 am.

29 Julie Thébault – TDMT 1104 – June 2009 Argentina

References

I. Global resources

1. International institutions

The World Bank, World Development Indicators series, 2002 to 2008.

World Trade Organization, Trade Policy Review on Argentina, 2007

World Trade Organization, Trade Policy Review on Brazil, 2009

WTO Trade profiles, http://stat.wto.org/CountryProfile/WSDBCountryPFView.aspx?

Language=E&Country=AR,BR,CL

WTO Tariff profiles, http://stat.wto.org/TariffProfile/WSDBTariffPFView.aspx?

Language=E&Country=AR,BR,CL

WTO Services profiles, http://stat.wto.org/ServiceProfile/WSDBServicePFView.aspx?

Language=E&Country=AR,BR,CL

WTO Time series, http://stat.wto.org/StatisticalProgram/WSDBStatProgramSeries.aspx?Language=E

IMF regional economic outlook 2009 for Latin America, pdf, http://www.imf.org/external/pubs/ft/reo/2009/

WHD/ENG/wreo0509.pdf

IMF Article IV Argentina 2002

IMF Article IV Argentina 2005

United Nations statistics, http://unstats.un.org/unsd/default.htm

United Nations conference on trade and development, http://www.unctad.org/Templates/StartPage.asp?

intItemID=2068

United Nations, UN Demographic Yearbook 2006,

http://unstats.un.org/unsd/demographic/products/dyb/dyb2006.htm

Bank for international settlements, http://www.bis.org/index.htm

International Trade Center, http://www.intracen.org/

World Economic Forum, http://www.weforum.org/en/index.htm

Index of Economic Freedom, http://www.heritage.org/Index/

Human Development report, HDR 2007-2008, http://hdrstats.undp.org/en/countries

Multilateral Investment Guarantee Agency, MIGA, http://www.miga.org/

Overseas Private Investment Committee, OPIC, http://www.opic.gov/index.asp

30 Julie Thébault – TDMT 1104 – June 2009 Argentina

International Center for Settlement of Investment Disputes, ICSID,

http://icsid.worldbank.org/ICSID/Index.jsp

2. Regional Organizations

Mercosur, http://www.mercosur.int/

Free Trade Area of the Americas, www.ftaa-alca.org

OAS, Organization of American States, www.oas.org

ALADI, Latin American Association for Integration, www.aladi.org

World Economic Forum for Latin America,

http://www.weforum.org/en/knowledge/Regions/LatinAmericaandtheCaribbean/index.htm

Americas' center, http://www.frbatlanta.org/econ_rd/americas_center/ac_index.cfm

Economic commission for Latin America and the Caribbean, http://www.eclac.org/default.asp?idioma=IN

Latin Trade, http://latintrade.com/

SICE, Foreign Trade Information System, www.sice.oas.org

3. Business related data

World Economic Forum, Global Competitiveness Report 2008-2009, http://gcr.weforum.org/gcr/

World Bank Business Environment Snapshots, http://rru.worldbank.org/BESnapshots/Argentina/default.aspx

FDI.net, www.fdi.net

ONDD, Office National du Ducroire, The Belgian Export Credit Agency, www.ondd.be

Global Integrity Report, Argentina, 2008, http://report.globalintegrity.org/Argentina/2008

Transparency International, http://www.transparency.org/

Deloitte, Doing Business in Argentina, www.deloitte.com

4. Research institutes and universities

Office for resources and areas studies, http://orias.berkeley.edu/

Center for Latin American Studies / Berkeley, http://clas.berkeley.edu/

The Berkeley Roundtable on the international economy, http://brie.berkeley.edu/

Center for international and development economics research, http://cider.berkeley.edu/

Institut des hautes études pour l'Amérique latine / Paris, http://www.iheal.univ-paris3.fr/

Peterson institute for International Economics, http://www.iie.com/

Oxford Latin American Economics history database, http://oxlad.qeh.ox.ac.uk/

31 Julie Thébault – TDMT 1104 – June 2009 Argentina

II. Argentina

1. Official and government institutions in Argentina

Presidency, http://www.casarosada.gov.ar/index.php?option=com_content&task=view&id=24&Itemid=34

Parliament, http://www.diputados.gov.ar/

Argentine Government website, www.argentina.gov.ar

Ministry of Economy and Public Finance, http://www.mecon.gov.ar/

MRECIC, http://cei.mrecic.gov.ar

Secretary for Interior Security, Secretaría de Seguridad Interior,

http://www.jus.gov.ar/ministerio/sec_seguridad_interior.shtml

Central Bank of Argentina, http://www.bcra.gov.ar/index_i.htm

National statistics Argentina, http://www.indec.mecon.ar/default.htm

2. Investment related websites

Prosperar, Investing in Argentina, www.inversiones.gov.ar

Argentina Foreign Investment, http://www.foreigninvestment.com.ar/

Fundación Invertir Argentina, http://www.invertir.com/

Camara Argentina de Comercio, http://www.cac.com.ar/

Centro de Economia Internacional, http://www.cac.com.ar/

Instituto de Desarollo Economico y Social, http://www.ides.org.ar/index.jsp

Union Industrial Argentina,

http://www.uia.org.ar/index.do;jsessionid=3DB126C7EEE6B0F9814F5392A7AF8D73

Global Edge Argentina, http://globaledge.msu.edu/countryInsights/country.asp?countryID=98

Doing business in Argentina, http://www.doingbusiness.org/ExploreEconomies/?economyid=9

FDI.net, http://www.fdi.net/country/sub_index.cfm?countrynum=11

3. Country profiles

IMF profile, http://www.imf.org/external/country/ARG/index.htmFinancial position in the fund, http://www.imf.org/external/np/fin/tad/exfin2.aspx?memberKey1=30&date1key=2009-05-15

BBC country profile, http://news.bbc.co.uk/2/hi/americas/country_profiles/1192478.stmThe Economist, http://www.economist.com/countries/Argentina/Latin American Information Network Center, http://www1.lanic.utexas.edu/la/argentina/

32 Julie Thébault – TDMT 1104 – June 2009 Argentina

4. Articles

“National strategy for the strengthening of trade-related capacities of FTAA countries – Argentina”, by the

FTAA consultative group on smaller economies, August 15, 2003,

http://www.sice.oas.org/ctyindex/ARG/ARGNatlDocs_e.asp

Julián Peña, Global Competition Review, The Handbook of Trade Enforcement 2008, Argentina,

http://www.globalcompetitionreview.com/_files/_handbooks/_hte08/396.pdf

Jérôme Sgard, “Le Currency Board argentin et sa fin tragique”, Ceepi et Université Paris-Dauphine, avril

2004, http://www.cepii.fr/francgraph/publications/divers/sgardargentineexpost.pdf

Historyworld.net, http://www.historyworld.net/wrldhis/PlainTextHistories.asp?historyid=ac09

III. Brazil

IMF profile, http://www.imf.org/external/country/BRA/index.htm

BBC country profile, http://news.bbc.co.uk/2/hi/americas/country_profiles/1227110.stm

The Economist, http://www.economist.com/countries/Brazil/

Latin American Information Network Center, http://www1.lanic.utexas.edu/la/brazil/

Presidency, http://www.presidencia.gov.br/ingles/

Government, http://www.brasil.gov.br/ingles/

National statistics Brazil, http://www.ibge.gov.br/english/default.php

Brazilink.org, http://www.brazilink.org/tiki-index.php

Global Edge Brazil, http://globaledge.msu.edu/countryInsights/country.asp?countryID=107

Doing business in Brazil, http://www.doingbusiness.org/ExploreEconomies/?economyid=28

IV. Chile

IMF profile, http://www.imf.org/external/country/CHL/index.htm

National statistics Chile, http://www.ine.cl/canales/chile_estadistico/home.php

Central Bank of Chile, http://www.bcentral.cl/eng/

Chilean Trade Commission, http://www.chileinfo.com/

Global Edge Chile, http://globaledge.msu.edu/countryInsights/country.asp?countryID=111

Doing business in Chile, http://www.doingbusiness.org/ExploreEconomies/?economyid=41

BBC country profile, http://news.bbc.co.uk/2/hi/americas/country_profiles/1222764.stm

The Economist, http://www.economist.com/countries/Chile/

Latin American Information Network Center, http://www1.lanic.utexas.edu/la/chile/

The Chile information project, http://www.chipsites.com/public/

33 Julie Thébault – TDMT 1104 – June 2009 Argentina

Table of contentsExecutive summary........................................................................................................................................2

General presentation of the country.......................................................................................................6

1.Population basic data..........................................................................................................................6

2.Geography...........................................................................................................................................6

a.Topography and Climate.................................................................................................................6

b.Major cities.....................................................................................................................................7

3.History.................................................................................................................................................7

a.18th-19th centuries........................................................................................................................8

b.20th century....................................................................................................................................8

c.2001-2002, the financial crisis.........................................................................................................8

4.Political structure................................................................................................................................9

Economic outlook...................................................................................................................................10

1.The crisis............................................................................................................................................10

a.Factors...........................................................................................................................................10

b.The events.....................................................................................................................................11

c.Consequences and the beginning of the recovery.........................................................................12

2.The new economic situation.............................................................................................................13

3.Complementary data.........................................................................................................................15

Trade.......................................................................................................................................................16

1.International trade objectives...........................................................................................................16

2.Main trade-related official institutions within the country...............................................................16

3.Legal aspects of trade........................................................................................................................17

a.Foreign investments......................................................................................................................17

b.Types of business organizations....................................................................................................17

c.Intellectual property and transfer of technology...........................................................................18

d.Incentives......................................................................................................................................18

34 Julie Thébault – TDMT 1104 – June 2009 Argentina

e.Disputes.........................................................................................................................................18

4.Measures affecting foreign trade......................................................................................................19

a.Restrictions to foreign participation..............................................................................................19

b.Price controls................................................................................................................................19

c.Exchange controls..........................................................................................................................19

d.Measures affecting imports..........................................................................................................19

e.Measures affecting exports...........................................................................................................20

5.Trade agreements and institutions...................................................................................................20

a.WTO..............................................................................................................................................20

b.Mercosur.......................................................................................................................................21

c.FTAA..............................................................................................................................................21

d.Other important organizations and institutions............................................................................21

6.International trade data....................................................................................................................22

a.Imports and exports of goods and services...................................................................................22

b.Foreign Direct Investment.............................................................................................................24

7.Trade between Argentina and Canada..............................................................................................25

8.Risk assessment.................................................................................................................................25

Recommendations..................................................................................................................................27

How it would be to live in Argentina............................................................................................................29

References...................................................................................................................................................30

35 Julie Thébault – TDMT 1104 – June 2009 Argentina