16 May 2011
An Overview of the Argentine Economy
Major Macroeconomic Indicators
|Population (million of inhabitants)||38.6||39.0||39.4|
|Gross domestic product (US$ billion)||182||213||260|
|Real GDP growth (%)||9.2||8.5||8.7|
|Consumer prices (year-on-year % change)||9.6||10.9||8.8|
|Exports of goods, FOB (US$ billion)||40.1||46.5||55.8|
|Imports of goods, FOB (US$ billion)||28.7||34.2||44.7|
|Average exchange rate (Argentine pesos per US dollar)||2.92||3.07||3.12|
Following trade liberalisation, privatisation, public-sector and macroeconomic stabilisation programmes in the early 1990s, Argentina’s economy achieved remarkable economic progress during the 1991-1997 period. By shifting from an import-substitution trade regime to a freer trade economy, Argentina was among the freest economies in Latin America during the 1990s when import tariffs were lowered between 1988 and 1997 from an average rate of 39% to 13%. While the opening up of the market for international competition gave consumers wider consumption choices, it also led to the ruin of Argentina’s industrial base, foreshadowing its recession in the early 21st century.
Escalating fiscal deficits and an overvalued currency finally pushed Argentina into a profound economic crisis towards the end of the 1990s. Triggered by the abandoning of the exchange rate peg of one Argentine peso to one US dollar, the Argentine economy ground to a halt, culminating in the recession in 2002. The drastic devaluation of the Argentine peso from US$1:Peso1 to US$1:Peso3 not only brought about high inflation and a great loss of purchasing power, but also the return of the crippling import-substitution trade regime.
After four years of economic stagnation, the Argentine economy regained its growth momentum in 2003, thanks to strong global commodity demand and its sturdy agricultural exports, including cereal, oil grains and seeds, sugar, wine, tea, tobacco and cotton. With a per capita GDP of US$6,600 and solid economic growth averaging 8.8% from 2003-2007, Argentina has outperformed other Latin American countries1 following the onset of economic recovery. In addition, it is noteworthy that the official GDP figures do not take into account the buoyant underground economy, which is estimated to account for over 25% of the official GDP.
Evidently, strong economic growth has elicited a sturdy demand for imports. Intermediate goods for mineral, industrial and agricultural sectors used to dominate Argentina’s import list, but consumer goods, especially consumer electronics, have become the drivers of import growth in Argentina in recent years. Fast recovering from its recession, Argentina’s imports grew at a compound annual growth rate (CAGR) of 38% from US$9 billion in 2002 to US$45 billion in 2007, or an increase of some 400% in comparison with the 2002 figures. During that period, Argentine imports from Hong Kong also rose from US$29 million to US$351 million, demonstrating a CAGR of 65%2. Although protectionist measures such as anti-dumping duties and customs tariffs are still concerns for mainland and Hong Kong exporters, emerging production bottlenecks and a returning buying appetite in Argentina have spotlighted the pent-up demand in Argentina for higher-quality and better-designed imports.
Looking ahead, following President Néstor Kirchner’s four-year effort to steer Argentina away from the deep economic crisis, Mrs Cristina Fernández Kirchner’s succession3, which implies a continuation of government policies, is expected to further enhance political and social stability in Argentina, paving the way for sustained economic growth and in turn stronger imported demand over the medium to long term.
1 From 2003-2007, Brazil, Chile and Mexico’s average GDP growths were 3.8%, 5.0% and 3.4%, respectively.
2 From 2002-2007, Argentine imports from the Chinese mainland increased from US$330 million to US$5,092 million, demonstrating a CAGR of 73%.
3 In succeeding her husband, Mr Néstor Kirchner, Mrs Cristina Fernández Kirchner took office and became president of Argentina on 10th December 2007.