Argentina Economic Structure

By: EconomyWatch Content   Date: 11 March 2010

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 Argentina’s economic structure has undergone massive changes since the 2001-2002 Tango Crisis and the 2008-2009 economic recession. From late 2002 up to 2006, the Argentinean economy enjoyed robust growth till things fell apart in 2008. Argentina’s fiscal policy in 2009 was dominated by the government to meet its external debt payments. The president, Cristina Fernandez de Kirchner, nationalized the country’s private pension industry and raised $29 billion. The stock exchange in Buenos Aires fell to a five year low in reaction to this move. However, the country had lined up an extensive roadmap to repay its debts as it had more than $12 billion worth of bonds maturing in 2009. According to the 2009 budget, the country had a fiscal surplus of 3.3% of its GDP, following a surplus of 3.15% during the previous year.

 

The 2009 budget further estimates the inflation to be about 8% in 2010 and reiterates the need for more macroeconomic stability. Argentina’s entrepreneurial sector, however, continues to show innovation and the ability to succeed in trying times. Google chose Buenos Aires as its Latin American headquarters because of the strength of Argentina’s software industry. As of 200, the country has been attempting a fiscal stimulus through public funded projects due to the absence of external credit.

 

Argentina Economic Structure: The Road Ahead

Between 2003 and 2008, Argentine government increased public expenditure by more than 15%. Though the government is expected to implement Keynesian counter-cyclical policies, lack of proper funding is preventing from doing so. According to experts, Argentina can avoid a default on its mounting debts if it improves its fiscal policies, negotiates wage guidelines with unions, and reduces its public expenditure. In addition, Argentina must depreciate the peso further and work with the IMF to form an agenda to implement a strong fiscal policy.

 

Going forward, Argentina desperately needs fiscal improvement in 2010. Although the severity of the slowdown was not as bad as in the US or Europe, experts feel that continuing on the current path would lead to a decline in investments in the country and render it unable to bounce back strongly from the crisis. With the mid-term elections stated to be held in 2010, there is a need to improve the fiscal position after the elections.

 


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