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Argentina Economy

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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 U.S. $261 billion in 2007, approximately U.S. $6,630 per capita, with investment increasing an estimated 14.4% for the year and representing approximately 23% of GDP. The economic expansion created jobs, with unemployment down from over 21% in 2002 to 8.0% in the second quarter of 2008. Poverty levels also dropped. According to government statistics, 20.6% of the population in the 28 largest urban areas remained below the poverty line in the first quarter of 2008, 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 more 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 between 2003 and 2007. The economic resurgence also enabled the government to accumulate substantial official reserves (over $45 billion as of early November 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 supported the government's successful efforts to maintain primary fiscal surpluses since 2003.

Argentina has continued to perform well in 2008, with full year real GDP growth projected at about 7%, 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 on some consumer goods, delays in the renegotiation of public service tariffs, export trade taxes, and export bans. Recent global financial turmoil and rapid declines in world commodity prices are also threats to Argentina's ability to continue its rapid rate of economic expansion.

Argentina's exchange rate policy is based on a managed float, and the 2009 budget estimates the average exchange rate at 3.19. Market analysts have considered the peso's real exchange rate undervalued in previous years. This, along with historically high global commodity prices, helped lift export volumes and values to record levels, resulting in an $11.2 billion trade surplus in 2007. Foreign trade was 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 21% of GDP in 2007 (up from 14% in 2002), and key export markets included MERCOSUR (23% of exports), the EU (18%), and NAFTA countries (11%). Two-way trade in goods with the U.S. in 2007 totaled about $9.7 billion (according to both U.S. and Argentine government statistics). Total two-way trade in services in 2007 was $4.0 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. High technology goods and services are emerging as significant export sectors. A decline in global commodity prices and slower global growth levels in the second half of 2008 is expected to reduce Argentina's trade surplus levels in the medium term.

Nearly 500 U.S. companies are currently operating in Argentina, employing over 155,000 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 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. Outstanding debts include over $20 billion in default claims by international bondholders and between $7 billion and $8 billion owed to official creditors. President Cristina Fernandez de Kirchner announced in September 2008 that the government intends to pay debts to Paris Club creditors using Central Bank reserves. She further announced that the government would consider a proposal from private banks on the settlement with international bondholders of untendered Argentine Government debt.

Information by U.S. Department of State

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