Argentina - Economy

Argentina benefits from abundant natural resources, a highly literate population, an export-oriented agricultural sector, and a diversified industrial base. The country once had a large middle class compared to other Latin American countries, but this segment of the population has been decimated by a succession of economic crises. Today, while a significant segment of the population is still financially well-off, they stand in sharp contrast with the millions who have seen their purchasing power drastically reduced. Since 2002, there has been an improvement in the situation of the poorer sectors and a strong rebound of the middle class.

From the late 1970s the country piled up public debt and was plagued by bouts of high inflation. In 1991, the government pegged the peso to the U.S. dollar and limited the growth in the money supply. It then embarked on a path of trade liberalization, deregulation and privatization. Inflation dropped and gross domestic product grew, but external economic shocks and failures of the system diluted benefits, causing the economy to crumble slowly from 1995 until the collapse in 2001.
 

By 2002, Argentina had defaulted on its debt, its GDP had shrunk, unemployment was more than 25%, and the peso had depreciated 75% after being devalued and floated. However, careful spending control and heavy taxes on then-soaring exports allowed the state to regain resources and conduct monetary policy.

In 2003, import substitution policies and soaring exports, coupled with lower inflation and expansive economic measures, triggered a surge in the GDP. This was repeated in 2004 and 2005, creating millions of jobs and encouraging internal consumption. Capital flight decreased, and foreign investment slowly returned. An influx of foreign currency from exports created a huge trade surplus.

The Central Bank was forced to buy dollars from the market, and continues to do so from time to time to prevent the Argentine peso from appreciating significantly and cutting competitiveness.

The situation by 2006 was further improved. The economy grew 8.8% in 2003, 9.0% in 2004, 9.2% in 2005 and 2006 was on the same track (predictions are between 8.5% and 9.0%), though inflation, estimated at around 10 to 12%, has become an issue again, and income distribution is still considerably unequal.

Sectors: In 2004, agricultural output accounted for 11% of GDP, and one third of all exports. Soy and vegetable oils are major export commodities at 24% of exports. Wheat, maize, oats, sorghum, and sunflower seeds totalled 8%. Cattle is also a major industry. Beef, milk, leather products, and cheese were 6% of total exports. Sheep and wool industries are important in Patagonia, pigs and caprines elsewhere.

Fruits and vegetables made up 3% of exports: apples and pears in the Río Negro valley; oranges and other citrus in the northwest and Mesopotamia; grapes and strawberries in Cuyo, and berries in the far south. Cotton and yerba mate are major crops in the Gran Chaco, sugarcane and tobacco in the northwest, and olives and garlic in Cuyo. Bananas (Formosa), tomatoes (Salta), and peaches (Mendoza) are grown for domestic consumption. Argentina is the world's fifth-largest wine producer, and fine wine production has taken major leaps in quality. A growing export, total viticulture potential is far from met. Mendoza is the largest wine region, followed by San Juan.

Industrial petrochemicals, oil, and natural gas are Argentina's second group of exports, 20% of totals. The most important oil fields lie in Patagonia and Cuyo. An impressive network of pipelines send raw product to Bahia Blanca, center of the petrochemical industry, and to the La Plata-Rosario industrial belt. Coal is also mined.

Mining is a rising industry. The northwest and San Juan Province are main regions of activity. Metals mined include gold, silver, zinc, magnesium, copper, sulfur, tungsten and uranium. In only ten years exports soared from US$ 200 million to 1.2 billion in 2004, 3% of total. Estimates for 2006 are US$ 2bn, a 10 fold rise from 1996.

In fisheries, argentine hake accounts for 50% of catches, pollack and squid follow. Forestry has expanded in Mesopotamia; elm for cellulose, pine and eucalyptus for furniture, timber, and paper products. Both sectors each account for 2% of exports.

Manufacturing is the nation's leading single sector in GDP output, with 35% of the share. Leading sectors are motor vehicles, auto parts, and transportation and farming equipment (7% of exports), iron and steel (3%), foodstuffs and textiles (2%). Other manufactures include cement, industrial chemicals, home appliances, and processed wood. The biggest industrial centers are Buenos Aires, Rosario and Córdoba.

The service sector is the biggest contributor to total GDP. Argentina produces energy in large part through well developed hydroelectric resources; nuclear energy is also of high importance. The country is one of the largest producers and exporters (with Canada and Russia) of Cobalt-60, a radioactive isotope widely used in cancer therapy. Telecommunications is extremely strong, with an important penetration of mobile telephony (75% of population) and internet (30%)[33] and broadband services (3%) have been expanding rapidly. Regular telephone (85% of households) and mail are robust. Construction has led employment creation in the current economic expansion, and is 5% of GDP.

Tourism is increasingly important, now providing 7% of economic output. Argentines are traveling more within their borders, and foreigners are flocking to a country seen as affordable, safe, and incredibly diverse: Cosmopolitan Buenos Aires and Rosario; the incomparable Iguazu Falls and colonial Salta; the South American indigenous Jujuy Province and fun-filled Córdoba; the wineries of Mendoza; the ski-suitable scenic Bariloche to the beaches of Pinamar; and Perito Moreno Glacier to legendary Tierra del Fuego. 3.7 million tourists visited in 2005.

Transportation: Argentina's highway system is well-developed and paved roads reach all corners of the country. There are nearly 640,000 kilometers of highways and roads (with many privatized roads as well). Multilane highways now connect several main cities and more are now under construction.

The railway network was one of the largest in the world, at over 40,000 kilometers of tracks. After decades of decaying service and lack of maintenance, most passenger services shut down in 1992 when the rail company was privatized, and thousands of kilometers of track are now in disrepair. Railway services are currently being reactivated among several cities.

The country has around 3,000 kilometers of waterways, the most significant among these being the Río de la Plata, Paraná, Uruguay, and Paraguay rivers.

Water supply and sanitation: Water supply and sanitation in Argentina faces five key challenges: (i) low coverage with higher levels of service provision for its income level; (ii) poor service quality; and (iii) high levels of pollution; (iv) low cost recovery; and (v) unclear allocation of responsibilities between institutions in the sector.