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ARGENTINA: EMERGING FROM THE GREATEST
CRISIS
Dr. Horacio D. Casabé
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BasicInformation
Country ARGENTINA
CapitalBUENOS AIRES
Surface2.766.890
Km2
Climate TEMPERATE
Population 36,6 mill.
Literacy rate 96%GDP Income per capita200120022005
U$S165 BILL
U$S 7.500U$s 2.900U$s 4.500
Average life expectancy
70 YEARS OLD
Cattle Stock 53 mill.
Sheep Stock 14 mill.
Other Stock 5 mill.
Shepherding surface 50 %
Cultivable surface 15%
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THE SINGLE THOUGHT (NOW WE KNOW THAT...)
THE WASHINGTON’S CONSENSUS WAS NOT INFALLIBLE
ONE MUST CONSIDER THE INDIVIDUAL CHARACTER OF EACH COUNTRY
DANI RODRIK (Professor of International Political Economy – John F. Kennedy School of Government – HARVARD UNIVERSITY
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THE REASONS OF THE CRISIS
•THE FIX EXCHANGE RATE (FIX PEG)
•CONSTANT INTERNATIONAL TRADE DEFICITS (11 BILL – 2.5%)
•STRONG INCREASE OF PUBLIC SPENDING (100% IN 10 YEARS)
•CONSTANT FISCAL DEFICITS (GD 6%)
•TWINS DEFICITS
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THE REASONS OF THE CRISIS
•CONSTANT GROWTH OF PUBLIC DEBT (FROM 60 BILL IN 1991 TO 170 BILL IN 2001)
•FRAGILITY TO FACE EXTERNAL CRISES (MEXICO, RUSSIA, SOUTHEST ASIA, BRAZIL, ETC.)
•MASSIVE PRIVATIZATIONS WITHOUT GOVERNMENT CONTROL (LOSS OF SOVEREIGN RISK – RODRIK)
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THE REASONS OF THE CRISIS
•REGRESSIVE TAX SYSTEM – INSUFFICIENT FISCAL PRESSURE – 16% O/GDP - INEFFICIENT ADMINSTRATION
•SOCIAL SECURITY BANKRUPTCY
•SUDDEN HALT OF INFLOW CAPITALS
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THE CONVERTIBILITY (FIX PEG) AGGRAVATED THE STRUCTURAL PROBLEMS
•PRODUCTION
•LABOUR MARKET
•INCOME DISTRIBUTION
•INTERNATIONAL TRADE
•DEBT/GDP RELATIONSHIP
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CONSEQUENCES OF THE CRISES
•SURGING COUNTRY RISK (6000 BASIC POINTS)
•STRONG GDP DECREASE (20% )
•WSP INFLATION 70% (5 months in 2002)
•SUDDEN FLIGHT OF CAPITALS (U$S 20.3 BILL = 7.6% GDP)
•STRONG PLUNGE OF FEDERAL RESERVE SAVINGS (FROM U$S 28 BILL IN 2000 TO U$S 12 BILL IN 2002)
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CONSEQUENCES OF THE CRISES
•UNEMPLOYMENT RECORD 25% PLUS UNDEREMPLOYMENT 15%
•POVERTY REACHED 54% (EXTREME POVERTY 25%)
•FROZEN BANK ACCOUNTS
•VANISHING NATIONAL CURRENCY AND CREATION OF 14 STATE CURRENCIES (BONDS)
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CONSEQUENCES OF THE CRISES
•EXTERNAL DEBT DEFAULT
•INTERNATIONAL FINANCING HALTED
•HYPER DEVALUATION (1 TO 4)
•SOCIAL CONFLICTS (RIOTS, PICKETING, STRIKES, VIOLENCE, ETC.)
•INSTITUTIONAL CRISIS (5 PRESIDENTS IN 15 DAYS)
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THE ECONOMIC RECOVERY
A. TAKE ADVANTAGE OF DEVALUATION
B. EMERGENCY FISCAL POLICY
C. RE-NEGOTIATE EXTERNAL DEBT
D. FINANCIAL SYSTEM RECOVERY
E. ECONOMIC ACTIVITY RECOVERY
F. NEW INTERNATIONAL CONTEXT
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A. ADVANTAGES OF DEVALUATION
•INCREASE OF EXPORTATIONS
•DECREASE IMPORTATIONS
•IMPORTATION SUBSTITUTION
PROCESS
•STRONG INTERNATIONAL TRADE
SUPERAVIT
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INTERNATIONAL TRADEGLOBAL BALANCE
U$S BILL. 2002 2003 2004 2005
EXP. 25.6 29.9 34.6 40.0
IMP. 9.0 13.9 22.4 28.7
SUP. 16.6 16.0 12.2 11,3
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EXPORTATIONS
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INTERNATIONAL TRADE(BY SECTOR)
37%
33%
30%COMODITIES
FARM AND LIVEMANUFACTURES
INDUSTRIALMANUFACTURES
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INTERNATIONAL TRADE PER REGION
19%
15%
17%
49%
MERCOSUR
NAFTA
E.U.
OTHERS
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B. EMERGENCY FISCAL POLICY
•EXPORTATION TAX
•FINANCIAL ACTIVITIES TAX
•INCREASE INCOME TAX
COLLECTION
•FINANCIAL AID PLANS
•STRONG CONTROL OF PUBLIC
EXPENDITURES
•MULTILATERAL INSTITUTIONS PAY OFF
(IMF, WB, IDB)
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TAX COLLECTION (ARGENTINE CURRENCY)
2005
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C. RENEGOTIATION OF EXTERNAL DEBT
•STRONG DISCOUNT 65%
•ACCEPTANCE 76%
•BETTER PROFILE EXPIRIES
•INTERNAL DEBT PESIFICATION
•DIMINISH INTERESTS
•BETTER RELATIONSHIP DEBT OVER GDP FROM 120% TO 70%
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EXTERNAL DEBT
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D. FINANCIAL SYSTEM RECOVERY
•BANK DEPOSITS RECOVERY
•BANK SYSTEM IN NATIONAL
CURRENCY
•REAPPERANCE OF BANK LOANS
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E. ECONOMIC ACTIVITY AND
EMPLOYMENT RECOVERY
•USE OF NEW TECHNOLOGY
•BENEFITED FROM IDLE CAPACITY (IND.CAP.
From 50% to 80%)
•INDUSTRIAL ACTIVITY INCREASE
•INDUSTRIAL CONSTRUCTION IMPROVEMENT
•PUBLIC WORKS
•NEW EMPLOYMENT AND MORE JOBS
2 MILL - 12% UNEMP. RATE
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ECONOMIC ACTIVITY
50
60
70
80
90
100
110
120
130
2001 2002 2003 2004 2005
GENERAL Base 1993 = 100
CONSTRUCT.
Base 1997 = 100
INDUSTRY Base 1997 = 100
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F. NEW INTERNATIONAL
CONTEXT
•LOW INTERESTS RATES
•COMMODITIES PRICES INCREASE
•SOY BEAN BOOM
•NEW PLAYERS (CHINA, INDIA,
BRAZIL, ETC.)
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200.000
220.000
240.000
260.000
280.000
300.000
320.000
2001 2002 2003 2004 2005
+ 29%
GDP
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WARNINGS AND PENDING PROBLEMS
•IMPROVE THE EXPORTATION PROFILE
•DEVELOP A USEFUL INDUSTRIAL MODEL
•ATTRACT LONG TERM FOREING INVESTMENTS
•CONTROL THE INFLATION PROCESS
•CONTAIN THE DISTRIBUTIVE BIDDING (Prices vs. Wages) Continue
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INFLATION (RETAIL PRICES) %
SOURCE INDEC
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WARNINGS AND PENDING PROBLEMS
•CONSOLIDATE THE FINANCIAL SYSTEM
•ARRANGE THE PUBLIC SERVICES TARIFFS
•MONITOR THE ENERGY CRISIS
•ACTIVE TAX SYSTEM
•REPLACE SUBSIDIZED EMPLOYMENT
•SOLVE THE BLACK LABOUR MARKET (4.8 mill = 46%)
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LABOUR SITUATION 2005
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WARNINGS AND PENDING PROBLEMS
•RENEGOCIATE THE EXCLUDED EXTERNAL DEBT
•IMPROVE HEALTH CARE, SOCIAL SECURITY AND EDUCATIONAL SYSTEMS
•IMPROVE THE INCOME RE-DISTRIBUTION 70’ 7/1 90’ 30/1 2005 31/1
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SUMMARY CRUCIAL ISSUES
•PROMOTE STRUCTURAL REFORMS
•MACROECONOMIC STABILITY
•BUILD A COMPETITIVE AND FORESEEABLE COUNTRY
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THE ARGENTINE CHALLENGE
TO CHANGE THE PARADIGM
•DURING THE 90’S ARGENTINA WAS BELIEVED TO BE AN OPPORTUNITY FOR THE WORLD
•DURING THE XXI CENTURY, THE WORLD MUST BE AN OPPORTUNITY FOR ARGENTINA
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SOME WORLD ECONOMICS INDICATORS IN THE LAST 20
YEARS
• Trade: 6% per year
• Foreign investments: 7% per year
• International loans: 8% per year
• G.D.P. 3,5 per year
• Currency Trade: 25% per year
2004: + 3.000 billion