Argentina`s Economy
Argentina lives in a democracy since 1986.
Before this year lived it under a military regime. In the nineties
under the
presidency of Menem the country experienced a great increase in
the
liberalization of trade. Argentina has a free market economic system. Due
to the
recent privatization program, the State now has a very limited role in
the
economy. According to the Competitiveness Report of the World Economic
Forum
Argentina is classified as one of the most open, least
protectionist countries
in the world. Its currency is convertible to the US
dollars and there is total
freedom for moving capital internationally.
Argentina has conducted one of the
most intensive privatization programs in
the world. The telephone company,
airlines, most railroads, electric power
production companies (including
hydroelectric power plants), the Argentine
oil company YPF (bought by the
Spanish company Repsol) steel mills,
ports, TV stations and most public services
were transferred recently to the
private sector. Consistent with Fundacion
Invertir the combined value of
privatized firms amounts more to more than US$ 30
billions. Many foreign
firms have participated in this large-scale privatization
program. Foreign
investors do not need to seek any kind of prior approval and
are free to
repatriate full amount of their capital and earnings any time.
Foreign
and domestic companies are treated equally. Under the law, they have
access
to all economic sectors and are eligible for incentive program and
state
procurement. II. TRADE PATTERN It is hard to state the type of trade
that exists
between Argentina and Brazil in the automobile industry because
both countries
import and export cars of the same brand and very similar
models. Volkswagen
produces some of its model of cars in Argentina and some
others model in Brazil.
The reason for this is to achieve economies of
scale; each country specializes
in a certain model of car, by doing so they
reduce the cost of each additional
unit. Another reason for specialization of
production in each country is that it
might be cheaper to produce a certain
model in either Argentina or Brazil.
Several companies as Volkswagen have
invested in production facilities in
Mercosur. Additionally, joint
ventures between local and foreign parts
manufacturers have improved quality.
A report on Argentina auto parts/services
announced that local production in
Argentina was estimated at $1.9 billion in
1997. From 1996 to 1997 the
import market for automobile parts and accessories
grew by 30 percent to $2.2
billion. Imports from Brazil represent 35 percent of
the local import market.
The gains in imports with exports from Brazil boost
employment in Argentina
by a 30 percent and bilateral trade with Brazil as well
as nine fold growth
in investments. (States-USA). See AUTO PARTS/SERVECE table
in appendix. In
the period of July 1997-June 1998 Argentina exported wheat to
the following
countries: Brazil, Turkey, Egypt, Iran, Peru, Indonesia, Sir
Lanka,
Jordan, Tunisia and Kenya. Argentina experiences "inter" trade with
these
countries because it has the comparative advantage of producing wheat at
a
cheap cost. Soils in Argentina are fertile and farmers do not need to use
as
much fertilizers as in the case of European farms. European farms have
been
harvested for years. As a consequence of this farms need to be
fertilized or
remain unused for a period of four years to produce crops.
Argentina engages in"inter" trade on the exports of corn to the following
counties: Japan,
Brazil, Egypt, Taiwan, Peru, Chile, Spain, Iran,
Venezuela, and Colombia.
Argentina exports corn to Brazil because it does
not produce enough corn to
supply its domestic demand. Argentina also
produces "Inter" trade exports of
sorghum with Japan, Mexico, Taiwan,
Colombia, Norway, Spain, and Chile.
Argentina and Brazil benefit from
trade among themselves because each country
exports something in which it
does not have the comparative advantage or in
which its domestic production
is not enough. Argentina imports coffee and sugar
from Brazil. Argentina does
not produce coffee while Brazil is the largest
exporter in the world. In 1997
was the first time in 67 years that Argentina
exported beef to the United
States of America. This country has been declared
free of foot and mouth
disease in May 1997. Beef is an example of "Inter"
trade between Argentina
and countries as Brazil because Argentina’s production
exceeds by far its
demand. The "Comparative International Statistics" has
ranked Argentina as
the number 1 country in the consumption of beef followed by
the United States
in a second place. Argentina, as well as the US, has been
struggling to
export their beef in the European Union. Both countries had no
positive
results due to the high subsidies given by the European governments to
their
farmers. Though primary products account for 38 percent and 37 percent
for
agricultural manufacturers Argentine cattle ranchers as well as farmers
receive
no subsidies from the Argentine government. They were not financially
aided for
the floods they have suffered with "El Niño" current in 1998. The
Argentine
government hopes to export beef to Asia, especially to Japan.
Argentina exports
oilseeds in the type of sunflowerseed or soybean to Brazil,
China, Costa Rica,
Egypt, Germany, Holland Indonesia, Italy, Japan,
Lebanon, Malaysia, Russia,
Spain, Taiwan, Thailand, United Kingdom,
United States, and Venezuela. As
reported by the U.S Department of
Agriculture, (Foreign Agriculture Service)
China was the largest importer
of soybean in June 1999. The opening of the
economy of China and its possible
entrance in the WTO could increase
Argentina’s exports of soybean and
other products to China. III. TRADING
PARTNERS Argentina’s dominant trade
partner is its largest neighbor, Brazil.
Brazil achieved this standing in
1992 and so far has retained it in every year
since then. In 1994 Brazil
accounted for US $ 7.98 billion (21.3) percent of
Argentina’s total
trade, in 1995 this grew to $9.658 billion (23.5 percent),
by 1996 total
foreign trade with Brazil grew 25 percent. The nation’s second
largest
partner was the US, with $ 6.110 billion (16.3 percent) of total trade
in
1994, $ 6.011 billion (14.6 percent) in 1995, $ 6.72 billion or
(14.2
percent) in 1996, and $ 8.285 (or 14.6 percent) in 1997. Argentina
conducts
almost 42 percent of its trade with these two countries. (World
Bank) Argentina
also trades with the following countries: Italy (US$2.470
billion), Chile (US$
2.598), Germany (US$ 2.155), Spain (US$ 1.873),
China (US$ 1.872), France (US$
1.679), and Japan (US$ 1.681). (Stat-USA).
The top ten trade partners accounted
for more than 72 percent of Argentina’s
trade in that year. Mercosur has
significantly affected Argentina’ trade
relationship with its neighbors.
Mercosur means Market of the Southern
Cone. The cone representing Argentina,
Brazil, Uruguay and Paraguay in
South America. As said by Stat-USA, this market
is "one of the largest and
most dynamic integrated markets in the developing
world, and close
cooperation between Brazil and Argentina-historic
competitors-is key to
mercosur’s impressive growth. Argentina accounts for 27
percent of Mercosur’s
GDP; Brazil share exceeds 70 percent. Each country in
the Mercosur has
preferential agreements with each other. The average
trade-weighted external
tariff is 17 percent. 85 percent of goods are included
in Mercosur’s common
external tariff, with the balance to be phased into he
common external tariff
by 2006. Mercosur members’ countries expect to
implement a common auto policy
by 2000, which is to replace the current quota
and tariff system. Argentina’s
trade with its other neighbor countries is not
as significant as the trade it
has with Brazil. Nevertheless, Trade between
Argentina and Bolivia (56.4
percent), Peru (20 percent), Uruguay (12.8 percent),
and Chile (8.3 percent)
has grown in 1997. Fundacion Invertir maintains that
trade with Chile has
been increasing consistently since 1995. In 1996 trade with
Chile was
already up 17.6 percent, to US$ 2.33 billion, and in 1997, it rose to
US$
2.598 billion. With the exception of its top two major suppliers,
Argentina
gets its imports from a wide range of sources, non for which
accounts for a
particular large percentage of its generally well diversified
trade. In 1997 the
major sources of Argentine imports were the US, with US$
6.089 billion (20
percent) and Brazil’ with US$ 6.896 billion (22.7 percent)
together these two
suppliers accounted for almost 43 percent of imports into
Argentina. When the
next three suppliers-Italy (US$ 1.741 billion, 5.7
percent of imports to
Argentina), Germany (US$ 1.654billion, 5.4
percent), France (US$ 1.37 billion,
4.5 percent)-are added, the top five
represent almost 59 percent of all imports.
In 1997, the fastest growing
exporters to Argentina were Colombia (up 81.6
percent), Paraguay (75.8
percent), Canada (61.1 percent), Brazil (29.5 percent),
and Chile (22.6
percent). (Fundacion Invertir) IV. POLICIES OF TRADE Argentina
has adopted
common external tariffs of 0-20 % since the introduction of Mercosur
in
January 1995. For trade with third parties, tariffs of 10% apply to
capital
goods, of 15% to most intermediate products and of 20% to finished
goods. A
"statistical" import-tariff surcharge of 3% applies to all
goods
except those coming from other Mercosur countries. As of October,
Mercosur
raised its common external tariff level by 3 percentage points.
However, for
companies importing to Argentina, there is no impact since a
"statistic
tax" of 3 percentage points was eliminated as a requirement
imposed by the
World Trade Organisation. In October 1995, Argentina
suspended import of fresh
fruit from California in response to Oriental fruit
fly detection in that state.
In addition, certain U.S. fruits, such as
Florida citrus, are currently denied
access to Argentina, while others face
uncertain and non-transparent phyto
sanitary entry requirements. "In January
1997 during a Special 301
out-of-cycle review (OCR), the U.S. Government
announced the suspension of 50%
of Argentina's GSP benefits effective in May
1997 due to Argentina's lack of
patent protection for pharmaceuticals. U.S.
officials continue to strongly urge
Argentina to improve its patent and
data exclusivity regimes." (U.S.
Department of Commerce) Argentina has a
free ports zone in Tierra del Fuego and
La Plata. The executive Decree
1139 o 1998 allows duty free imports of goods
that are not produced in
Argentina and that are designated in high priority
industries. Other imports
incur 50 percent of the normal tariff. Importation of
equipment under bond is
possible against a deposit equal to the item's import
duties. Upon re-export,
the deposit is refunded. As stated by "The
Economist Intelligence Unit"
report of June 1998 in Argentina more than
sixty companies have enlisted to
set up shop in the new Free-Trade Zone (FTZ) at
the port of La Plata, capital
of the province of Buenos Aires. The La Plata FTZ
started operating in the
second half of 1997. V. CONCLUSION Argentine has
experienced a trade balance
deficit for the past 30 years. In 1991 with the
presidency of Menem the
country opened its trade barriers and the Mercosur was
put into action. In
1995, in reversal of a four year trend, Argentina had a
trade surplus of US$
2.177 million with its Mercosur partners, a similar trade
surplus was reached
in 1996 (US$2.093 millions), and in 1997 (US$1.888 million).
Nevertheless
there was a trade deficit for 1998 and it is expected to follow the
same
trend during 1999 due to the devaluation of the Real. The crisis in
Brazil
spread into Argentina because Argentine exports decreased and import
from Brazil
increase. Goods were more affordable in Brazil than in Argentina.
This year
Argentina is suffering from recession and lack of liquidity.
Unemployment
estimated in 16 % is rising because businesses are closing down.
Presidential
elections held in October 24, 1999 also added more financial
insecurity this
year. The currency board is committed to maintain a fix
exchange rate of one
dollar for one peso. This fix rate makes our exports
expensive and in
disadvantage for trade. Argentina should not rely so
strongly in its Mercosur
partners for its exports. Especially in the case of
Brazil due to the lack of
stability of this country. Argentina should try to
open alternative routes of
trade with Asian countries like Japan. As informed
by the November newsletter of
Fundacion Invertir Japan has approved
Argentine wheat to be exported in Japan.
In Asia Argentina has only
exported wheat to Indonesia up to now. Soybean is a
primary product in which
Argentina has the comparative advantage on the factors
of production due to
good soils and low costs of production. Soybean is widely
eaten and it is
contained in many food items. Soybean and soybean derivatives
(oil and meal)
exports could be promoted not only in Asia but as well as in the
many other
countries. Argentina has to focus in diversifying its exports,
increasing
production of high-value-added goods and create alternative trade
partners in
case Brazil's financial system shakes. Not only Argentina has
current account
deficit in merchandise but in invisibles (services), investment
payments, and
transfers. Argentina has generally maintained a deficit position
in trade in
services, and has historically paid out more investment income than
it has
received, keeping its finances on edge. Countries whose foreign
direct
investments keeps up with its domestic growth can afford such
disparities.
Nevertheless Argentina's deficit current account shows that
the economy might be
hurt even more by capital flight. Thus the development
of exports, especially
nontraditional ones, is taking on greater urgency. In
recent years exports of
manufactured products increased at respectable rates.
"In 1995 industrial
products grew 40 percent while primary products and
manufactured agricultural
products each grew 29 percent. In 1996, exports of
industrial products decreased
0.6 percent, primary products grew 21
percent, and manufactured agricultural
products 13 percent. In 1997, exports
of industrial products grew 27 percent,
and manufactured agricultural
products 7 percent, however the primary products
decreased 2.4 percent.
Imports of capital goods and parts are a major component
of total imports,
which are being used to increase productivity."