Doing Business in Argentina

Political History

Like most Latin American countries, Argentina is a country with an interesting past and a promising future. The country has existed in its current state since the late 19th century. During this time, the introduction of modern agricultural techniques helped to assimilate Argentina into the world economy. Foreign investment from Britain and other areas in Europe also aided Argentina during this economic revolution.

During the period of 1880-1930, Argentina became one of the wealthiest nations on earth, due to the rapid expansion of agriculture and foreign investment in infrastructure, such as railroads and ports. During this time, GDP per capita was roughly equal to that of the United States.

Argentina's dominant political figure over the last century was Juan Peron. Peron's aggressive policies attempted to empower the working class while expanding the number of unionized workers. Peron nationalized many of the nation's industries.

During the 50's, military and civilian administrations traded power. However, the military governments failed to revive the economy and suppress domestic terrorism in the 60's and 70's. This paved the way for Peron's return.

Peron was reelected in 1973, but died one year later. His third wife succeeded him in office, but a military coup soon removed her. At this time, the armed forces applied harsh measures against those they considered extremists, and gradually tried to restore basic order during what became known as "The Dirty War".

By the beginning of the 80's, serious economic problems, charges of corruption, public disdain regarding human rights issues, and a failed attempt to seize the Falklands/Malvinas Islands severely damaged the reputation of the Argentine military regime. Bans on political parties were lifted and basic political liberties were restored.

Even though democracy returned to Argentina in 1983, the country still faced serious economic problems all throughout the 80's, including hyperinflation, massive government debts, high unemployment, and low wages.

In the early 90's, several policies were put into place in an attempt to bring economic stability to Argentina. These measures included pegging Argentina's currency to the dollar, reducing business regulation, and privatizing many of the nation's industries. These reforms contributed to significant increases in investment and growth with stable prices through most of the 1990s.

Unfortunately, problems begin to mount again in the late 90's. Argentina's public debt continued to grow, corruption was high, and the fixed exchange rate made imports very cheap, resulting in a flight of dollars away from the country.

Investors quickly lost confidence in the country. This resulted in an outflow of capital that gradually lead to a 4 year depression that lead to a crisis in 2001, when people began withdrawing large sums of money from their bank accounts, resulting in a run on the banks.

The government imposed restrictions on the amounts that could be withdrawn from the banks. Not surprisingly, this lead to violent protests and riots. This crisis resulted in an abandonment of the peso-to-dollar convertibility.

Following the crisis, Argentina elected Santa Cruz governor Nestor Kirchner as president. Kirchner's policies helped lead to rapid economic growth and recovery.

Despite a high approval rating, Kirchner declared in 2007 that he would not seek reelection, and instead backed his wife, Senator Cristina Fernandez de Kirchner. She won election and became the first Argentine woman elected to presidency.

Economy

Argentina benefits from rich natural resources, a highly educated and literate population, a strong agricultural sector, and a diverse industrial base. Argentina's move away from the fixed exchange rate following the financial crisis has lead to a growing and globally competitive economy. Like many other countries in Latin America, Argentina continues to benefit from favorable commodity prices.

Between 2003 and 2007, the country experienced 5 consecutive years of greater than 8% growth in annual GDP. Argentina's economic recovery since its financial collapse has allowed it to accumulate substantial financial reserves. These reserves have resulted in a less severe downtown for the country during 2008-2009.

Argentina is the 3rd largest national economy in Latin America, and is currently the 22nd largest national economy in the world.

Gross Domestic Product:

Based on the most accurate estimates, Argentina's GDP currently stands at about $642 billion USD, when adjusted by purchasing power parity. This puts GDP per capita at about $16,000 per capita. The service sector accounts for nearly 60% of Argentina's GDP. Manufacturing, industry, and agriculture account for most of the other 40%.

Growth Rate of GDP

The current growth rate of GDP is around 7.5%, which is up almost 7% from the previous year. This compares favorably to the United States, who experienced just a 5% growth during the period. There are a number of factors that have contributed to this maintained high growth, which include high levels of liquidity, a competitive exchange rate and rising commodities prices. The average quarterly GDP based on the last 10 years is only 4.52%.

Current Account Balance:

In the fourth quarter of 2010, Argentina reported a current account deficit equivalent to $194 million USD. However, they had not reported a current account deficit since 2001. One of the main factors driving Argentina's economy is trade. Exports are mostly agricultural in nature and include beef, soybean products, and cereals. Argentina is a major importer of industrial and computing machinery and parts, industrial supplies, automobiles and other durables and refined fuels and lubricants. Its main trading partners are Brazil, Chile, European Union and The United States.

Argentina's Exchange Rates Against the US Dollar:

Argentina's exchange rate policy is based on a managed-float, and had an average rate of $3.73 pesos per dollar as of 2009. According to many market analysts, the peso's real exchange rate had been undervalued in previous years. Along with historically high global commodity