Argentina’s Economy

There was also massive devaluation of the national currency, which reduced the competitiveness of Argentine’s goods manufacturers in the world market. The trade deficit in 1998 amounted to five billion U.S. dollars, and in 1999 two billion two hundred million dollars. By 1999, the external debt exceeded the amount of eight billion and seven hundred million U.S. dollars, and the main problem for Argentina was servicing of external debt, which was about hundred forty billion dollars. (Damill, 2003)

Since October 1998, Argentina entered a phase of recession and rapid of fall of its GDP (chart 1).

Chart 1: Argentina’s GDP annual growth rates in 1996-2006

The economic recession was accompanied by high level of unemployment and inflation (chart 2), which resulted in a sharp deterioration in living standards and the plight of many people. The number of poor was growing rapidly, especially in the area of Buenos Aires. The public debt in 1999 exceeded the amount of $ 125 billion, GDP fell by 3%, and the rate of unemployment, according to official data, was about 14%, and in fact it reached the 20% mark. (Damill, 2003)

In an attempt to cope with the disastrous situation the government of President Fernando de la Rúa (1999-2001) has taken several extraordinary measures: it greatly increased the income tax, encouraged job creation with worse working conditions and wage cuts. Then Congress adopted the Act on the “zero deficit”: the state had to reduce its costs so they did not exceed revenues, and priority was given to the payment of interest on external debt. The government has also reduced the salary of public sector employees and pensions by 13%. (Daseking, 2004)

De la Rua administration was unable to cope with the economic downturn, as the GDP continued to fall. The social consequences of neoliberal reforms proved to be more disastrous. In 2001, the number of official unemployement exceeded 16.4% (unofficially – 22%), another 15% of the workforce suffer from underemployment. Almost 40% of the population lived in poverty, while 7% of them were in extreme poverty. (Daseking, 2004)

In 2002, GDP amounted to 10.9% and the inflation rate rose to the level of 41% (Chart 2).

Chart 2: Inflation rate in Argentina

In the period from 2000 to year 2007 the economic situation in Argentina was highly unstable. The gross domestic product (GDP) fell in 2002 to a record low to one hundred and two billion forty-two million U.S. dollars. But from next year’s GDP of Argentine was growing slowly but steadily. But despite the financial and economic instability of Argentina, in the period from 2001 to 2003 the dynamics of export was stable, and the rate of imports decreased in two and a half times. The maximum balance has been achieved in the year 2002 at the level of seven hundred million dollars, and after 2002 the number of goods produced in Argentina increased steadily, when in 2007 exports accounted for forty-six billion and two hundred million dollars. This has significantly activated the economy and improved the country’s GDP. So to the year 2007, the Argentine’s economy regained momentum in its development and started to develop highly stable. (Damill, 2003)

References:

Damill, M. and Frenkel, R. (2003). “Argentina: macroeconomic performance and crisis”. The Macroeconomic Policy Task Force of the International Policy Dialogue (IPD)

Daseking K. (2004). Lessons from the crisis in Argentina. International Monetary Fund

Hanke S., Shuler K. (2002). “What went wrong in Argentina?”. Central Banking Journal, 12 (3).

Krueger A. (2002). “Crisis Prevention and Resolution: Lessons from Argentina”. National Bureau Of Economic Research (NBER), International Monetary Fund.