An overview of Argentina`s Economy and the State of its Economic Progress - Research Paper Example

An Overview Argentina's Economy and Its Progress Introduction Argentina has an interesting economic history and is one of the most researches about countries owing to the fact that it had attained advanced development status by the beginning of the 20th century, but its economic growth retarded afterwards. The country is endowed with enormous amount of resources including fertile agricultural land. Historically, the economic performance of Argentina has been fluctuating despite its endowment with vast amount of natural resources. The country is also characterised by inequality in income distribution and high rates of poverty. The country’s high rate of economic growth has been discontinuous following serious economic recessions, especially during the twentieth century. This paper explores the economy of Argentina and also looks at the progress of the country’s economy over the years. Overview of the Economy of Argentina Argentina is amongst the countries endowed with rich natural resources. The country has very high literacy level. The agricultural sector is export-oriented with the nation’s industrial sector highly diversified. Because of intermittent economic crises, unrelenting deficits in its fiscal and current accounts, high and ever growing external debts as well as capital flight, especially during the twentieth century, Argentina slipped from its advanced economic status (Urbiztondo, Cristini, Moskovits and Saiegh 6). In 1900s Argentina was perceived as one of the world economies with bright future based on its vast and rich agricultural land (Urbiztondo, Cristini, Moskovits and Saiegh 6). However, in approximately 40 years, Argentina’s economy has been one of the most unstable economies of the world. According to Urbiztondo, Cristini, Moskovits and Saiegh, Argentina’s GDP grew at 5.7 percent annually between 1991 and 1998. “Total investment as a percentage of GDP grew from 19 percent in 1993 to 21 percent in 1998, and total foreign direct investment (FDI) grew by 30 percent” (Urbiztondo, Cristini, Moskovits and Saiegh 6). The economic recession of December 2001 is considered the worst recession in Argentina’s history (Grugel and Pia Riggirozzi 3). On December 2001, Argentina’s interim President, Adolfo Rodriguez Saa, announced a default on foreign debt of the government, which was the largest in the country’s economic history. Adolfo stepped down just a few days after assuming office. In early 2002, Adolfo’s successor, Eduardo Duhalde put to an end the pegging of the peso to the United States dollar. During that year (2002), Argentina’s economy declined with real Gross Domestic Product (GDP) at 18 percent smaller than GDP in 1998. Approximately 60 percent of Argentines fell below poverty line in the same year. However, Argentina’s real GDP bounced back and achieved annual growth rate of 8.5 percent from 2003 to 2008. This rebound was attributed to increased industrial capacity and literate workforce. The growth in real GDP was also as a result of Argentina’s debt restructuring and reduction, implementation of expansionary monetary and fiscal policies and favorable global financial conditions. Argentina’s Growth and Productivity from 1961-2006 Period GDP % TFP 1961-1970 1971-1980 1981-1990 1991-2000 2001-2006 4.4 2.6 -0.8 4.1 4.1 1.2 -0.1 -1.3 1.4 1.0 1961-2006 2.7 0.4 Source: MECON and Coremberg et al. (2007). In early 2007, Argentina faced increased rate of inflation. The government led by President Nestor KIRCHNER, responded to the inflation by imposing taxes on exports as well as export restraints. There were also price restraints on businesses across the country. However, in late 2007 when Cristina Fernandez De Kirchner succeeded her husband as the president of Argentina, the swift economic growth that had been experienced in the last six years began to stall. In 2008, the government of Argentina held back its exports before the 2008 recession hit global economies. In 2010 he country’s economy bounced back from economic shock of the 2009 recession. However, in late 2011, the economy again slumped despite the fact that the government continued to apply expansionary economic policies resulting into double-digit inflation. Progress of Argentina’s Economy After the wrath of the 2009 global economic downturn, the economy of Argentina has not been very stable. In 2012, the country’s economy experienced a sharp slowdown. However, the economy showed some signs of recovery at the beginning of 2013. According to World Bank, “consecutive years of rapid and pro-poor economic growth enabled poverty and unemployment to be cut to levels experienced prior to the country's 2001-2002 economic crisis”(World Bank Para 6). The economy of Argentina experienced an expansion of 5.1 percent during the first quarter of 2013.This is attributed to an increase in industrial production by 1.4 percent between the month of January and July 2013. The rate of unemployment in the country remained fairly constant at 7.2 percent during the second quarter of2013 following an increased experienced from January to March (World Bank Para 7). Further, based on the World Bank report, the external sector of the country’s economy is bombarded with numerous challenges. The country’s trade surplus plunged by 32 percent from the month of January to July, 2013. The fiscal accounts of the nation face constant pressure with national expenditure growing at a rate higher than the growth in national income. The value of imports such as energy and fuels has increased considerably (World Bank Para 8). The economic freedom of Argentina is considered fragile because of structural and institutional challenges attributed to increasing government involvement in the operation of the marketplace. There has been increasing regulatory pressure on the private sector with the country’s market distorted by high price controls by the government. In fact, even the autonomy of the country’s central bank is questionable. In 2012, the central bank chatter was altered in order to permit the government to utilise the reserves of the bank in settling its debts. Further, the attempts to reform the country’s labor market have remained unsuccessful (Cohen 193; 2013 Index of Economic Freedom Para 3). Conclusion The economy of Argentina during 1900s was perceived as on of the economies with highest growth potential around the world. Argentina is endowed with vast and rich agricultural land and has an export-oriented agricultural sector. During the twentieth century, the country was in advanced development status, but the nation slipped from this status because of numerous economic problems, especially recurring economic crisis. During 1990s, the country’s GDP was growing each year until in 2001 when the worst economic recession the nation’s history hit. From the 20th century, Argentina’s economic has been undergoing a series of growth alternating with decline making the economy one of the most unstable economies around the world. The economy of Argentina is characterised by fluctuations and remains unpredictable, though still a transitioning economy. Works Cited Cohen, Michael A. (ed). The Global Economic Crisis in Latin America: Impacts and Responses. New York, NY: Routledge, 2012. Print. Grugel, Jean and Maria Pia Riggirozzi. The Return of the State in Argentina. London: World Economy & Finance Research Programme, 2007.Viewed on December 10, 2013 from Urbiztondo, Santiago, Marcela Cristini, Cynthia Moskovits and Sebastian Saiegh. The Political Economy of Productivity in Argentina. Inter-American Development Bank, 2009. Viewed on December 10, 2013 from World Bank. Argentina Overview. Viewed on December 10, 2013 from 2013 Index of Economic Freedom. Argentina. Viewed on December 10, 2013 from Read More