Argentina SA
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Economic Overview:
Argentina benefits from rich natural resources, a highly literate population, an export-oriented agricultural sector, and a diversified industrial base. Although one of the world's wealthiest countries 100 years ago, Argentina suffered during most of the 20th century from recurring economic crises, persistent fiscal and current account deficits, high inflation, mounting external debt, and capital flight. A severe depression, growing public and external indebtedness, and a bank run culminated in 2001 in the most serious economic, social, and political crisis in the country's turbulent history. Interim President Adolfo RODRIGUEZ SAA declared a default - the largest in history - on the government's foreign debt in December of that year, and abruptly resigned only a few days after taking office. His successor, Eduardo DUHALDE, announced an end to the peso's decade-long 1-to-1 peg to the US dollar in early 2002. The economy bottomed out that year, with real GDP 18% smaller than in 1998 and almost 60% of Argentines under the poverty line. Real GDP rebounded to grow by an average 9% annually over the subsequent five years, taking advantage of previously idled industrial capacity and labor, an audacious debt restructuring and reduced debt burden, excellent international financial conditions, and expansionary monetary and fiscal policies. Inflation also increased, however, during the administration of President Nestor KIRCHNER, which responded with price restraints on businesses, as well as export taxes and restraints, and beginning in early 2007, with understating inflation data. Cristina FERNANDEZ DE KIRCHNER succeeded her husband as President in late 2007, but was stymied in her efforts to hike export taxes still further by protesting farmers. Her government nationalized private pension funds in late 2008, which bolstered government coffers, but failed to assuage investors' concerns about the direction of economic policy.
— CIA World Factbook
Argentina's Subsidy Policy Raises the Specter of Nationalization
Beyond the political uproar caused by the loss of control of the Argentinean parliament by the Kirchners in the legislative elections held last Sunday, some economic indicators are beginning to worry experts — increasing informal employment, declining demand for labor, increased state subsidies and a growing number of companies that are in crisis and risk being privatized.
From Universia-Knowledge@Wharton
More than 77,000 workers in various industries receive a monthly salary of US$160 through Argentine government subsidies. The goal is to prevent those people from losing their jobs. The more than 53,000 companies affected by this program are bankrupt. So far this year, the government of Cristina Fernández de Kirchner has spent some US$48 million on the program, known as REPRO (the Federal Productive Reconversion Program) and created in 2002 by then-president Eduardo Duhalde amid the deepest social and economic crisis in the history of Argentina. At the time, the government of Fernando de la Rua had fallen, bank deposits had been confiscated and the Argentine currency had been devalued.
Although the current crisis is not as serious as that one, employment is one of the indicators beginning to suffer the consequences of the deterioration in the local and global economy. Through the subsidies authorized by REPRO, the administration of Fernández de Kirchner avoided a half-point rise in unemployment, now at 8.4%, according to INDEC, the National Institute of Statistics and Census. The official figures don't include any social spending plans. According to critics of INDEC, the government has intervened under the supervision of Commerce Secretary Guillermo Moreno and changed the methodology for measuring unemployment. INDEC's credibility has been further challenged by private reports that predict unemployment of about 10% by the end of the year. >>> Go to Full Story >>>
Argentina’s Small Companies Face a Challenge for Survival
"Let us act rapidly, or the crisis could turn into a catastrophe." These words from the new U.S. president, Barack Obama, do not provide much encouragement for a positive outlook this year. The world’s most influential country has entered a recession in which it has already lost more than three million jobs. This has very significant implications for a country such as Argentina, which is also suffering from the aftershock of the chaos. There are a host of serious internal problems: The deceleration of the economy, which grew at 7.1% during the second half of 2008, the lowest rate in the last six years, according to the National Institute of Statistics and Census; a crisis in rural areas, which lost more than $12 billion as a result of drought and lower commodity prices; a decline in consumption, and the possibility of increased layoffs. According to official data, the unemployment rate is 7.3% and could reach double digits later this year. Some factories have already laid off some of their workers because of the decline in activity, or they have asked their employees to take their vacations ahead of schedule. Although the market awaits improvements in the domestic and global economy, decisions have to be made over the short term. However, this is a year when there are legislative elections in Argentina; experts say that fact could lead companies to delay their decisions, both for investments as well as hiring new personnel. Crises often lead to opportunities. In that regard, small companies are often the best companies to adapt to changes and problems. One reason is their size. Colina notes, "The history of previous crises in Argentina demonstrates that small companies are the ones who more rapidly resort to informal mechanisms, and to layoffs when the economy moves into a recession. That’s because they are less visible, and because there are so many of them, they are hard to control. In a crisis, size winds up playing in favor of survival capacity."
Fashionistas flock to "City of Design"
Acclaimed as the "Paris of South America," Buenos Aires - Argentina's capital and largest city - may beam with Old World elegance and 19th-century French mansions, but in recent years it also has blossomed as a vibrant design center. Specializing in the fields of fashion, architecture, industrial, interior and urban design, makers here incorporate the markets' latest technologies and know-how. In fact, this city on the tip of the Southeastern coast of South America is so significant to the market, it was chosen as UNESCO's first "City of Design" in 2005, and houses one of the most productive design industries in South America. There are about 11,730 manufacturing and design companies producing garments, and 30,900 stores. The mass-market apparel sector has annual sales of about $5 billion a year, an amount expected to rise. Retail sales in shopping malls around the city have rocketed since 2002 to $673 million. Malls have sprouted, with international labels from Zara to Tommy Hilfiger and Lacoste opening shops in exclusive properties like Galerias Pacifico and Patio Bullrich, which is being transformed into a luxe center with labels like Versace and Hugo Boss.
