argentina the boom and bust of a political economy
Post on 21-Dec-2015
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ARGENTINAThe Boom and Bust of a
Political Economy
Overview• Population: 41,769,726• Literacy: 97.2%• GDP per capita: $14,700• GDP growth rate: 7.5%• Unemployment Rate: 7.8%• Pop. Under Poverty: 30%• Gini index: 45.8• Inflation: 9% (official);
25% (unofficial) (221 in the world)
• Exchange Rate: 4.30 pesos/$1 US
• Corruption Ranking: 100
Politics leading up to the Crisis Before Democracy
• After Peron, there was a lot of political instability
• 1955-1983 military regimes prevailed over the civil ones
• Successive military interventions, and 5 military coups in 15 years
• Ended after Malvinas
The Return of Democracy
• 1983 ->Raul Alfonsin (RCU)• $50 billion foreign debt • 1000% inflation• Plan Austral • Set-up a truth commission
and went after the Generals responsible for the mysterious disappearance of 30,000 ppl.
The Decade of Menem• The Peronist candidate was
elected in 1989• Foreign debt = $70 billion• Promised to restore
economy• Privatization of industries• Convertibility Plan
▫ 1 peso = 1 us$
• Middle class began to shrink• Olivos Pact -> re-election• Unemployment began to
rise• Corruption & Scandals
The Crisis • 1999: Fernando de la Rua,
the UCR and Frepaso’s Alliance candidate, won the elections
• GDP fell by 3.4 percent• Unemployment: 14%• IMF granted $40 thousand
million bailout• 2001 -> Cavallo becomes
Minster of Economy▫ Competitiveness plans ▫ Zero deficit
• Capital flight• Corralito• Carvallo & De la Rua
resign
The Aftermath• 2 weeks = 5 presidents• Eduardo Duhalde was
appointed president• Provisional exchange rate
of 1.4 pesos per dollar • “Peso-ification”• After months of no
regulation, the peso devaluated by 80%
• Population outraged
Observations• Values of neoliberalism?• IMF’s role?• Convertibility Plan?
The Reconstruction
• 2003 Nestor Kirchner elected president & Roberto Lavagna, Minister of Economy
• Exports boomed• Import substitution• Soybeans• Accumulation of foreign currency
reserves• Maintained the peso devalued• 2006: paid debt to the IMF, $9.810
billion• GDP claimed back• 2007 & 2011: Cristina Fernandez de
Kirchner
Monetary Policy• Buildup of reserves• 95-98% in dollars• Hard currency shortage
(coins)• Reliance on external
capital to fund projects/investment
• Martin Redrando affair
• Key goal: return to global credit markets
• Use of reserves and pension system to pay for projects
Imports/Exports• One of world’s largest food
producers, can feed their population 10 times over▫ Hasn’t developed markets for
many goods▫ High tariffs on some and not
others▫ Struggles because of lagging
infrastructure and distribution networks
• ISI approach▫ Restricting goods with domestic
equivalent▫ Coordinated political campaigns
against certain sectors• Energy
▫ 100% of export revenue now required as domestic investment
▫ Parallel quasi-governmental companies (ENARSA)
▫ Junk ratings, political tension
• Protectionist measures do more harm than good▫ 2008 and beef export
tariffs▫ Massive consumer
spending on food because of inflation
King Soja• 3rd exporter worldwide
▫ 55% of soy oil, 18% of beans• In 1997: $3.2 billion• In 2009: $16.3 billion• 95% exported (mostly to
China and the E.U.)▫ Beans and final products
make up 25% of total exports• Disputes with Brazil, EU, and
China over tariffs• Half of farmland used for soy• No export tariffs on soy
products, small tariff on beans
• Low start-up cost, no capital, less labor costs
• Monoculture; 98% genetically modified
• No crop rotation
Statistics control• Instituto National de
Estadistica y Censos (INDEC)• 2007, Graciela Bevaqua
forced out before 2007 elections, due to an inflation rate double of the numbers demanded by the government
• Government wants to avoid shortage in liquidity related to bonds
• Private inflation and other indexes banned by the government, with large fines
• World Bank, IADB, others now use unofficial statistics
• Poverty, food prices, investments, government funding all at different rates
• Poverty is twice the reported rate
Foreign exchange controls• 1/3 of economic
transactions “in the black”• Half of GDP tied up in
foreign bank accounts• If taxed and official,
government can collect revenue
• Tax collection rose 30% in 2011
• 80-90% of tested transactions not approved
• 2011 controls▫ Instituted one week after
2011 election, days before going into effect
▫ To buy any foreign currency: National ID card Tax code
▫ Transaction must be approved by AFIP (Argentina’s IRS) based on previous tax returns
• Intended to stop capital flight, control exchange market
• Try to bridge gap between unofficial and official exchange rate
Capital Flight • After Forex controls▫ Bank deposits down 13%
in two weeks▫ $2.4-3 billion withdrawn▫ Currency trading
Before: $500 million/day After: $350 million/day
• 96% of flight in dollars• Return to global markets
hampered• Real estate, big-ticket item
sales grind to a halt • Higher domestic material
costs, unclear policymaking procedures, rising inflation, byzantine labor and bureaucratic system
• Estimated at $25 billion for 2011; $18 billion in first 9 months
• More money withdrawn in 3rd quarter 2011 than any in the last 10 years
The Future
• Foreign investment will remain low
• Policymaking decisions will not have a balance
• Industrialization will continue, but specialization will not develop
• Loss in credibility will continue to hamper the benefits of any social welfare policies
• Will continue to question orthodoxy
• New Peronist parties will solidify power
Foreign Debt