The History Of The Telecommunications Sector Economics Essay A History Argentina possesses definite comparative advantages in agriculture, as the country is endowed with a vast amount of highly fertile land. Beginning in the 1930s, however, the Argentine economy deteriorated notably.[3] The single most important factor in this decline has been political instability since 1930, when a military junta took power, ending seven decades of civilian constitutional government.[5] In macroeconomic terms, Argentina was one of the most stable and conservative countries until the Great Depression, after which it turned into one of the most unstable.[6]Successive governments from the 1930s to the 1970s pursued a strategy of import substitution to achieve industrial self-sufficiency, but the government’s encouragement of industrial growth diverted investment from agricultural production, which fell dramatically.[7] The era of import substitution ended in 1976, but the same time growing government spending, large wage increases and inefficient production created a chronic inflation that rose through the 1980s.[7] The measures enacted in 1976 also produced a huge foreign debt by the late 1980s, which became equivalent to three-fourths of the GNP.[7] This essay is an example of a student’s work Disclaimer This essay has been submitted to us by a student in order to help you with your studies. This is not an example of the work written by our professional essay writers. Essay Writing Service Dissertation Writing Service Who wrote this essay Place an Order 1810 independence After Argentina became independent in 1810, an era in which commerce was controlled by a small group of peninsular merchants came to an end.[21]The Primera Junta, the first government established after the 1810 May Revolution, undertook a protectionist policy until their fall from government. The government of Martín Rodríguez (1820–1824) and his minister Bernardino Rivadavia, then Las Heras and finally Rivadavia himself as the firstpresident of Argentina from 1826 to 1827, developed an economic plan deemed as “The happy experience”. This plan increased the British influence in the national politics. It was based on five main pillars: complete free trade and no protectionist policies against British imports, finance with a central bank managed by British investors, absolute control of the port of Buenos Aires as the sole source of income from national customs, British exploitation of the national natural resources, and an Unitarist national organization centred in Buenos Aires.[29] The exports of gold, allowed by the free trade policies, soon depleted the national reserves. This posed a great problem, as gold was the medium of exchange of the local economy. Rivadavia sought to fix it by establishing the “Discount Bank”, a central bank for printing fiat money. Despite of the role as a central bank, this bank was not owned by the state, but by private British investors.[3 Baring crises to world war I The Baring Brothers merchant bank had developed a close and profitable association with Argentina, and when Celman’s government was unable to meet its payments to the House of Baring, a financial crisis ensued.[57] Argentina defaulted and suffered bank runs as the Baring Brothers faced failure.[62] The crisis was caused by the lack of co-ordination between monetary policy and fiscal policy, which ultimately led to the collapse of the banking system.[63] The financial crisis of 1890 left the government with no funds for its immigration subsidies programme, and it was abolished in 1891.[64] Loans to Argentina were severely curtailed, and imports had to be cut sharply.[57] Exports were less affected, but the value of Argentine exports did not surpass the 1889 peak until 1898.[57] Celman’s successor, Carlos Pellegrini, laid the foundations for a return to stability and growth after the restoration of convertibility in 1899.[65] He also reformed the banking sector in ways that were to restore stability in the medium term.[65] Rapid growth rates soon returned: in the period 1903–1913, GDP increased at an annual rate of 7.7%, and industry grew even faster, jumping by 9.6%.[66] By 1906, Argentina had cleared the last remnants of the 1890 default and a year later the country re-entered the international bond markets.[66] Argentina, like many other countries, entered into a recession following the beginning of World War I as international flows of goods, capital and labour declined.[47] Foreign investment in Argentina came to a complete standstill from which it never fully recovered The Great Depression The Great Depression had a comparatively mild effect on Argentina,[78] the unemployment rate never went above 10%,[79] and the country largely recovered by 1935.[78] However, the Depression permanently halted its economic expansion.[46] Argentina abandoned the gold standard in December 1929, earlier than most countries.[70] For much of the previous period, the country had operated a currency board, in which a body known as the caja de conversiónwas charged with maintaining the peso’s value in gold.[80] The devaluation of the peso increased the competitiveness of its exports and protected domestic production.[47] Argentina saw the value of its exports drop from $1,537 million in 1929 to $561 million in 1932, but this was by no means the most severe downturn in the region.[81] In response to the Great Depression, successive governments pursued a strategy designed to transform Argentina into a country self-sufficient in industry as well as agriculture.[7] The strategy of growth was based on import substitution in which tariffs and quotas for final goods were raised The government’s encouragement of industrial growth diverted investment from agriculture, and agricultural production fell dramatically Economic Crises In March 2000, the IMF agreed to a three-year $7.2 billion stand-by arrangement with Argentina, conditioned on a strict fiscal adjustment and the assumption of 3.5% GDP growth in 2000 (actual growth was 0.5%).[117] In late 2000, Argentina began to experience severely diminished access to capital markets, as reflected in a sharp and sustained rise in spreads on Argentine bonds over U.S. Treasuries.[116] In December, The de la Rua government announced a $40 billion multilateral assistance package organized by IMF.[117] The uneven implementation of fiscal adjustments and reforms, a worsening global macroeconomic environment, and political instability led to the complete loss of market access and intensified capital flight by the second quarter of 2001.[116] Argentine debt, held mostly in bonds, was massively sold short and the government found itself unable to borrow or meet debt payments.[118] This essay is an example of a student’s work Disclaimer This essay has been submitted to us by a student in order to help you with your studies. 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Essay Writing Service Dissertation Writing Service Who wrote this essay Place an Order In December 2001, a series of deposit runs began to have a severe impact on the health of the banking system, leading the Argentine authorities to impose apartial deposit freeze.[116] With Argentina no longer in compliance with the conditions of the expanded IMF-supported program, the IMF decided to suspend disbursements.[116] At the end of December, in a climate of severe political and social unrest, the country partially defaulted on its international obligations; in January 2002, it formally abandoned the convertibility regime.[116] The ensuing economic and political crisis was arguably the worst since the country’s independence.[70] By the end of 2002, the economy had contracted by 20% since 1998.[116] Over the course of two years, output fell by more than 15%, the Argentine peso lost three-quarters of its value, and registered unemployment exceeded 25%.[70] Income poverty in Argentina grew from an already high 35.4% in October 2001 to a peak of 54.3% in October 2002 Sectors Agriculture Argentina is one of the world’s major agricultural producers, ranking among the top producers and, in most of the following, exporters of beef, citrus fruit, grapes, honey, maize, sorghum, soybeans, squash, sunflower seeds, wheat, and yerba mate. Agriculture accounted for 9% of GDP in 2010, and around one fifth of all exports (not including processed food and feed, which are another third). Soy and its byproducts, mainly animal feed and vegetable oils, are major export commodities with one fourth of the total; cereals added another 10%. Cattle-raising is also a major industry, though mostly for domestic consumption; beef, leather and dairy were 5% of total exports. Sheep-raising and wool are important in Patagonia, though these activities have declined by half since 1990.Biodiesel, however, has become one of the fastest growing agro-industrial activities. Fruits and vegetables made up 4% of exports: apples, pears, oranges and other citrus, grapes, etc. Major Crops include Cotton, tobacco, sugarcane, Chile peppers, etc. Yerba mate tea, tomatoes and peaches are grown for domestic consumption. Organic farming is growing in Argentina, and the nearly 3 million hectares (7.5 million acres) of organic cultivation is second only to Australia. Argentina is the world’s fifth-largest wine producer, and fine wine production has taken major leaps in quality. Argentine fisheries bring in about a million tons of catch annually, and are centered around Argentine hake which makes up 50% of the catch; Pollock, squid, and centolla crab are also widely harvested. Forestry has long history in every Argentine region, apart from the pampas, accounting for almost 14 million m³ of roundwood harvests.  Eucalyptus, pine, and elm (for cellulose) are also grown, mainly for domestic furniture, as well as paper products (1.5 million tons). Fisheries and logging each account for 2% of exports. Natural resources Mining is a growing industry, increasing from 2% of GDP in 1980 to nearly 4% today. Coal, Metals and minerals mined include borate, copper, lead, magnesium, sulfur, tungsten, uranium,zinc, silver, and gold. Metal ore exports soared in 2004, and reached over US$ 3 billion in 2010. Around 35 million m³ each of petroleum and petroleum fuels are produced, as well as 50 billion m³ of natural gas, making the nation self-sufficient in these staples, and generating around 10% of exports. Industry Manufacturing is the largest single sector in the nation’s economy (19% of GDP), and is well-integrated into Argentine agriculture, with half the nation’s industrial exports being agricultural in nature. Leading sectors by production value are: Food processing and beverages; motor vehicles and auto parts; refinery products, and biodiesel; chemicals and pharmaceuticals; steel and aluminum; and industrial and farm machinery; electronics and home appliances. The country’s auto industry produced 829,000 motor vehicles in 2011, and exported 507,000 (mainly to Brazil, which in turn exported a somewhat larger number to Argentina). Beverages are another significant sector, and Argentina has long been among the top five wine producing countries in the world; beer overtook wine production in 2000. Other manufactured goods include:  glass and cement; plastics and tires; lumber products; textiles; tobacco products; recording and print media; furniture; apparel and leather. Most manufacturing is organized around 280 industrial parks, with another 190 slated to open during 2012. The production of computers, laptops, and servers grew by 160% in 2011, to nearly 3.4 million units, and covered two-thirds of local demand. Another important rubric historically dominated by imports – farm machinery – will likewise mainly be manufactured domestically by 2014. This essay is an example of a student’s work Disclaimer This essay has been submitted to us by a student in order to help you with your studies. This is not an example of the work written by our professional essay writers. Essay Writing Service Dissertation Writing Service Who wrote this essay Place an Order Construction permits nationwide covered nearly 19 million m² (205 million ft²) in 2008. The construction sector accounts for over 5% of GDP, and two-thirds of the construction was for residential buildings. Argentine electric output totaled over 122 billion Kwh in 2009. This was generated in large part through well developed natural gas and hydroelectric resources. Nuclear energy is also of high importance, and the country is one of the largest producers and exporters, alongside Canada and Russia of cobalt-60, a radioactive isotope widely used in cancer therapy. Services The service sector is the largest contributor to total GDP, accounting for over 60%. Argentina enjoys a diversified service sector, which includes well-developed social, corporate, financial, insurance, real estate, transport, communication services, and tourism. The telecommunications sector include: mobile telephony, with 77% of the population having access to mobile phones; Internet (over 27 million users, or two thirds of the population); and broadband services (accounting for nearly all the 10 million accounts). Regular telephone services, with 9.5 million lines, and mail services are robust.Exports and imports of services were US$14 billion each in 2011. Business Process Outsourcing became the leading Argentine service export, and reached US$3 billion. Advertising revenues from contracts abroad were estimated at over US$1.2 billion. Tourism is increasingly important and provided 8% of economic output in 2008; over 80% of tourism sector activity is domestic. Banking Argentine banking, whose deposits exceeded US$110 billion in January 2012, developed around public sector banks, but is now dominated by the private sector. The private sector banks account for most of the 80 active institutions (over 4,000 branches) and holds nearly 60% of deposits and loans, and as many foreign-owned banks as local ones operate in the country. The largest bank in Argentina by far, however, has long been the public Banco de la Nación Argentina. Not to be confused with the Central Bank, this institution now accounts for about a fourth of the total deposits and a seventh of its loan portfolio. The banks largely lent US dollars and took deposits in Argentine pesos, and when the peso lost most of its value in early 2002, many borrowers again found themselves hard pressed to keep up. Delinquencies tripled to about 37%. Credit in Argentina is still relatively tight. Lending has been increasing 40% a year since 2004, and delinquencies are down to less than 2%.Still, credit outstanding to the private sector is, in real terms, slightly below its 1998 peak, and as a percent of GDP (around 15%), quite low by international standards. The prime rate, which had hovered around 10% in the 1990s, hit 67% in 2002. Although it returned to normal levels quickly, inflation, and more recently, global instability, have been affecting it again. The prime rate was over 20% for much of 2009, and 17% in the first half of 2010. Partly a function of this and past instability, Argentines have historically held more deposits overseas than domestically. The estimated US$156 billion in overseas accounts and investment exceeded the domestic monetary base (M3) by nearly US$20 billion in 2011. Infrastructure Argentina’s transport infrastructure is relatively advanced. There are over 230,000 km (144,000 mi) of roads (not including private rural roads) of which 72,000 km (45,000 mi) are paved,  and 2,643 kilometers (1,642 mi) are expressways, many of which are privatized toll ways.  The railway network has a total length of 37,856 kilometers (23,523 mi). Inaugurated in 1913, the Buenos Aires Metro was the first subway system built in Latin America and the Southern Hemisphere. No longer the most extensive in South America, its 60 kilometers (37 mi) of track carry nearly a million passengers daily. Argentina has around 11,000 km (6,835 mi) of navigable waterways, and these carry more cargo than do the country’s freight railways. Aerolíneas Argentinas is the country’s main airline, providing both extensive domestic and international service. LADE is a military-run commercial airline that flies extensive domestic services. Foreign trade Argentine exports are fairly well diversified. However, although agricultural raw materials were over 20% of the total exports in 2011, agricultural goods including processed foods still account for over 50% of exports. Soy products alone (soybeans, vegetable oil) account for almost one fourth of the total. Cereals, mostly maize and wheat, which were Argentina’s leading export during much of the twentieth century, make up less than one tenth now. This essay is an example of a student’s work Disclaimer This essay has been submitted to us by a student in order to help you with your studies. This is not an example of the work written by our professional essay writers. Essay Writing Service Dissertation Writing Service Who wrote this essay Place an Order Industrial goods today account for over a third of Argentine exports. Motor vehicles and auto parts are the leading industrial export, and over 12% of the total merchandise exports. Chemicals, steel, aluminum, machinery, and plastics account for most of the remaining industrial exports. A net energy importer until 1987, Argentina’s fuel exports began increasing rapidly in the early 1990s and today account for about an eighth of the total. Refined fuels make up about half. Argentine imports have historically been dominated by the need for industrial and technological supplies, machinery, and parts. Consumer goods including motor vehicles make up most of the rest.  Foreign investment Foreign direct investment in Argentina is divided nearly evenly between manufacturing (36%), natural resources (34%), and services (30%). The chemical and plastics sector (10%) and the automotive sector (6%) lead foreign investment in local manufacturing; oil and gas (22%) and mining (5%), in natural resources; telecommunications (6%), finance (5%), and retail trade (4%), in services.[86] Spain was the leading source of foreign direct investment in Argentina, in 2009; the U.S. was the second leading source. Investments from the Netherlands, Brazil, Chile, and Canada have also been significant. Several bilateral agreements play an important role in promoting U.S. private investment. Argentina has an Overseas Private Investment Corporation (OPIC) agreement and an active program with the U.S. Export-Import Bank. Under the 1994 U.S.-Argentina Bilateral Investment Treaty, U.S. investors enjoy national treatment in all sectors except shipbuilding, fishing, nuclear-power generation, and uranium production. The treaty allows for international arbitration of investment disputes. Issues Compared economic performance of Argentina (100 = Latin American average GDP per capita PPP) The economy recovered strongly from the 2001–02 crisis, and was the 21st largest in purchasing power parity terms in 2011; it per capita income on a purchasing power basis was the highest in Latin America.[1] A lobby representing US creditors who refused to accept Argentina’s debt-swap programmes has campaigned to have the country expelled from the G20. These holdouts include numerous vulture funds which had rejected the 2005 offer, and had instead resorted to the courts in a bid for higher returns on their defaulted bonds. These disputes had led to a number of liens against central bank accounts in New York and, indirectly, to reduced Argentine access to international credit markets. Argentina’s economy grew by 9% in 2010, and officially, income poverty declined to 8% by 2011; an alternative measurement conducted by CONICET found that income poverty declined to 22.6%. Argentina’s unemployment rate in the fourth quarter of 2011 was reportedly down to 6.7% from 8.4% in the fourth quarter of 2009, according to INDEC data. The jobless rate has declined from 25% in 2002 largely because of both growing global demand for Argentine commodities and strong growth in domestic activity. Reliability of official CPI estimates Official CPI inflation figures released monthly by INDEC have been a subject of political controversy since 2007. Official inflation data are disregarded by leading union leaders, even in the public sector, when negotiating pay rises. Some private-sector estimates put inflation for 2010 at around 25%, much higher than the official 10.9% rate for 2010. Inflation estimates from Argentina’s provinces are also higher than the government’s figures. The government stands by the validity of its data, but has called in the International Monetary Fund to help it design a new nationwide index to replace the current one. The government threatens inflation analysts with fine of up to 500,000 pesos if they don’t report how they calculate their inflation estimates, which these economists consider as an attempt to limit the availability of independent estimates. Inflation High inflation has been a weakness of the Argentine economy for decades. Inflation was unofficially estimated to be running at more than 25% annually in December 2010, despite official statistics indicating less than half that figure; this would be the highest level since the 2002 devaluation.  Food price increases particularly that of beef, began to outstrip wage increases in 2010, leading Argentines to decrease beef consumption per capita from 69 kg (152 lb) to 57 kg (125 lb) annually and to increase consumption of other meats. President Kirchner insists inflation is not a problem. Consumer prices for 2011 are expected to rise by 20 to 30%, leading the national mint to buy banknotes of its highest denomination (100 pesos) from Brazil at the end of 2010 to keep up with demand. The central bank is expected to pump at least 1 billion pesos into the economy in this way during 2011. This essay is an example of a student’s work Disclaimer This essay has been submitted to us by a student in order to help you with your studies. This is not an example of the work written by our professional essay writers. Essay Writing Service Dissertation Writing Service Who wrote this essay Place an Order Income inequality Argentina, in relation to other Latin American countries, has a moderate to low level of income inequality. Its Gini coefficient of about 0.445 (2010) is reported to be the lowest among Latin American countries. The social gap is worst in the suburbs of the capital, where beneficiaries of the economic rebound live in gated communities, and many of the poor (particularly undocumented immigrants) live in slums known as villas miserias. In the mid-1970s, the most affluent 10% of Argentina’s population had an income 12 times that of the poorest 10%. That figure had grown to 18 times by the mid-1990s, and by 2002, the peak of the crisis, the income of the richest segment of the population was 43 times that of the poorest. These heightened levels of inequality had improved to 26 times by 2006, and to 16 times at the end of 2010. Economic recovery after 2002 was thus accompanied by significant improvement in income distribution: in 2002, the richest 10% absorbed 40% of all income, compared to 1.1% for the poorest 10%; by 2010, the former received 29% of income, and the latter, 1.8%. Argentina has an inequality-adjusted human development index of 0.641, compared to 0.519 and 0.652 for neighboring Brazil and Chile, respectively. The official, household survey income poverty rate was 8.3% in 2011. The National Research Council, however, estimated income poverty in 2010 at 22.6%, and private consulting firms estimated that in 2011 around 21% fell below the income poverty line. The World Bank estimated that, in 2009, 2.4% subsisted on less than US$2 per person per day. Argentine Currency Board The Argentine Currency Board pegged the Argentine peso to the U.S. dollar between 1991 and 2002 in an attempt to eliminate hyperinflation and stimulate economic growth. While it initially met with considerable success, the board’s actions ultimately failed. In contrast to what most people think, this peg actually did not exist, except only in the first years of the plan. From then on, the government never needed to use the foreign exchange reserves of the country in the maintenance of the peg, except when the recession and the massive bank withdrawals started in 2000. For most of the period between 1975 and 1990, Argentina experienced hyperinflation (averaging 325% a year), poor or negative GDP growth, a severe lack of confidence in the national government and the Central Bank, and low levels of capital investment. After eight currency crises since the early 1970s, inflation peaked in 1989, reaching 5,000% that year. To a large extent, the main reason behind this long period of hyperinflation was unsustainable growth of the money supply to finance the large fiscal deficits maintained by successive governments. Driven by rising tax evasion and losses among state enterprises, the total public fiscal deficit reached 10% of GDP in 1983. Another reason for the instability of the Argentine currency was the fragility of domestic financial institutions. The Argentine banking crisis of 1990 underlined this point, as the Central Bank moved to confiscate the deposits of commercial banks to overcome a liquidity crunch, exchanging certain types of time deposits for BONEX bonds. There were also external factors that further triggered the currency crisis, such as interest rate fluctuations. In the early 1980s, for example, the United States imposed tight monetary discipline upon its own institutions, which made it more expensive to borrow money because banks were required to keep higher reserve requirements. In April 1991, Menem reverted the country’s policies according to ideas of Washington Consensus to what was later to be called economic neoliberalism. This system involved a program of massive privatization and labor deregulation laws, which encouraged foreign investment and infused the country with cash to finance its fiscal deficits. However, the linchpin of the new system was the introduction of the Convertibility System. At the time, there was much debate in Argentina and abroad about how to control inflation and build confidence in local currencies in order to foster investment and growth. There were three options of exchange rate management available to any government: a floating exchange rate, a super-fixed exchange rate (including the possible use of a currency board), or a hybrid system. The hybrid system consisted of various levels of control over exchange rates, and it was discredited in the early 1990s when empirical evidence from several currency crises showed that, in a world of high capital mobility, a semi-fixed exchange rate was very unstable, because it allowed a country with poor monetary policy to exercise too much discretionary power. The consequence was that a government had to choose between either fixed or fully floating exchange rate systems. This essay is an example of a student’s work Disclaimer This essay has been submitted to us by a student in order to help you with your studies. This is not an example of the work written by our professional essay writers. Essay Writing Service Dissertation Writing Service Who wrote this essay Place an Order Argentina’s currency board established a fixed pegging of one-to-one parity between the peso and the U.S. dollar. It also guaranteed full convertibility of pesos into U.S. dollars. The government hoped to establish local and international credibility in the peg and to limit the amount of local control over monetary and fiscal policy. The currency board regime intended to stabilize the peso, encourage both foreign and local investment, and foster sustained economic growth. Central Bank of argentina The Central Bank of Argentina (Spanish: Banco Central de la República Argentina, BCRA) is the central bank of Argentina. Established by six Acts of Congress enacted on May 28, 1935, the bank replaced Argentina’s Currency board, which had been in operation since 1899. Normally subordinate to the Economy Ministry in matters of policy, the Central Bank took a more prominent role during the Latin American debt crisis when, in April 1980, it enacted Circular 1050. This measure, enacted to shield the financial sector from the cost of receiving payments in suddenly devalued pesos, bankrupted thousands of homeowners and businesses by indexing mortgages to the value of the US dollar locally, which rose around fifteen fold by July 1982. During the years of Convertibility Law, which established a 1:1 fixed exchange rate between the Argentine peso and the United States dollar on April 1, 1991, the BCRA was mainly in charge of keeping foreign currency reserves in synch with the monetary base. Since the repeal of the Convertibility Law in January 2002, the devaluation and depreciation of the peso and the end of the economic crisis, its role has been the accumulation of reserves in order to gain a measure of control of the exchange rate. The BCRA buys dollars from the market to neutralize the large surplus of the foreign trade balance and keep the official exchange rate at internationally competitive levels for Argentine exports and import substitution. Near the end of 2005, President Néstor Kirchner announced the payment of Argentina’s public debt with the International Monetary Fund in a single, anticipated disbursement. The payment was effected on January 3, 2006, employing about US$9.8 billion from BCRA reserves. This decreased the amount of reserves by one third, but did not cause adverse monetary effects, save from an increased reliance on the local bond market, which requires somewhat higher interest rates. The BCRA continues to intervene in the exchange market, usually buying dollars, though occasionally selling small amounts (for example, reacting to rumors of a possible increase of the Federal Reserve’s reference rate, which caused a minor spike in the dollar’s value. The exchange rate was maintained relatively undervalued, prompted by the BCRA’s market intervention as a buyer. The official exchange rate, which had oscillated around 3 Argentine pesos per US dollar since early 2003, was adversely impacted by the international, 2008 financial crisis, and weakened to nearly 4 pesos per dollar by the first half of 2010. FISCAL POLICY In the early 1970s, Argentina’s debt to GDP ratio was below 10%. But after 30 years, the country declared the largest debt default in history. Argentina’s debt problem started during the 1976-1982 military dictatorship. Due to the abundance of liquidity following the oil shocks, the government followed a policy of financial liberalization combined with fixed exchange rate system , which resulted in real exchange rate appreciation , and rise in both public and private sector external debt. Public sector debt was at a level of almost 40% of GDP. In 1982, following the Mexican default, Argentina became another victim of the international debt crisis, and also defaulted. The explanation given below divides the evolution of debt in Argentina since the return of democracy into four periods: 1983-1989 and 1995-2001 are generally unfavorable periods, in which external conditions were challenging for the country, growth performance was very poor and fiscal policy, debt and social conditions worsened. On the other hand, 1990-1994 and 2002-2005 were favorable periods with excellent external conditions, growth and improvements in fiscal policy, debt and social conditions. During the period 1983-1989, fiscal outcomes were negative, that is deficit of 3.7% of GDP. The debt grew from around $40bn to almost $65bn, mainly due to the accumulation of arrears and unpaid interest. Furthermore, the government accumulated unregistered debts (of $25.7bn) with pensioners and other domestic creditors. The 1989 hyperinflation and devaluation caused a rise in the debt to GDP ratio of almost 120%. This essay is an example of a student’s work Disclaimer This essay has been submitted to us by a student in order to help you with your studies. This is not an example of the work written by our professional essay writers. Essay Writing Service Dissertation Writing Service Who wrote this essay Place an Order Between 1990 and 1994, fiscal accounts improved significantly. A primary surplus was achieved in 1992 for the first time after 30 years. The nominal stock of debt increased from $62bn to $81bn. However, due to robust growth, the debt to GDP ratio fell from 44% in 1990 to 32% in 1994. In the year 1993, fiscal statistics improved significantly in Argentina, due to implementation of the Financial Administration Law (Ley de Administración Financiera). This law explained the debt decomposition in a more detailed way and the influence of different factors on the evolution of public debt. It distinguished between the impact of three types of effects on the debt to GDP ratio: a)automatic debt dynamics, due to changes in the real exchange rate, the real interest rate and real GDP growth, b) the contribution of the primary deficit or surplus, and c) other identified sources of change in debt, such as privatization receipts, debt renegotiations, debt consolidations due to off-budget government expenditures or resolution of financial crises. Public sector debt Change in public sector debt Primary Deficit (- surplus) Off-budget govt. expenditure (net of privatization) Contribution from real GDP growth Contribution from real GDP growth Contribution from real interest rate Contribution from real exchange rate change Debt dynamics decomposition in Argentina, 1993-2005 Between 1995 and 2001, the second period of poor fiscal performance, and the period just prior to the 2002 debt default, the primary result first worsened in 1995-1996, but then improved, and was on average a surplus of 0.22% of GDP. However, the debt increased from $80bn in 1994 to $144bn in 2001. The debt to GDP ratio increased from 32% in 1994 to 54% in 2001. Basically, major factor of this poor performance is the contribution of the real interest rate. During this period, the Brady bonds that Argentina had issued in exchange for its bank debts in 1992, and the bonds issued in the early 90s to cancel the unregistered debts of the 1980s had to be rolled over at increasing interest rates. Therefore Interest rates increased due to the volatility in emerging markets. The Mexican crisis of 1994-95 was followed by the Asian crisis in 1997, the Russian crisis and the devaluation of the Brazilian Real. Markets believed that Argentina´s fixed exchange rate was increasingly vulnerable, and thus the risk premium on Argentine bonds increased. During the final period, 2002-2005, fiscal results improved dramatically. The fiscal surplus averaged 2.63% of GDP, and reached an unprecedented 3.9% of GDP in 2004. The debt to GDP ratio rose in 2002 basically due to the depreciation of the peso. Of the 97.7 percentage point increase, 71.7 points is due to the depreciation. During the year 2003, off-budget government expenditure was a significant contributor to the change in debt. In this case, the main two reasons are a) the resolution of the financial crisis, which cost $14.4bn, b) the bailout of provincial debts, which cost $12.1bn 19. Between 2003 and 2005, the annual growth rates of GDP at 9% contributed to a decline in the debt to GDP ratio of 35 percentage points. ARGENTINA GOVERNMENT BUDGET Government Budget in Argentina is reported by the Ministry of the Economy. Its an itemized accounting of the payments received by government from taxes and other fees, and the payments made by government like purchases and transfer payments. A budget deficit occurs when government spending is more than its revenues. The opposite of budget deficit is budget surplus. Government of Argentina recorded a budget surplus of 0.20% of the country’s Gross Domestic Product in 2011. From year 2000 until 2011, Argentina Government Budget averaged 0.1% of GDP reached high of 3.7% of GDP in 2004 and a record low of -6.4% of GDP in 2001. Argentina Government Budget TRADE POILCY Argentina adopted the common external tariff (CET) of MERCOSUR (the Southern Common Market customs union with Brazil, Uruguay, and Paraguay), and its trade regime became more open in early 1990s but the trade policy reform has been vulnerable to macroeconomic shocks. Tariffs rose during 1998-2001 as the country attempted to deal with external shocks and recession, but dropped again after the currency board was abandoned and the peso devalued. However , since the 2001-02 default crises, there has been an increasing reliance on export taxes on agricultural products as a source of fiscal revenue. Export taxes as a share of government revenue rose from 0.1% to 10% in 2002. This essay is an example of a student’s work Disclaimer This essay has been submitted to us by a student in order to help you with your studies. This is not an example of the work written by our professional essay writers. Essay Writing Service Dissertation Writing Service Who wrote this essay Place an Order The government suspended exports of wheat and flour I order to cope up with the food crises and to keep domestic prices low and prevent shortages for its domestic consumers. Also, in March 2008, the government raised export taxes on grains and seeds through a presidential decree (for soybeans, one of Argentine’s top crop exports, export taxes rose to more than 40 % from a fixed rate of 35%). However the bill was rejected after a large protests by Argentine farmers. The government has also taken some liberalizing measures such as reducing export tariffs by 5 percentage points for wheat and corn, and eliminating taxes on 35 dairy products. However, in the context of the global recession, the financing requirements of Argentina’s fiscal stimulus plans add pressure to keep export taxes high. At the beginning of 2009, Argentina introduced non-automatic import licensing requirements on steel, metallurgical, tires, and textile products, among others, which created a large bureaucratic burden on importers, and succeeded in curtailing imports. It also introduced reference prices on 1,000 imported products such as auto parts, textiles and shoes, and imposed price references for the exports of copper. These measures have become a source of some friction between the MERCOSUR partners. In this context, Argentina has also heightened its use of anti-dumping initiations, also heightened its use of anti-dumping initiations, which went from 7 in 2007, to 20 in 2008 and has reached 16 in the first half of 2009. Argentina has continued to maintain a managed float of the peso since 2002. Over the course of 2008, the real effective exchange rate of the Argentinean peso appreciated by 1.9 percent, making exporters relatively less competitive abroad. MERCOSUR members signed an FTA with Israel in December 2007 and a preferential trade agreement (PTA) with the South African Customs Union (SACU) in December 2008. A PTA with India came into effect in June 2009. In March 2009, Paraguay increased tariffs against its MERCOSUR partners to 10–15 percent on a range of goods related to household cleaning products and paints, possibly straining relations among MERCOSUR members. Argentina’s rank is 118th in the Ease of Doing Business index in 2009, which looks at the business environment in 183 countries. However, Argentina ranked 45th (out of 151) on the 2007 Logistics Performance Index, outperforming its comparators on nearly all aspects of the index. Here, its weakest indicator was efficiency of customs and other border procedures, while its strongest logistics category was timeliness of shipments. In order to address trade finance constraints, the central bank introduced a new facility that allows it to offer repurchase-agreement contracts in dollars to encourage banks to use their idle foreign-currency deposits for export financing. In order to encourage trade between Argentina and Brazil, the two countries decided in May 2009 to start trading in their own local currencies. Trade Outcomes After accelerating sharply in the years following the 2001–02 crisis and up until the third quarter of 2008, Argentina’s real (in constant 2000 U.S. dollars) growth in total trade of goods and services decreased from 14.2 percent in 2007 to an estimated 7.3 percent in 2008, and is expected to shrink by 7.9 percent in 2009.Increasing demand for agricultural products from emerging economies in Asia, along with higher commodity prices, led to the increase in Argentine exports. However, due to the economic slowdown and decreasing commodity prices, Argentine exports shrank, with total export growth slowing down from 9 percent in 2007 to an estimated 1.7 in 2008, and projected to fall by 6.8 in 2009. Imports of goods and services decreased from 20.1 percent in 2007 to an estimated 13.3 in 2008 and are expected to shrink by 9 in 2009. However, total trade growth in nominal U.S. dollars remained the same in 2007 and 2008 at approximately 25 percent, due to high commodity prices. Nominal export growth was 26.5 percent, while nominal import growth was 29.5 percent. However, nominal goods exports registered a decline that can be traced to the fourth quarter of 2008, which registered a sharp fall of 22 percent compared to the same quarter in 2007.National statistics register a 26 percent drop in goods exports during the first quarter of 2009 compared to the same period last year, and a 35 percent drop in imports, leading to a trade surplus. The country experienced a severe drought, which resulted in decreased agriculture production and exports. Argentina’s trade share in GDP is around 45 percent, lower than an average LAC and upper-middle-income comparators’ levels. The country’s main export products in 2008 included animal feed, vegetable oil, oil seeds, and maize. Brazil is Argentina’s main export destination market (22 percent), followed by China, the biggest purchaser of raw soybeans (11 percent),the United States (8 percent), Chile (6 percent), and Spain (4 percent). Brazil is also the largest source of Argentina’s imports (33 percent), followed by the United States (15 percent) and China (12 percent each). Remittances accounted for 0.2 percent of GDP in 2008. FDI inflows accounted for 2.4 percent of GDP in 2008. This essay is an example of a student’s work Disclaimer This essay has been submitted to us by a student in order to help you with your studies. This is not an example of the work written by our professional essay writers. Essay Writing Service Dissertation Writing Service Who wrote this essay Place an Order Exhibit argentina – Balance of payments    Previous Last Changes in net reserves (BoP; US dollar) in Argentina -13074596223.5 -23729339.3 Communications; computer; etc. (% of service exports; BoP) in Argentina 42.2 47.1 Communications; computer; etc. (% of service imports; BoP) in Argentina     Current account balance (BoP; US dollar) in Argentina 7354350000.0 6755860000.0 Current account balance (% of GDP) in Argentina 2.8 2.1 Current transfers; receipts (BoP; US dollar) in Argentina 1627530000.0 1867280000.0 Exports of goods and services (BoP; US dollar) in Argentina 66343400000.0 82174560000.0 Exports of goods; services and income (BoP; US dollar) in Argentina 72967990000.0 87794970000.0 Exports of goods; services; income and workers’ remittances (BoP; US dollar) in Argentina 73487587553.2 88324375294.6 Foreign direct investment; net (BoP; US dollar) in Argentina 4968920000.0 8334630000.0 Foreign direct investment; net inflows (BoP; US dollar) in Argentina 6473150000.0 9725560000.0 Foreign direct investment; net inflows in reporting economy (DRS; US dollar) in Argentina 6473170000.0 9725553970.0 Foreign direct investment; net inflows (% of GDP) in Argentina 2.5 3.0 Foreign direct investment; net outflows (% of GDP) in Argentina 0.6 0.4 Goods exports (BoP; US dollar) in Argentina 55980300000.0 70018800000.0 Goods imports (BoP; US dollar) in Argentina 42524500000.0 54596200000.0 Grants; excluding technical cooperation (US dollar) in Argentina 0.0 0.0 Imports of goods and services (BoP; US dollar) in Argentina 53400300000.0 68036150000.0 Imports of goods; services and income (BoP; US dollar) in Argentina 65967070000.0 81208800000.0 Income payments (BoP; US dollar) in Argentina 12566770000.0 13172650000.0 Income receipts (BoP; US dollar) in Argentina 6624590000.0 5620410000.0 Insurance and financial services (% of service exports; BoP) in Argentina 0.1 0.2 Insurance and financial services (% of service imports; BoP) in Argentina 4.3 4.0 Net capital account (BoP; US dollar) in Argentina 242200000.0 361860000.0 Net current transfers (BoP; US dollar) in Argentina 353430000.0 169690000.0 Net errors and omissions; adjusted (BoP; US dollar) in Argentina 39403631.9 1076909339.3 Net income (BoP; US dollar) in Argentina -5942180000.0 -7552240000.0 Net trade in goods and services (BoP; US dollar) in Argentina 12943100000.0 14138410000.0 Net trade in goods (BoP; US dollar) in Argentina 13455800000.0 15422600000.0 Portfolio equity; net inflows (BoP; US dollar) in Argentina 1784940000.0 -530620000.0 Portfolio investment; equity (DRS; US dollar) in Argentina 1784940000.0 -530620000.0 Portfolio investment; excluding LCFAR (BoP; US dollar) in Argentina 7068790000.0 -8028290000.0 Profit remittances on FDI (US dollar) in Argentina 7282970000.0 7901872699.5 Royalty and license fees; payments (BoP; US dollar) in Argentina 1042140000.0 1463220000.0 Royalty and license fees; receipts (BoP; US dollar) in Argentina 106180000.0 104770000.0 Service exports (BoP; US dollar) in Argentina 10363100000.0 12155760000.0 Service imports (BoP; US dollar) in Argentina 10875800000.0 13439950000.0 Technical cooperation grants (US dollar) in Argentina 0.0 0.0 Total reserves in months of imports in Argentina 8.4 6.9 Total reserves (includes gold; US dollar) in Argentina 46149457445.4 46385380342.4 Total reserves minus gold (US dollar) in Argentina 44682057445.4 44854620342.4 Total reserves (% of total external debt) in Argentina 39.3 39.0 Trade in services (% of GDP) in Argentina 8.1 7.8 Transport services (% of service exports; BoP) in Argentina 16.1 14.6 Transport services (% of service imports; BoP) in Argentina 27.6 29.1 Travel services (% of service exports; BoP) in Argentina 41.6 38.2 Travel services (% of service imports; BoP) in Argentina 36.1 33.9 Workers’ remittances and compensation of employees; paid (US dollar) in Argentina 462540008.5 630148620.6 Workers’ remittances and compensation of employees; received (% of GDP) in Argentina 0.2 0.2 Workers’ remittances and compensation of employees; received (US dollar) in Argentina 606429992.7 697565612.8 Workers’ remittances; receipts (BoP; US dollar) in Argentina 541080000.0 605910000.0 Foreign Direct Investment in Argentina             As per an ECLAC report, Argentina was the recipient of the third biggest amount of FDI inflow among the Latin American and the Caribbean nations in 1997. The first and second places in this regard were held by Brazil and Mexico respectively.  Argentina’s foreign direct investment flow recorded a substantial increment in the 1990 to 1996 time period. The annual average for this period stood at US$2.8 billion. This was 4 times greater than the comparable figure for the 1980s.  In 1996 the FDI net inflow into Argentina climbed to US$4.2 billion. Compared to 1990 this was a yearly average growth of 15.2%. As per estimates by Argentine authorities, the value of FDI assets between 1990 and 1996 stood at around US$23.6 billion.  Some factors contributed to the rapid increase in FDI inflows into Argentina in the 1990s. They are stated below. This essay is an example of a student’s work Disclaimer This essay has been submitted to us by a student in order to help you with your studies. This is not an example of the work written by our professional essay writers. Essay Writing Service Dissertation Writing Service Who wrote this essay Place an Order  Mercosur membership  Macroeconomic stability  A rapid re-entry into international capital markets facilitated by proper policies on conversion of foreign debt into capital  Special incentive scheme for foreign investment  Incentives for the automotive sector  In 1990, Argentina’s FDI inflow accounted for 22% of Latin America’s foreign investment inflow. The figure subsequently hovered at around 9.8% to 13.9% in the following 6 to 7 years. Notwithstanding the large absolute value, Argentina’s share in Latin America’s FDI flow declined in the later half of the 1990s. This may be accounted to certain factors, which are stated below.  Completion of the first round of privatization for Argentinean public companies  A host of transnational companies were interested to operate in Mercosur market but Argentina faced stiff competition from Brazil in luring these investment companies  The advancement of alternative options of external financing in ArgentinaAs per reports from UNCTAD, FDI inflows to the Latin American region and the Caribbean nations increased by 44% in 2004. The figure stood at US$ 68 billion. This increase in FDI flow for the region was registered after a 4 year sequel of decline. These figures were released by UNCTAD in its “World Investment Report 2005: Transnational Corporations and the Internationalization of R&D (1)”. The report observed that, the biggest increment in FDI inflows in this region were accounted for by nations with MERCOSUR membership or associate membership.  Argentina leads the pack with a 125% increase. Brazil and Chile followed suit with 79% and 73% increase respectively.  2004 was a watershed year regarding policy changes in the Latin American nations. The policy changes primarily revolved round the participation of private investment in an economy’s natural resource sector. This sector normally attracts huge inflows from foreign business firms.  The massive upsurge in commodity prices led some Latin American governments to go in for a modification of their prevalent tax regimes. Some concerned legislations were also changed. The idea behind these government regulations was to secure the lion’s share of the rent accruing from the natural resources sector for the state.  These kinds of developments were observed in countries like Argentina, Venezuela, Chile and Peru. These policy measures discouraged FDI inflow to some extent. So the governments of the concerned countries made some other policy changes with an eye to attract foreign investments. They formulated newly devised investment promotion regimes in countries like Argentina and Brazil targeted at attracting investments for industrial activities.  Galloping inflation in 2007 threatened to derail Argentina’s road to economic recovery. Rising prices lead to apprehensions of a decline in net profit on goods for export. FDI figures for Argentina were already on the decline from 2006.  Average yearly rate of growth of FDI in Argentina was 11.2% in first quarter of the year 2006. It was lower than the comparable 26% growth it recorded in the time period from 2002 to 2006. From January 2007 to March 2007, it declined by 56.1% and stood at 624 million dollars. This contraction was due to the effect of a 374 million dollars worth of negative reinvested earnings. The Economic Commission for Latin America and the Caribbean (ECLAC) has been designated, within the United Nations System, as a focal point in the region for follow-up activities relating to regional and world agreements that deal with gender equity and the advancement of women. Argentine economic crisis (1999–2002) The Argentine economic crisis (1999–2002) was a major downturn in Argentina’s economy. It began in 1999 with a decrease of real Gross Domestic Product (GDP). The crisis caused the fall of the government, default on the country’s foreign debt, widespread unemployment, riots, the rise of alternative currencies and the end of the peso’s fixed exchange rate to the US dollar. By 2002 GDP growth had returned, surprising economists and the business media. As of 2012, the default had not been completely resolved, although the government had repaid its IMF loans in full. 1990s After a second bout of hyperinflation, Domingo Cavallo was appointed Minister of the Economy in late 1990. In 1991, he fixed the value of Argentine currency at ₳10,000 per U.S. dollar. Austral could be freely converted to dollars at banks. To secure this “convertibility” the Central Bank of Argentina had to keep its U.S. dollar foreign exchange reserves at the same level as the cash in circulation. The initial aim of such measures was to ensure the acceptance of domestic currency because, after the 1989 and 1990 hyperinflation, Argentineans’ had started demand payment in U.S. dollars. This regime was later modified by a law which restored the Argentine peso as the national currency. This essay is an example of a student’s work Disclaimer This essay has been submitted to us by a student in order to help you with your studies. This is not an example of the work written by our professional essay writers. Essay Writing Service Dissertation Writing Service Who wrote this essay Place an Order The convertibility law reduced inflation sharply and thereafter preserved the value of the currency. This raised the quality of life for many citizens who could again afford to travel abroad, buy imported goods or ask for credit in dollars at traditional interest rates. The fixed exchange rate reduced the cost of imports, which produced a flight of dollars from the country, as well as the progressive loss of industrial infrastructure and employment. Government spending remained too high and corruption was rampant. Argentina’s public debt grew enormously during the 1990s without showing that it could service the debt. The International Monetary Fund kept lending money to Argentina and extending its payment schedules. Massive tax evasion and money laundering contributed to the movement of funds toward offshore banks. A congressional committee started investigations in 2001 over accusations that Central Bank governor (Pedro Pou) and members of the board of directors had overlooked money laundering within Argentina’s financial system.   The influx of foreign currency provided by the privatisation of state companies had ended. After 1999, Argentine exports were harmed by the devaluation of the Brazilian real and the dollar. A considerable international revaluation of the dollar directly weakened the peso relative to Argentina’s trading partners: Brazil (30% of total trade flows) and the Euro area (23% of total trade flows). By 1999, newly elected President Fernando de la Rúa faced a country with critically high unemployment and economic damage due to the continued borrowing. In 1999, Argentina’s GDP dropped 4% and the country entered a three-year long recession. Economic stability became economic stagnation (even deflation at times) and the economic measures taken did nothing to avert it. Devaluing the peso by abandoning the exchange peg was considered political suicide and a recipe for economic disaster. By the end of the century, complementary currencies had emerged. While the provinces had always issued complementary currency in the form of bonds and drafts to manage shortages of cash, the scale of such borrowing reached unprecedented levels during this period. This led to their being called “quasi-currencies”. The strongest of them was Buenos Aires’s Patacón. The national government issued its own quasi-currency—the LECOP. In a 2001 interview, journalist Peter Katel identified three factors, converging at “the worst possible time”, to explain why the Argentinian economy unraveled: The fixed exchange rate between Argentine peso and the US dollar (created at the start of the 1990s by the Economy Minister at the time, Domingo Cavallo). The large amounts of borrowing by former Argentine president, Carlos Menem. An increase in debt due to reduced tax revenues. Rates, riots, resignations and default Since the early 1990s, when the recession began, the national deficit widened to 2.5% of GDP in 1999 and its external debt surpassed 50% of GDP. Seeing these levels as excessive, the IMF advised the government to balance its budget by implementing austerity measures to sustain investor confidence. The De la Rúa administration implemented US$1.4 billion in cuts in its first weeks in office in late 1999. In June 2000, with unemployment at 14% and projections of 3.5% GDP growth for the year, austerity was furthered by US$938 million in spending cuts and US$2 billion in tax increases. GDP growth projections proved to be overly optimistic (instead of growing, real GDP shrank 0.8%), and lagging tax receipts prompted the government to freeze spending and cut retirement benefits again in November 2000. In early November, Standard & Poor’s placed Argentina on a credit watch, and a treasury bill auction required paying 16% interest (up from 9% in July); this was the second highest rate of any country in South America at the time. In July 2001 the government instituted an unpopular across-the-board pay cut of up to 13% to all civil servants and an equivalent cut to government pension benefits—De la Rúa’s seventh austerity round[—triggering nationwide strikes, and, starting in August, it paid salaries of the highest-paid employees in I.O.U.s instead of money.  This further depressed the weakened economy. The unemployment rate rose to 16.4% in August 2001 up from a 14.7% a month earlier, and it reached 20% by December. In October 2001, public discontent with the economic conditions was expressed in the nationwide election. President Fernando de la Rúa’s alliance lost seats in both chambers of the Argentine National Congress, leaving it in the minority. Over 20% of voters chose to enter so-called “anger votes”, returning blank or defaced ballots rather than indicate support of any candidate. This essay is an example of a student’s work Disclaimer This essay has been submitted to us by a student in order to help you with your studies. This is not an example of the work written by our professional essay writers. Essay Writing Service Dissertation Writing Service Who wrote this essay Place an Order The crisis intensified when, on 5 December 2001, the IMF refused to release a US$1.3 billion tranche of its loan, citing the failure of the Argentinean government to reach previously agreed-upon budget deficit targets, and demanded further budget cuts, amounting to 10% of the federal budget. On 4 December, Argentinean bond yields stood at 34% over U.S. treasury bonds, and, by 11 December, the spread jumped to 42%. By the end of November 2001, people began withdrawing large sums of dollars from their bank accounts, turning pesos into dollars and sending them abroad, causing a bank run. On 2 December 2001 the government enacted measures, informally known as the corralito, that effectively froze all bank accounts for twelve months, allowing for only minor sums of cash to be withdrawn, initially $250 a week. Debt default During the last week of 2001, the Rodriguez Saá government defaulted on the larger part of the public debt, totalling US$132 billion. The amount approximately represented one seventh of all the money borrowed by the Third World. Rodríguez Saá’s economic team came up with a scheme designed to preserve the convertibility regime, dubbed the “Third Currency” Plan. It consisted of creating a new, non-convertible currency called Argentino coexisting with convertible pesos and U.S. dollars. It would only circulate as cash (checks, promissory notes or other instruments could be denominated in pesos or dollars but not in Argentinos) and would be partially guaranteed with federally managed land—to counterbalance inflationary tendencies. Argentinos having legal status would be used to redeem all complementary currency already in circulation—whose acceptance as a means of payment was quite uneven. It was hoped that convertibility would restore public confidence, while the non-convertible nature of this currency would allow for a measure of fiscal flexibility (unthinkable with pesos) that could ameliorate the crippling recession. Critics called this plan merely a “controlled devaluation”; its advocates countered that since controlling a devaluation is perhaps its thorniest issue, this criticism was a praise in disguise. The “Third Currency” plan had enthusiastic supporters among mainstream economists (the most well-known being perhaps Martín Redrado, a former central bank president) citing technical arguments. However, it was not implemented because the Rodríguez Saá government lacked the required political support. End of fixed exchange rate After much deliberation, in January 2002 Duhalde abandoned the peso–dollar parity that had been in place for ten years. In a matter of days, the peso lost a large part of its value in the unregulated market. A provisional “official” exchange rate was set at 1.4 pesos per dollar. In addition to the corralito, the Ministry of Economy dictated the pesificación, by which all bank accounts denominated in dollars would be converted to pesos at an official rate. This measure angered most savings holders and attempts were made to declare it unconstitutional. After a few months, the exchange rate was left to float more or less freely. The peso further depreciated, which prompted increased inflation (since Argentina depended heavily on imports, and had no means to replace them locally at the time). Inflation and unemployment worsened during 2002. By that time the exchange rate had reached nearly 4 pesos per dollar, while the accumulated inflation since the devaluation was about 80%; considerably less than predicted by most orthodox economists. The quality of life of the average Argentine was lowered proportionally; many businesses closed or went bankrupt, many imported products became virtually inaccessible, and salaries were left as they were before the crisis. Immediate effects Aerolíneas Argentinas was one of the most affected Argentine companies, canceling all international flights for various days in 2002. The airline came close to bankruptcy, but survived. Several thousand newly homeless and jobless Argentines found work as cartoneros, or cardboard collectors. A 2003 estimated 30,000 to 40,000 people scavenged the streets for cardboard to sell to recycling plants. Such desperate measures were common given the unemployment rate of nearly 25%. Argentine agricultural products were rejected in some international markets, for fear they might arrive damaged by the chaos. The United States Department of Agriculture put restrictions on Argentine food and drug exports. Recovery The economic outlook was completely different from that of the 1990s; the devalued peso made Argentine exports cheap and competitive abroad and discouraged imports. In addition, the high price of soy in the international market produced massive amounts of foreign currency (with China becoming a major buyer of Argentina’s soy products). This essay is an example of a student’s work Disclaimer This essay has been submitted to us by a student in order to help you with your studies. This is not an example of the work written by our professional essay writers. Essay Writing Service Dissertation Writing Service Who wrote this essay Place an Order The government encouraged import substitution and accessible credit for businesses, staged an aggressive plan to improve tax collection, and allocated large sums for social welfare, while controlling expenditure in other fields. The peso slowly rose, reaching a 3-to-1 rate to the dollar. Agricultural exports grew and tourism returned. The huge trade surplus ultimately caused such an inflow of dollars that the government was forced to begin intervening to keep the peso from rising further, which would break the tax collection scheme (largely based on import taxes and royalties) and discourage further reindustrialization. The central bank started rebuilding its dollar reserves. By December 2005, foreign currency reserves had reached US$28 billion (they were later reduced by the payment of the full debt to the IMF in January 2006). The downside of this reserve accumulation strategy is that the dollars had to be bought with freshly issued pesos, which risked inflation. The central bank sterilized its purchases by selling Treasury letters. In this way the exchange rate stabilized near 3:1. The currency exchange issue was complicated by two mutually opposing factors: a sharp increase in imports since 2004 (which raised the demand for dollars), and the return of foreign investment (which brought fresh currency from abroad) after the successful restructuring of about three quarters of the external debt. The government set up controls and restrictions aimed at keeping short-term speculative investment from destabilizing financial markets. Argentina’s recovery suffered a minor setback in 2004 when rising industrial demand caused a short-lived energy crisis. Argentina managed to return to growth: GDP jumped 8.8% in 2003, 9.0% in 2004, 9.2% in 2005, 8.5% in 2006 and 8.7% in 2007. Though wages averaged a 17% annual increase from 2002-2008(jumping 25% in the year to May 2008), inflation ate away at these increases: 12.5% in 2005; 10% in 2006; nearly 15% in 2007 and over 20% during 2008. The government was accused of manipulating inflation statistics leading for example, The Economist magazine to turn to private sources instead. This prompted the government to increase export tariffs and to pressure retailers into one price freeze after another in a bid to stabilize prices, so far with little effect. While unemployment has been considerably reduced (it hovered around 8.5% after 2006), Argentina has so far failed to reach an equitable distribution of income (the wealthiest 10% of the population receives 31 times more income than the poorest 10%). This level of inequality compares favorably to levels in most of Latin America. Effects on wealth distribution Although GDP grew consistently and quickly after 2003, it only reached the levels of 1998 (the last year before the recession) in late 2004. Other macroeconomic indicators followed suit. A study by Equis, an independent counseling organization, found out that two measures of economic inequality, the Gini coefficient and the wealth gap between the 10% poorest and the 10% richest among the population, grew continuously since 2001, and decreased for the first time in March 2005. Poverty in Argentina Date of measurement Extreme poverty Under poverty line May 2001 11.6% 35.9% October 2001 13.6% 38.3% May 2002 24.8% 53.0% October 2002 27.5% 57.5% May 2003 26.3% 54.7% 2nd sem 2003 20.5% 47.8% 1st sem 2004 17.0% 44.3% 2nd sem 2004 15.0% 40.2% 1st sem 2005 13.6% 38.5% 2nd sem 2005 12.2% 33.8% 1st sem 2006 11.2% 31.4% 2nd sem 2006 8.7% 26.4% 2nd sem 2007 5.9% 20.6% 1st sem 2008 5.1% 17.8% 2nd sem 2008 4.4% 15.3% The table on the left shows statistics of poverty in Argentina, in percent of the population. The first column shows the date of the measurement (note that the method and time changed in 2003; poverty is now measured each semester). Extreme poverty is here defined as not having enough money to eat properly. The poverty line is set higher: it is the minimum income needed for basic needs including food, clothing, shelter, and studies. Debt restructuring When the default was declared in 2002, foreign investment stopped and capital flow ceased almost completely. The Argentine government faced severe challenges trying to refinance its debt. The government reached an agreement in 2005 by which 76% of the defaulted bonds were exchanged for others, with a nominal value of 25–35% of the original and at longer terms. In 2008, President Cristina Fernández de Kirchner announced she was studying a reopening of the negotiations to gain agreement from the remaining 24% of the debt. Criticism of the IMF The International Monetary Fund accepted no discounts in its part of the Argentine debt. Some payments were refinanced or postponed on agreement. However, IMF authorities at times expressed harsh criticism of the discounts and actively lobbied for the private creditors. In a speech before the United Nations General Assembly on September 21, 2004, President Kirchner said that “An urgent, tough, and structural redesign of the International Monetary Fund is needed, to prevent crises and help in [providing] solutions”. Implicitly referencing the fact that the intent of the original Bretton Woods system was to encourage economic development, Kirchner warned that the IMF today must “change that direction, which took it from being a lender for development to a creditor demanding privileges”. During the weekend of October 1–2, 2004, at the annual meeting of the IMF/World Bank, leaders of the IMF, the European Union, the Group of Seven industrialized nations, and the Institute of International Finance (IIF), warned President Kirchner that Argentina had to come to an immediate debt-restructuring agreement with creditors, increase its primary budget surplus to slow debt increases, and impose structural reforms to prove to the world financial community that it deserved loans and investment. In 2005, turned its primary surplus into an actual surplus, Argentina began paying the IMF on schedule, with the intention of regaining financial independence. On December 15, 2005, following a similar action by Brazil, President Kirchner suddenly announced that Argentina would pay the whole debt to the IMF. The debt payments, totaling 9.810 billion USD, were previously scheduled as installments until 2008. Argentina paid it with the central bank’s foreign currency reserves. The payment was made on January 6, 2006. In a June 2006 report, a group of independent experts hired by the IMF to revise the work of its Independent Evaluation Office (IEO) stated that the assessment of the Argentine case suffered from manipulation and lack of collaboration on the part of the IMF; the IEO is claimed to have unduly softened its conclusions to avoid criticizing the IMF’s board of directors. Exhibit Facts about Argentina Argentina declared independence from Spain on the 9th of July, 1816. Current President, Cristina Fernández de Kirchner, was the first woman President to be elected in Argentina. Argentina is the 30th largest country in the world by population, with just over 40 million people. The official currency of Argentina is the peso. Argentina were one of the first countries to have radio broadcasting. The first broadcast was made on the 27th of August, 1920. Only twenty people had a receiver at the time! Average life expectancy in Argentina is 76 years. About 10% of people living in Argentina have private health cover. Argentina has a very good literacy rate- 97.6%. This ranks them at equal 58th in the world. The official language of Argentina is Spanish, although many people speak Italian and German. Some indigenous populations still speak their native languages. Pato is the official national sport of Argentina. It is a combination of polo and basketball. Football (soccer) is the most popular sport in Argentina. A major export of Argentina is wine. Like animated films? The world’s first animated films were made and released in Argentina, by a man named Quirino Cristiani in 1917. The Teatro Colón, located in Buenos Aires (the capital and largest city of Argentina), is one of the great opera houses in the world. Argentina loves movies! They have one of the highest rates of movie watching in the world. They enjoy watching both locally made movies and Hollywood movies. The Argentine government has estimated that 750,000 people living in Argentina are illegal immigrants. 20% of the population (according to the 2001 census) lack indoor running water and/or indoor plumbing. Argentina produces a lot of honey, soybeans, sunflower seeds, maize and wheat. Crocodiles live in Argentina. The hottest and coldest temperatures ever recorded in South America have occurred in Argentina. Argentina is divided into 23 provinces. There are about 70,000 members in the Argentine armed forces