Argentina - Economic analysis of government's policies, investment climate and political risk.

THE

McKEEVER INSTITUTE

OF

ECONOMIC POLICY

ANALYSIS

ARGENTINA: Economic Policy Analysis

This site presents an analysis of the Argentinan government's economic policies compared to a list of 34 economic policies as prepared by Mr. Vicente Fernandez with the McKeever Institute of Economic Policy Analysis in the Spring of 2001 (MIEPA). To read the analysis scroll through this site. To learn more about the background policies, click here

Introduction and Policy Recommendations

To learn more about MIEPA, click here

Return to MIEPA's Home Page
 

Several foreign born students living in California have completed a study of their home country governments' economic policies as compared to the MIEPA list of policies as outlined above. The study on Argentina is shown below. The ratings herein are based on the following rating scale:

RATING SCALE

5.0 Perfect Facilitation of Wealth Creation
4.0 Midway between Perfect and Neutral
3.0 Neutral Effect on Wealth Creation
2.0 Midway between Neutral and Obstructionist
1.0 Perfectly Obstructionist to Wealth Creation
[Rating scale copyright Mike P. McKeever, 1996. Used herein with permission]

To read a disclaimer about the analysis in this file, scroll to the bottom of the file.

Return to MIEPA's Home Page

ARGENTINA:

Comparison of Argentina's economic policies to MIEPA criteria as prepared by native student of Argentina, Mr. Vicente Fernandez, studying in Berkeley in Spring, 2001.

RATING SUMMARY

POLICY NUMBER      RAW SCORE   ADJUSTED SCORE     POSSIBLE PERCENTAGE

        1               3.5          10.5             15.0        70 %

        2               3.5          10.5             15.0        70

        3               2.5           7.5             15.0        50

        4               2.5           7.5             15.0        50

        5               4.0          12.0             15.0        80

        6               4.0          12.0             15.0        80

        7               3.5          10.5             15.0        70

        8               3.0           9.0             15.0        60

        9               2.5           7.5             15.0        50

        10              2.0           6.0             15.0        40

        11              3.0           9.0             15.0        60

        12              3.0           9.0             15.0        60

        13              4.0           8.0             10.0        80

        14              3.0           6.0             10.0        60

        15              3.0           6.0             10.0        60

        16              2.0           4.0             10.0        40

        17              2.0           4.0             10.0        40

        18              2.5           5.0             10.0        50

        19              2.0           4.0             10.0        40

        20              2.0           4.0             10.0        40

        21              3.0           6.0             10.0        60

        22              4.0           8.0             10.0        80

        23              3.5           7.0             10.0        70

        24              2.0           4.0             10.0        40

        25              3.0           6.0             10.0        60

        26              4.0           8.0             10.0        80

        27              2.5           5.0             10.0        50

        28              3.0           6.0             10.0        60

        29              3.0           6.0             10.0        60

        30              3.0           3.0              5.0        60

        31              4.0           4.0              5.0        80

        32              4.0           4.0              5.0        80

        33              3.0           3.0              5.0        60

        34              3.0           3.0              5.0        60

   TOTAL              102.5          225.0           375.0        60.0%
                      =====          ======          =====        =====

Return to MIEPA's Home Page

INDIVIDUAL POLICIES

1. Freedom from Internal Control: 3.5

The Constitution provides for freedom of religion, and the Government respects this right in practice. The Constitution states that the Federal Government "sustains the apostolic Roman Catholic faith;" however, other religious faiths are practiced freely Citizens in Argentina can move freely, within and also to foreign countries. Argentina has enjoyed a high degree of freedom since the come-back of democracy and I can proudly say, it is one of the healthiest democracies in South America.

Source: Personal

2. Freedom of Speech: 3.5

If you had to rate Argentina’s freedom of speech historically it would get very low marks. Starting with Peron, who suspended freedom of the press and freedom of speech during his fist government in 1946. and followed by military dictatorships through the 1970s, Argentina’s freedom of speech record was very poor. Democracy’s come back in 1983 changed all that, today Argentina enjoy a healthy record for freedom of the press and freedom of speech for its citizens. Many of the dictators of the 1970s have been brought to justice and are in jail.

Today, Argentina has a vibrant and robust media and the Constitution provides for freedom of speech and of the press, and the Government respects these rights in practice. A number of independent newspapers and magazines publish freely, and privately owned radio and televisions stations broadcast freely as well. All print media are privatised, but the Federal Government still owns the Telam wire service, a television station, and a radio network. A few provincial governments own broadcast media.

Journalists are organised into regional groups that come under a federation national structure called Federación Argentina de Trabajadores de Prensa. Within the union structure there is recognition of freelance journalists’ rights and efforts are made to organise this group.

Source: Personal and International Federation of Journalists. http://www.ifj.org Data of access: 4/23/01

3. Effective, Fair Police Force: 2.5

Argentine law enforcement remained in the hands of twenty-three provincial police forces and the Federal Police, which had jurisdiction in the capital, Buenos Aires, and delegations throughout the country. Although reforms were initiated in a number of forces, including the two most widely questioned-the Federal Police and the Buenos Aires Provincial Police-human rights violations by police remained frequent, and investigation and prosecution rare. Dozens of such cases remained unresolved years after their occurrence.

Police abuses in Argentina included excessive use of force in controlling demonstrations, Other cases included killings in alleged “shoot-outs” with the police, in which investigations often demonstrated that the police shot the victims point-blank and then fabricated evidence of a shoot-out (such as the planting of a gun on the victim’s body); the killing of innocent bystanders during armed confrontations between the police and criminal suspects; deaths in police custody, frequently after beatings to force confessions, later often described as suicide; so-called “easy trigger” cases in which police officers shot to kill rather than seeking to detain suspects (sometimes due to minor provocations); “disappearances” in police custody; and harassment of or attacks on witnesses to these crimes.

Although formal restrictions on the right to freedom of expression did not exist in Argentina, threats and attacks on journalists continued to occur. From 1995 through October 1998, forty-three journalists were attacked in Argentina, according to the Committee to Protect Journalists. Reforms began in the Buenos Aires Provincial Police, including the placing of the entire force under civilian control in December 1997 and the removal of 300 superior officers from police functions for a variety of reasons, including corruption and covering up criminal activity. Special brigades set up to fight specific crimes such as drug trafficking were also dissolved, having been determined to have become accomplices rather than enemies of this type of crime. There is a lot more to do to bring the Argentine’s police force to first world standards, specially in the provinces of the interior. The scandals in recent years have helped bring attention to much needed changes.

Source: Human Rigths Watch http://www.hrw.org/hrw/worldreport99/americas/argentina.html And personal Data of access: 4/23/01

4. Currency: 2.5

The Convertibility Law of 1991 forms the core of Argentina's foreign exchange regime. It pledges that Argentina will maintain the peso at a one-to-one exchange rate with the US dollar and make the peso freely and fully convertible at market rates. Under the Convertibility Law, Argentines and foreigners in Argentina are allowed to hold and use any currency. Contracts and other transactions can be legally dominated and executed in any currency. Most Argentines have a savings account in dollars and one in pesos, since most of their mortgages and car loans are in dollars.

The Convertibility Law also transformed the Banco Central de la Republica Argentina (BCRA, the central bank) into a currency board, preventing it from issuing more currency than can be backed by foreign currency reserves. This prevents the government from creating unbacked currency-"running the printing press"-or monetizing deficits and thus limits inflation, contributing to the stability and integrity of the monetary system At the same time limits Monetary policy since the Central Bank can’t move rates up or down, leaving only fiscal policy as a tool. The Convertibility Law that has brought Argentina from hyperinflation to deflation this past years has been heavily criticized as being the cause of the long recession Argentina has been experiencing the last 3 years.

As main trading partners have devalued their currencies (Brazil and Asia), Argentina has been left holding a very strong currency, since the peso is tied to the dollar, which has been appreciating against major currencies (Euro and Yen). As the Arg Peso got stronger, Argentina’s trade deficit increased and factories moved to its neighbor, Brazil. On April of 2001, finance minister Cavallo send a law to Congress that will change the Convertibility Law, allowing the ARG Peso to be tied not only to the dollar but also to the Euro. According to Cavallo, this measure reflects the important role of the European Union as a trading partner. The new law will go into effect as soon as the Euro reaches parity against the US Dollar. So then the Arg Peso will be 50% Euro and 50% US Dollar. Lets hope this new measure takes Argentina out of a recession that has been going on since 1997.

Source: Bloomberg news and Personal (www.bloomberg.net) Data of access: 4/23/01

5. Commercial Banks: 4.0

Argentina's banking system began 1998 further consolidated and strengthened by recent large foreign investments. Peso and dollar deposits in the banking system grew strongly and reached nearly $70 billion at the end of 1997--close to twice the level in June 1995, when bank deposits hit a low of $37 billion. Despite the turmoil in international capital markets following Russia's devaluation of the ruble in August 1998, total deposits in Argentina's banking system-as well as the country's international reserves-have remained stable.

Foreign-controlled banks now hold about 50% of total Argentine bank deposits. Four of the biggest commercial banks are owed by foreign banks. Except for Banco Galicia y Buenos Aires, we have Citibank owed by Citigroup of USA, Banco Rio owed by Santander of Spain, Banco Robers owed by HSBC, Banco Frances owed by Bilbao of Spain. In late 1997, shortly after the Asian financial crisis began, the Government of Argentina reassured investors that the country's banking system and reserves were strong enough to withstand the storm.

Bank financing and lending costs are still high by industrialized country standards. Credit is very expensive for certain sectors. Easier lending for small and medium sized firms and improved credit risk management is essential to foster job creation. The Argentine banking system suffers from the “crowding out effect”, too much money in the system is being absorbed by the National government and almost no money is lended out to individuals and small and medium size firms. It is easier and less riskier to lend to the Government in the form of T-Bills. The Banking system has a long way to go. It has in Argentina one of the lowest penetration rates in Latin America.

Source: http://www.state.gov/www/background_notes/argentina_0199_bgn.html And personal Data of access: 4/14/01

6. Communications Systems: 4.0

Argentina is one of the most wired countries in Latin America, as a result of deregulation that privatised the state owed telephone company in the early 90s. Today Argentina has also created a Secretary of Communications to deal to mobile licenses and internet providers.

Telephones - main lines in use: 10.5 million (1999) Telephones - mobile cellular: 3.0 million (1999) Telephone system: 12,000 public telephones; extensive modern system but many families do not have telephones; despite extensive use of microwave radio relay, the telephone system frequently fails during rainstorms, even in Buenos Aires.

Domestic: microwave radio relay and a domestic satellite system with 40 earth stations serve the trunk network

International: satellite earth stations - 3 Intelsat (Atlantic Ocean); two international gateways near Buenos Aires; Atlantis II submarine cable (1999)

Radio broadcast stations: AM 260 (including 10 inactive stations), FM NA (probably more than 1,000, mostly unlicensed), shortwave 6 (1998) Radios: 24.3 million (1997)

Television broadcast stations: 42 (plus 444 repeaters) (1997) Televisions: 9.1million (1999)

Internet Service Providers (ISPs): 47 (1999)

Source: http://www.cia.gov/cia/publications/factbook Data of access: 4/23/01

7. Transportation: 3.5

Railroads, highways, and air routes spread out from Buenos Aires, linking most of Argentina's cities and towns with the capital. The country's roads carry far more people and freight than do the railroads. Air transportation has grown in importance because of the long distances between Argentine cities. Buenos Aires has two major airports. More than 50 Argentine cities have regularly scheduled passenger flights. 

Railways: total: 38,326 km (160 km electrified)

Highways: total: 215,434 km paved: 63,553 km (including 734 km of expressways) unpaved: 151,881 km (1998 est.)

Waterways: 10,950 km navigable

Pipelines: crude oil 4,090 km; petroleum products 2,900 km; natural gas 9,918 km

Ports and harbors: Bahia Blanca, Buenos Aires, Comodoro Rivadavia, Concepcion del Uruguay, La Plata, Mar del Plata, Necochea, Rio Gallegos, Rosario, Santa Fe, Ushuaia

Airports: 1,359 (1999 est.) Airports - with paved runways: total: 142

Merchant marine: total: 26 ships (1,000 GRT or over) totaling 218,540 GRT/333,413 DWT ships by type: cargo 9, petroleum tanker 11, rail car carrier 1, refrigerated cargo 2, roll-on/roll-off 1, short-sea passenger 2 (1999 est.)

Source: Personal and http://www.cia.gov/cia/publications/factbook Data of access: 4/23/01

8. Education: 3.0

Even though Argentina has the highest literacy rate in all of Latin America, education has been suffering lately because of the long recession. Teacher’s strikes are common and public universities to which acceptance are indiscriminate and free and overwhelmed by students and the lack of teachers.

The system of schools, primary, secondary and high school are located in the same facilities. Children start primary education at the age of 5 to 6, secondary at the age of 7 to 12 and high school from 12 to 17. After which comes University, where most people go for a degree, for example if you want to be a lawyer you will spent 6 years in university, a business major about 5 years. Very few people come back for a master degree since it is not needed to practice. Unlike the US with its undergraduate and graduate school.

Argentina provides free public elementary and high school education. The country also has many private schools, which charge tuition Argentina has about 45 universities. The University of Buenos Aires is the largest university in South America. It has more than 200,000 students. Access to university is easy and universal. Anybody can go to public universities which at the same time are regarded as the best in the country. However surviving in those public institutions can be very difficult, for the huge number of students and low budgets they work under. Literacy: definition: age 15 and over can read and write total population: 96.2% male: 96.2% female: 96.2% (1995 est.)

Source: Personal and http://www.cia.gov/cia/publications/factbook And personal Data of access: 4/23/01

9. Social Mobility: 2.5

In Argentina, for example, 53 percent of respondents identify themselves as middle class, including 67 percent of those in executive and professional jobs and 73 percent of people who, on further study, actually fall into the highest economic class. Class mobility in Argentina is very flexible. It is a country of immigrants like the U.S. and one can go up in society according to his/her own merits.

Argentina has always had one of the strongest middle classes in Latin America and the highest per capita income (US $ 8,000). But lately this middle class is the one most damaged by the prolonged recession. Many Argentines of Italian and Spanish descend; especially the young have been forced to immigrate to the same countries their grandparents came from. Others have opted for the US ,and Miami has one of the fastest growing Argentine’s population.

Even though education is available to all, unemployment has prevented many Argentines, especially the young ones to find a job, thus maintain the same living standards that their parents and grandparents enjoyed at the beginning of the century and in the 1950s to 1970s. Emigration by the young professionals will continue unless the government finds a solution to Argentina’s economic problems and is able to create jobs for its youth. One of three young Argentines has expressed the desire to leave the country once they finish university.

Source: Personal

10. Freedom from Outside Control: 2.0

Argentina’s major dependency is to Economic Organisms. And opposition parties in government to raise anger in the population have played this. More populist candidates have always tended to blame the IMF for Argentina’s woes. The International Monetary Fund played Santa Claus over the holidays and organized a rescue package for Argentina worth $40 billion, which was officially approved on Jan. 12. The deal allows Argentina to avoid defaulting on its $124 billion in foreign debt. That's as good as the news gets, however.

A close look at the agreement shows that it has little chance of solving Argentina's problems in the long term or putting its economy on a robust growth path in the near future. Argentina joined the IMF in 1956. It has borrowed money from that organization in 34 of the last 45 years. In March of last year, the IMF loaned $7.4 billion to help Argentina launch a fiscal responsibility plan, a combination of tax increases and spending cuts aimed at bringing the public-sector deficit into balance by 2003. By September 2000, it was apparent that the target date would be missed. Rather than suspend the loan, the IMF wants to provide a new loan, and push the target deficit date to 2005. Yet tax-and-spend policies are not a good recipe for growth.

The Argentine economy has performed poorly since 1995, growing at an annual rate of 1 percent per capita on average. There are two reasons for that poor performance. First, Argentina has one of the most regulated labor markets in the world. Second, taxes are too high. Argentina's problems--and the solutions to those problems--are homegrown. The IMF is responsible for giving money and bad advice to the Argentines. Unfortunately, that is unlikely to stop. For years the fund has touted Argentina as its model client. To leave her now would deal a severe blow to the fund's already tarnished reputation. Buenos Aires knows that and behaves accordingly, failing to make the necessary reforms to get the economy on the path to sustained growth. Knowing that the IMF will come to its rescue time and again, the Argentine government has little incentive to reform. And thus the charade continues.

Source: Personal and Argentina's Addiction to IMF Money by L. Jacobo Rodríguez, assistant director of the Project on Global Economic Liberty at the Cato Institute, www.cato.org Data of access: 4/23/01

11. Foreign currency transactions:3.0

Argentina’s convertibility law passed in 1991, requires to back every peso in circulation by a dollar in reserves. This has made Argentina an almost dollarized economy. Argentines are allowed to keep saving and checking accounts in US dollars as well as in Pesos. The government monthly T-Bill auctions are also conducted in US$ dollars and in ARG $ Pesos.

The extent of dollarization is such that most if not all of car loans and mortgages are in dollars. Leaving almost no room for the government for devaluation that would bring chaos to the financial system and population as a whole. Most recently and because of its ties to the US dollar the Argentine economy has not been able to grow and has incurred a trade deficit with its counterpart Brazil who has seen the Real devalue almost 50% since 1998. The last measures introduced by Cavallo, was to change the peg of the Arg peso to the dollar and make it 50% US dollar and 50% Euro. To reflect thus a more important trading partner of the Argentine’s economy who is the European Union.

The strength of the dollar has helped Argentina contain inflation but lately and because of an overvalued currency it has brought a worse evil called Stagflation. Lets hope the new peg, helps Argentina grow again.

Source: Bloomberg and Personal www.bloomberg.net Data of access: 4/14/01

12. Border Control: 3.0

Border Control in Argentina has been a source of headaches for the Government lately because of a number of reasons. First illegal immigration from Bolivia and Paraguay, composed of workers looking for jobs in factories and construction in urban areas. Second, the Government has been trying to contain illegal smuggling of cattle from Brazil, which has infected Argentina’s cattle with foot and mouth disease. Also there has been drugs smuggling from Bolivia and illegal trade coming from Paraguay.

Source: Personal Data of access: 4/14/01

13. Cultural, Language and Homogeneity: 4.0

Argentina has a population of approximately 35 million. More than 10 million people live in Buenos Aires and its surroundings. Rosario and Cordoba have approximately 1,5 million each one. Mendoza, Tucuman, La Plata and Mar del Plata each have a population of a half million

It is important to consider some ethnic, cultural and social characteristics of Argentina’s people, which differentiate it from other Latin American countries. The population is largely composed of European descendants and still has strong ethnic and cultural ties with Europe, especially with Italy and Spain. It is said that ¨... the Mexican people descends from the Mayas, Peruvians from the Incas, but the Argentine population descend from the boats...¨. For this reason Argentina has always welcomed foreign people, particularly foreign investors.

Another characteristic to be noted is that Argentina’s people have received high levels of education since the nineteenth century. Most of the country has access to 12 years of education. The number of students in the universities has grown remarkably from mid 60´s to present days. Therefore Argentines are trained for different kind of jobs. Argentine workers are more highly trained and better paid, on average, than labor in other Latin American or Mercosur countries Finally, approximately 79% of the population is urban. Most of them are mid-class and work as employees, professionals or entrepreneurs. Ethnic groups: white (mostly Spanish and Italian) 97%, mestizo, Amerindian, or other nonwhite groups 3% Religions: nominally Roman Catholic 92% (less than 20% practicing), Protestant 2%, Jewish 2%, other 4% Languages: Spanish (official), English, Italian, German, French

Source: http://www.latinadvice.com/english/arggente_i.html Data of access: 4/14/01

14. Political Effectiveness: 3.0

Argentina’s political effectiveness during the prior government by Saul Menem was many times achieved through governing by decree. Nonetheless Menem was much more effective than his predecessor’s Alfonsin from the Radical party who was pushed to call early elections because of hyperinflation. Menem and its finance minister Cavallo, brought inflation to single digits and more recently to deflation. Menem privatized a number of state-owed companies and brought back foreign direct investment. Nonetheless most reforms were passed through decrees.

The current government of Fernando de la Rua has find it more difficult to govern because a coalition of parties was needed to beat the incumbent Peronist party of Menem. And also convertibility instituted by Cavallo has make it harder for Argentina to grow, Cavallo is now back and most of the government efforts has concentrated in calming international capital markets and assuring the population that growth will come back. Cavallo has made it easy for De La Rua to pass key reforms because of his skill to negotiate with Congress. In conclusion I must say that Argentina, for a young democracy and putting aside the corruption scandals, it has moved effectively and fast in trying to bring the country and its economy back to good health.

Source: Personal

15. Institutional Stability: 3.0

Argentina’s experience with dictatorship was not a pleasant one, the curious thing was that most military governments were arranged or called by political parties that did not want the opposition to govern. Democracy is in good shape, now, after coming back in 1983. But its stability lies more in the mind of the population than its actual institutions.

The legislative and judicial system in Argentina are not still independent as they are in very strong democracies such as the US. More recently the Senate has been the focus of a bribery scandal started at the Executive branch. Also the judicial system has been the recipient of many critics, and accusations that they are influenced by the President (who elects them) in their decisions. Argentina has completed a giant step, which is to establish and support democracy, now it must support and strengthen the institutions that give democracy its soul. And those are the legislative and judicial powers.

Source: Personal

16. Honest Government: 2.0

Argentina has always had a reputation of corruption. Corruption scandals tend to appear on a weekly basis. And most recently has pushed President Fernando de la Rua to create a new ministry for Ethics. The past government of Carlos Menem, has now most of its ministers in jail or being investigated for a number of corrupt acts that range from illegal arms deals with Croatia to drug trafficking and bribe scandals during the privatization of most state owed enterprises during the Menem’ s years.

Most recently the government of De la Rua accused of a bribery scandal that involved the Senate has sent a bill to cut state funding of the parties, restrict television advertising and ban anonymous donations, De la Rua said the bribery allegations must be "completely, totally and finally cleared up" if the Alliance government is to be credible in its struggle against corruption. The new law is meant to make it harder for individuals or companies to channel money to politicians in hopes of influencing decisions. The 10-month old government hopes that sending the bill to Congress will show the public it remains committed to fighting corruption and help repair its reputation for honesty, which has taken a battering from suspicions that officials bribed opposition Peronist senators to pass a labor market reform in April. Political parties will not be allowed to take donations from unions, from groups linked to gambling, or from foreign countries and will have to make their accounts public. Parties will also have to select their presidential candidates in national primaries open to all voters who are not registered with other political groupings. Violations will be punishable with prison sentences and fines.

But campaign spending has not been a major issue in Argentina in recent years, and the new measures may fail to displace the bribery scandal in the minds of voters. A federal judge has named 11 of the nation's 69 senators as suspects in the case and has said he thinks the money for the alleged bribes came from the government, but has not pointed the finger at any officials. The Argentine’s middle class is tired of a corrupt government that in their minds has prevented Argentina form joining the first world economies even with its vast resources. One of the reasons the Peronists lost last election was its poor record in the corruption field. Lets hope De la Rua does not fall in the same trap.

Source: cnn and argentine’ s newspapers www.cnn.com www.clarin.com.ar Data of access: 4/14/01

17. Common Laws: 2.0

Argentina. Originally a Constitution and Common Law system similar to that of America, but now heavily Roman. Some Natural Law influences. Argentina Judicial system is a civil code system that relies on the “Codigo Penal” or written laws.

The Judicial branch in Argentina has been the most criticized since democracy made a come back in 1983. The main criticism has been that it has not been able to maintain its independence from the Executive branch. The president is the one who chooses the members of the Supreme Court and their independence from the President ‘s agenda has always been doubtful. Justice in Argentina is equal to all, there is no favoritism towards social classes or economic status.

Source: Doing business in Argentina www.pjn.gov.ar And personal Data of access: 4/14/01

18. Central Bank: 2.5

The Argentine banking system has undertaken significant reforms in the past few years. The primary goals of these reforms have been to reduce regulation, lower interest rates and increase competition among banks, thereby lowering the cost of, and increasing access to credit. New laws have permitted the creation of certificates of deposit, savings accounts and checking accounts denominated in U.S. dollars

Most recently the Central Bank’s President, Pedro Pou, has been pressured to resign because of a study by the US Senate implicates numerous financial institutions in Argentina in money laundering, among them Citibank. Also Pou is being criticized by the Argentine’s new finance minister, Domingo Cavallo who accuses the Central Bank of not executing the proper monetary policies that would spur growth in the national economy. Among them keeping bank reserves too high, thus preventing them from lending. The market has lately been unhappy by the intervention by the finance minister in the affairs of the Central Bank. The attempt by Cavallo to intrude in the Central Bank’s affairs by a presidential decree has undermined the markets’ perception of the independence of the Argentine Central Bank.

Source: BCRA’s site and Bloomberg financial news www.bcra.gov.ar and www.bloommberg.net Data of access: 4/14/01

19. Domestic Budget Management: 2.0

In the first half of this year, the public sector deficit remained at US$ 2.2 billion, which was below the US$ 2.6 billion fiscal target set under the terms of the Stand-by Agreement with the International Monetary Fund (IMF). Nevertheless, increased concern over the impact of lower economic activity and declining consumer prices on tax collection, prompted the Economy Ministry to renegotiate the US$ 4.7 billion fiscal deficit target (1.6% of GDP) with the IMF.

Since the government was almost certain to overshoot its fiscal deficit target, the IMF consented to raise this year’s fiscal deficit limit to US$ 5.3 billion in early September. Simultaneously, the government set new fiscal deficit targets of US$ 4.1 billion (up from US$ 2.8 billion) and US$ 2.4 billion (up from US$ 600 million) for 2001 and 2002. Despite the hefty increase in the planned deficits for the coming two years, the government believes that the goal of reaching fiscal equilibrium by 2003 is still within reach. Argentina’s constant increase of its fiscal deficit has prompted the resignation of 2 finance ministers in the last month and the comeback of Domingo Cavallo, the father of the "convertibility law". Cavallo who is trusted by the markets has won from the Congress in the last week executive powers that will help him bring back growth to an economy that has been in a recession for the last 3 years. The latest estimates for the budget deficit this year is US$ 6.5billion.

Source: latin focus http://www.latin-focus.com/economic/commentary/000918argbudget.htm Data of access :04/01/01

20. Government Debt: 2.0

Argentina is one of Latin America’s largest debtors. Argentina's total public sector debt totaled nearly $123.67 billion on Sept. 30, 2000, slightly higher than 1999's year-end total of $121.88 billion, according to figures released by the Economy Ministry on Tuesday. The debt, most of it owed to foreign creditors, was made up of $118.37 billion in mid- and long-term debt, which included $88.06 billion in bonds and $30.30 billion in loans. The remaining $5.30 billion was made up by short-term debt, all of it domestic treasury bills, the ministry said in a statement.

The Economy Ministry said the gross, or total, public sector debt was $123.666 billion as of Sept. 30. Its net debt, which subtracted its financial assets, was $114.596 billion. Argentina, Latin America's biggest foreign borrower, has $16.4 billion in public sector debt coming due next year. Argentina, which has struggled through two years of economic stagnation, clinched an IMF-led $39.7 billion financial aid package, which it unveiled last week. The center-left government of President Fernando de la Rua actively sought the package to quell fears the country would default on its debt.

According to the economy ministry, 67.94 percent of the gross public debt is in U.S. dollars, 19.66 percent is in euros, 6.08 percent is in Japanese yen, 4.89 percent is in Argentine pesos, 0.71 percent is in British pounds, 0.65 percent is in Swiss francs and the remaining 0.07 percent is in other currencies.

Source: bloomberg www.bloomberg.com Data of access: 04/01/01

21.Private Property: 3.0

On private property from the Argentine’s Constitution Section 17 [] Property may not be violated, and no inhabitant of the Nation can be deprived of it except by virtue of a sentence based on law. Expropriation for reasons of public interest must be authorized by law and previously compensated. No personal service can be requested except by virtue of a law or sentence based on law. Every author or inventor is the exclusive owner of his work, invention, or discovery for the term granted by law. The confiscation of property is hereby abolished forever from the Argentine Criminal Code. No armed body may make requisitions nor demand assistance of any kind. .

Argentina adheres to the Roman legal tradition that the author is the physical person who created the work, and that as such, the author has rights which are not assignable, transferable or revocable. Unlike the Anglo-Saxon system where, for example, original ownership of a work may be granted by an employee to an employer who has funded the creation of a work, in Argentina, only the author is the original owner of the rights in the work. The author may assign the economic or patrimonial rights in a work to a third party, but that author may never be separated from certain inalienable rights in the work, such as the right to preserve its integrity or the right to paternity of the same.

Source: Argentina Constitution. Doing Business in Argentina (Marval, O’Farrell & Mairal) http://www.hg.org/guide-argentina.html Data of access:04/01/01

22.Economic Statistics: 4.0

Inadequacies of information and moral hazard problems associated with official explicit and implicit safety nets (that is, guarantees and bailouts) can either blunt the impact of market discipline or cause it to operate in a delayed and draconian way. If market participants cannot obtain timely and comprehensive information on the borrower’s creditworthiness, they will not be able to price the borrower’s obligations correctly. And if borrowers know that certain kinds of financial information do not have to be disclosed publicly, they will be more likely to hide their problems under those rugs (statistics). Recent crisis among large international borrowers such as (Mexico 1994, South East Asia 1997 and Russia in 1998), have increased awareness and demands from lenders with respect to financial disclosure. US Treasury Secretary Lawrence H. Summers has argued that the single most important innovation shaping the American capital market was the idea of generally accepted accounting principles.

During the past 24 months, progress has been made in addressing information and disclosure weaknesses. The IMF’s Special Data Dissemination Standard (SDDS) has been amended to include data on reserve-related contingent liabilities (that is, on net international reserves) and to provide better coverage of the foreign liquidity position of the corporate and government sectors. The Bank for International Settlements (BIS) has upgraded its international banking statistics, and the Basle Committee on Banking Supervision has prompted large international banks and securities firms to be more forthcoming about their derivative positions. Several of the Asian economies-including Japan and China-are also in the process of revamping their loan classification procedures. And, in a break with tradition, in April 1999 the IMF initiated a pilot program under which member countries can agree to have their full Article IV country reports published.

Argentina being one of Latin America ‘s largest borrowers of capital, from capital markets in the US, Europe and Japan. And also being part of the IMF and World Bank programs maintains a top level of financial disclosure which meets international organisms and Wall Street demands. Argentina finance ministry is one of the top ranked in Latin America for its disclosure practices to the public and the markets.

Source: Safeguarding Prosperity in a Global Financial System The Future International Financial Architecture Report of an Independent Task Force http://www.foreignrelations.org/public/pubs/IFATaskForce.html#3.3. Data of access:04/01/2001

23.Protection of Public Health and Safety: 3.5

Argentina has one of the best Public health records in Latin America. The health services system consists of 1) a public model, publicly financed and maintained and 2) a compulsory social security system based on obras socials (OS) plans and a 3) private model made up of various voluntary insurance schemes based on actuarial risk and or direct fee-for-services. According to a survey in 1998 total health expenditure represented 9.8% of total GDP., and per capital expenditure was US$810 per person. In 1998 according to the world bank, US$ 20billion was spent on health.

Birth rate: 18.59 births/1,000 population (2000 est.) Death rate: 7.59 deaths/1,000 population (2000 est.) Infant mortality rate: 18.31 deaths/1,000 live births (2000 est.) Life expectancy at birth: total population: 75.05 years male: 71.67 years female: 78.61 years (2000 est.)

Source: http://www.cia.gov/cia/publications/factbook/geos/ar.html#Issues Date of access:03/10/2001`

24.High Wage Policies:2.0

The average worker would need to work for thirteen years to accumulate the amount of money spent by the average provincial lawmaker in one month, a recent government report revealed. The average sum received each month by individual legislators from Argentina’s 23 provinces and the city of Buenos Aires is 52,833 pesos. The average salary of the Argentine worker, meanwhile, hovers just over 320 pesos per month. The figures for monthly legislature expenditures, released yesterday by the Economy and Labour Ministries, include each lawmaker’s salary and administration expenses, in addition to parallel costs for his or her employees.

The report, which raises eyebrows about legislative efficiency across the country, comes at a moment when the administration of President Fernando de la Rúa is pushing a series of government reform proposals designed to streamline the gargantuan federal deficit and promote bureaucratic efficiency. While the national average for worker salaries was calculated at 321 pesos a month, the average salary for the federal capital of 442 pesos monthly far exceeded the national norm, followed closely by the southernmost province in the country, Tierra del Fuego, 419 pesos. Poverty is a major issue. Despite the high standard of living obvious in Buenos Aires, the World Bank says 29% of Argentines, including 43% of it’s children, live in poverty. The figure is considerably higher than in Chile, despite Argentina having a per capita GDP, twice Chile’s level. This is explained by massive income inequalities. The wealthiest 10% of the country share 36% of national income, while the bottom 30% just 8.2%.

Source: http://www.buenosairesherald.com/1_argentina/2_argentina/0101/0101-13.html http://www.tradenz.govt.nz/intelligence/news/latinwatch/econupdate_200005.html Date of access:03/01/2001

25.Environmental Protection:3.0

Unlike the U.S. and Western European countries, Argentina has only recently evidenced its concern regarding environmental issues. The recent enactment of Article 41 and 43 in the Argentine Constitution, as well as new federal and provincial legislation, have strengthened the legal framework for dealing with damage to the environment. Legislative and government agencies have become more vigilant in enforcing the laws and regulations regarding the environment increasing sanctions for environmental violations.

Under the new articles 41 and 43 of the Constitution mentioned above, all Argentine inhabitants have both the right to an undamaged environment and a duty to protect it. The primary obligation of any person held liable for environmental damage, is to rectify such damage according to and within the scope of the applicable law. The federal government sets the minimum standards for the protection of the environment and the provinces and municipalities establish specific standards and implementing regulations. This new article in the Constitution also forbids the introduction of hazardous waste, including radioactive waste, into the country. Specific federal, provincial and municipal environmental regulations exist for numerous industrial activities and industries such as oil and gas, mining, food, medical waste disposal and radioactive material transportation. Environment - international agreements: party to: Antarctic-Environmental Protocol, Antarctic Treaty, Biodiversity, Climate Change, Desertification, Endangered Species, Environmental Modification, Hazardous Wastes, Law of the Sea, Marine Dumping, Nuclear Test Ban, Ozone Layer Protection, Ship Pollution, Wetlands, Whaling signed, but not ratified: Climate Change-Kyoto Protocol, Marine Life Conservation

Source: Marval, O’Farrell & Mairal (Argentine Law Firm), guide to doing business in Argentina. http://www.hg.org/guide-argentina.html Data of access:03/02/2001

26.Strong Army:4.0

The Argentine military establishment is one of the most modern and best equipped in Latin America and has historically played a prominent part in national affairs. The army is a national militia, with service compulsory for all able-bodied male citizens between the ages of 20 and 45. Up to 14 months of full-time duty are required. The army has a strength of about 40,400 men.

The navy consists of an aircraft carrier, six missile-equipped destroyers, and a number of lighter ships and submarines; it has a strength of about 21,500 men.

The air force, with 8900 men, has about 200 combat aircraft, including jet fighters and bombers.

Military branches: Argentine Army, Navy of the Argentine Republic (includes Naval Aviation, Marines, and Coast Guard), Argentine Air Force, National Gendarmerie, National Aeronautical Police Force Military manpower - military age: 20 years of age Military manpower - availability: males age 15-49: 9,287,499 (2000 est.) Military manpower - fit for military service: males age 15-49: 7,530,476 (2000 est.) Military manpower - reaching military age annually: males: 341,544 (2000 est.) Military expenditures - dollar figure: $4.3 billion (FY99) Military expenditures - percent of GDP: 1.3% (FY99)

ARGENTINA IN PEACE-KEEPING OPERATIONS: Argentina takes part in Peace-Keeping Operations (PKO) since 1958 up to present. In 1958, the first Argentine Military Observers were deployed in Lebanon. The first Naval Unit with UN flag was integrated by Argentine ships exclusively. In 1998, the 40th. Anniversary of the participation of Argentina in Peace-Keeping Operations was celebrated. · At present, Argentina holds the 8th. position in the rank of Troop Contributors to the United Nations. Argentina is currently participating with more than 500 men in the following Peace-Keeping Operations: (February 1, 2001) UNFICYP (Cyprus). UNIKOM (Irak-Kuwait) UNMIBH (Bosnia Herzegovina) UNTSO (Middle East) MINURSO (Western Sahara) UNMOP( Prevlaka) UNMEE (Etiopia-Eritrea) UNMIK (Kosovo) MINUGUA (Guatemala).

Currently, the most important presence of Argentine troops can be seen at UNFICYP (Cyprus). Besides the troops, Argentina is in charge of the Helicopter Unit. · Near Buenos Aires (Argentina), there are two training centers, open to third parties: the CAECOPAZ (Training Center for Blue Helmets), directed by the Argentine Army, and the CENCAMEX ( Training Center for Members of Peace Missions Abroad), directed by the Argentine National Gendarmery (Civil and Border Police).

Source: http://www.cia.gov/cia/publications/factbook/geos/ar.html#Issues http://www.un.int/argentina/english/ Data of access:02/20/2001

27.Foreign Trade Impact:2.5

A key development in helping Argentina meet its external payments is the dramatic growth in Argentina's foreign trade since 1990. Foreign trade plays an increasingly important role in Argentina's economic development. Exports currently represent less than 10% of Argentina's GDP. This percentage should rise as Argentine export competitiveness improves--a result of increased productivity generated by new investments, diversification of export products and markets, and very low domestic inflation. Grain output reached a record of over 60 million tons in 1998 as adoption of new technology and management practices significantly increased productivity. Fresh Argentine beef was exported to the U.S. market in August 1997 for the first time in over 50 years, and other export prospects improved tremendously. However, export growth slowed sharply in 1998 due to lower world prices for petroleum and agricultural commodities. Slower growth in Brazil also adversely affected Argentine exports, especially in the automotive sector.

Meanwhile, lower GDP growth contributed to a reduction in the rate of import growth. Capital goods continued to account for over 40% of total imports. MERCOSUR, a regional customs union and emerging trade bloc (which includes Argentina, Brazil, Paraguay, and Uruguay, and has associations with Chile and Bolivia), is one of the largest and most dynamic integrated markets in the developing world. Close cooperation between Brazil and Argentina--historic competitors--is key to MERCOSUR's impressive growth. Argentina's trade with the other members of MERCOSUR has grown fivefold since 1991. (During that period, its total foreign trade doubled). As a result, Argentina will focus more attention on deepening MERCOSUR relations. MERCOSUR needs closer coordination of macroeconomic policies and better dispute resolution mechanisms. Ties to MERCOSUR will take on added importance in coming years. Argentina's trade and investment have tremendous potential to grow along with hemispheric economic integration.

The 1998 financial turbulence triggered by the Russian devaluation underscored that macroeconomic conditions in Brazil--Argentina's most important trading partner--are important variables for Argentina's foreign trade in 1998 and beyond. On an upbeat note, Chile's association with MERCOSUR has improved access for Argentine exports to East Asia via Chilean ports. The U.S. registered trade surpluses with Argentina every year from 1993 to 1997 totaling nearly $13 billion. The annual surplus reached $3 billion in 1997--due in large part to Argentina's continued demand for capital goods, as well as the recovery of the local economy. The U.S. surplus with Argentina could climb to a record $4 billion in 1998. This trend reflects the Argentine Government's policy of encouraging modernization and improved competitiveness for Argentine industry. GDP - composition by sector: agriculture: 7% industry: 29% services: 64% (1999 est.) Agriculture (8.5% of GDP, about 60% of exports by value): Products--grains, oilseeds and by-products, livestock products.

Source: Marval, O’Farrell & Mairal (Argentine Law Firm), guide to doing business in Argentina. http://www.hg.org/guide-argentina.html http://www.cia.gov/cia/publications/factbook/geos/ar.html#Issues http://www.state.gov/www/background_notes/argentina_0199_bgn.html Data of access:03/02/2001

28. Protection of Foreign Currency Earning Enterprices: 3.0

The traditional wealth of Argentina lies in the vast Pampas, which are used for extensive grazing and grain production. The Pampas at the same time constitute the main source of foreign currency for the country, in terms of exports. Nonetheless this sector has been the most damaged by Argentina’s convertibility law, which ties the peso to the dollar. With the appreciation of the dollar in recent years against major currencies and against the currencies of Argentina main trading partners, Argentina’s farmers have found extremely hard to sell their products overseas or their main Mercosur partner, Brazil.

Argentine mineral resources, especially offshore deposits of petroleum and natural gas, have assumed increasing importance in recent decades Argentina has an important oil industry and has a wealth of energy resources, including oil, natural gas, and hydroelectric potential. Argentina is a net exporter of oil, gas, and electricity primarily to its neighbours Brazil and Chile. Hydroelectric power in Argentina is currently being developed even though most rivers and waterfalls with potential energy are located far from industrial centres, these technical limitations are being overcome.

Oil and gas fields belong to the State. Until very recently Y.P.F. (the National Oil Company) held the exclusive right to prospect, drill and operate in certain "reserved areas", and Gas del Estado (the National Gas Company) held the exclusive right over natural gas and its transport and distribution. The Government could grant prospecting rights to private concerns in "non-reserved" areas, but the discovery of oil or gas did not automatically entitle them to any further operating rights. Exploration and operating permits were granted to private companies only as a result of special tenders called by the Executive Power, and the refineries located in the country were required to use oil extracted in Argentina unless there were technical reasons that called for the use of imported oil, besides which the Executive Power set crude oil prices.

Starting in 1989, however, the Government has gradually been deregulating the oil and gas industry through various decrees which among other things have: Allowed crude oil to be marketed freely. Granted licenses in secondary areas, freed old licenses and in general deregulated exploration. Lifted controls over oil prices. Eliminated restrictions on the setting up of refineries. Eliminated restrictions on the setting up and ownership of service stations. Done away with restrictions on imports and exports and largely suppressed customs duty. Deregulated Y.P.F. pipelines, with free access to them at international market rates. Ÿ Privatized Y.P.F., now a private corporation which stock is quoted in New York in the over the counter market. Gas del Estado was privatized at the end of 1992 after being split up into various area companies and a Gas Regulatory Body created following U.S. practice. Gas prices will be freed as of January 1, 1995 (prior to this date the producers may only sell to Y.P.F., Gas del Estado and the companies succeeding them following privatization). As a result of the deregulation process, the private sector now controls 100% of the transportation and distribution of gas and 47% of the production of oil and the distribution of its byproducts.

Source: http://www.mbendi.co.za/land/sa/ap/p0005.htm Data of access:03/03/2001

29 .Management of Foreign Currency Budget:3.0

Trade: Exports ($26.2 billion)--grains, meats, oilseeds, manufactured products. Major markets--Brazil 30%; EU 15.5%; U.S. 9%.Agriculture (8.5% of GDP, about 60% of exports by value): Products--grains, oilseeds and by-products, livestock products.

Imports ($30.4 billion)--machinery, vehicles and transport products, chemicals. Major suppliers--EU 29%; Brazil 23%; U.S. 21%.

 Gross Domestic Product Between 1991 and 1999, Argentina’s GDP increased 53.0%. GDP grew in each year between 1991 and 1994, driven by political and economic stability, consumer confidence and increased investment. In 1995, however, GDP contracted due to the effects of the Mexican Crisis. The Argentine economy began to recover in 1996 and grew every year until 1999. Argentina’s GDP declined by 3.1% in 1999, due primarily to Brazil’s economic difficulties and the January 1999 devaluation of the Brazilian real. The downturn in the Brazilian economy led to a reduction in Argentine exports and imports of capital goods and other goods and services.

During 1999, the total supply of goods and services declined 4.0% compared with 1998, reflecting the decrease in Argentine economic activity as well as a 10.9% decrease in imports of goods and services, particularly capital goods. Demand declined during 1999 as well, reflecting a 7.5% decrease in gross investment and a 1.2% decrease in exports of goods and services. In recent months, however, improving economic conditions in Argentina and Brazil have led to increased demand for Argentine goods and services. During the first quarter of 2000, Argentine gross domestic product is estimated to have grown by 0.9% compared to the same period of 1999.

Source: http://www.cia.gov/cia/publications/factbook/geos/ar.html#Issues http://www.state.gov/www/background_notes/argentina_0199_bgn.html Data of access:03/03/2001

30.Layers of Collective Action: 3.0

Collective action has been a slow and painful process in Argentina since its return to democracy. Elections continue to be concentrated on main governments officials. A not very independent judicial system has not contributed to the collective action process. With the pressure of international organisms Argentina is making an effort to bring itself to international standards. Nonetheless corruption and bureaucracy at the state and national level as well as the judicial level has made this a very slow process.

Source: http://www.state.gov/www/background_notes/argentina_0199_bgn.html Data of access:02/20/2001

31. Pro-business Climate: 4.0

A brief History: The deregulation, liberalization and privatization programs, started in 1989, by president Menem, have caused a fundamental change in the Argentine economy. On October 31, 1991, the Argentine government promulgated its principal deregulation legislation which, in general terms, deregulated the domestic market for goods, services and transportation, abolished restrictions on certain imports and exports, and abolished or simplified a number of regulatory agencies. In addition, restrictions on foreign direct investment and capital repatriation were eliminated. On September 8, 1993, the Argentine Congress adopted legislation abolishing the three-year waiting period for capital repatriation, allowing foreign investors to remit profits abroad at any time and to utilize local entities and make use of domestic credit under the same conditions, and with the same rights, as local investors. The process of deregulation and liberalization continued with the privatization process, the reform of the social security system, participation by Argentina in Mercosur, and further labor reforms.

The privatization and deregulation program and the friendly foreign investment regime have created the appropriate environment for direct investment into Argentina, attracting investors from Europe, Asia, North America and Latin America.

Argentine Foreign Investment Regime. There are now no restrictions upon foreign investors wishing to invest in Argentina either by starting up new businesses or by acquiring existing businesses or companies. No prior government approval is needed. The law states, as a general principle, that foreign investors investing in economic activities in Argentina enjoy the same status and have the same rights that the Constitution affords local investors. Both are entitled to select any legal organisation permitted by law, and to have free access to domestic and international financing. There are no limitations on profit remittances (including dividends paid to non-residents) nor upon capital repatriation. Therefore, all investors enjoy the right to repatriate profits and capital at any time. Furthermore, dividends, profit remittances and capital repatriation are not subject to any kind of withholding tax.

Investment Protection and Promotion.  During 1989, Argentina implemented the 1958 treaty signed with the United States regarding the Overseas Private Investment Corporation ("OPIC"), which is an agency of the U.S. government that provides insurance to U.S. investments in developing countries. Later, in October 1990, Argentina became a member of the Multilateral Investment Guaranty Agency ("MIGA"), sponsored by the World Bank, which provides insurance coverage for foreign investments made by persons or legal entities established in member countries. In addition, in recent years, Argentina has signed treaties for the promotion and protection of foreign investments with a number of countries such as the U.S., Germany, Switzerland, Italy, United Kingdom, Belgium, Japan, Canada, France, Chile, Spain, Sweden, Austria, Holland, Denmark, and China.

As we can see, Argentina has one of the most open economies in the world, this in exchange has caused put pressure in local firms that were not used to foreign competition prior to 1989, when president Menem assumed power. But at the same time, many firms have been benefited by Foreign Direct Investment, making Argentina one of the top destinations for capital in Latin America.

Source: Marval, O’Farrell & Mairal (Argentine Law Firm), guide to doing business in Argentina. http://www.hg.org/guide-argentina.html Data of access:02/22/2001

32. Government Enterprises: 4.0

Menem came to power in 1989 by promising a return to the state regulation of the economy, and a moratorium on the national debt, only to implement one of the most rapid privatisation programs in the world. Yet it was only in 1997 that international institutions hailed the restructuring of the Argentinian economy over the past decade. The Menem government had pegged the peso to the US dollar in 1991 and opened many areas of the economy up to transnational companies. In just four years, it had privatised banks, the national airline, railways, fuel, natural gas, electricity, telecommunications, ports, water and sewerage services, and manufacturing, including steel, various assembly operations, defense-related industries and the state oil company.

According to a World Bank report: “The privatisation program was unique in the world since it covered all major enterprises and it was accomplished in record time”. IMF managing director Michel Camdessus said Argentina's reforms would allow nations to achieve “high-quality growth of the kind that will be genuinely sustainable over the long term”. An article in the New York Times in 1997 predicted that the arrangement between the IMF and Argentina, “would serve as a model for developing countries elsewhere in Latin America”. Since 1989 in Argentina has privatized 45 firms . For example : Aerolineas Argentinas in april 1990, bought by Spain’s Iberia, later by American Airlines. Telecommunications: in November 1990, giant Entel. Bought by Telefonica of Spain and Telecom of France. Oil and Gas: YPF in 1993, bought by Spanish Oil firm Repsol The national post office, in 1997: bought by a consortium of national firms. Banco Hipotecario Nacional (national mortgage bank, in 1999): bought by a consortium of foreign firms, including Soros Asset Management. Conclusion: With Menem’s privatization program Argentina became one of the countries with the least government managed enterprises, leaving most of previously government owned business (including the national post office), in the hands of private corporations (nationals and foreign).

Source: Crisis and Reform in Latin America .Sebastian Edwards .(A World Bank Book) Data of access:02/23/2001

33. International Security Agreements: 3.0

The president and a civilian minister of defense control the Argentine armed forces. The paramilitary forces under the control of the Ministry of Interior are the Gendarmeria (border police) and the Prefectura Naval (coast guard). The Argentine armed forces maintain close defense cooperation and military supply relationships with the United States. Other countries also have military relationships with the Argentine forces, principally Israel, Germany, France, Spain, and Italy. The lack of budgetary resources is the most serious problem facing the Argentine military.

Current economic conditions and the government's commitment to reduce public sector spending have slowed modernization and restructuring efforts. Under President Menem, Argentina's traditionally difficult relations with its neighbors have improved dramatically and Argentine officials publicly deny seeing a potential threat from any neighboring country. In foreign policy, Menem has dramatically made partnership with the United States the centerpiece of his approach. Argentina was the only Latin American country to participate in the Gulf war and all phases of the Haiti operation. It has contributed to UN peacekeeping operations worldwide, and has offered to send peacekeepers to Eastern Slavonia and police to the international Police Task force in Bosnia. It offered to send a military medical unit to the Gulf in support of the effort to secure Iraqi compliance with United Nations resolutions.

In recognition of Argentina's contributions to international security and peacekeeping, the U.S. Government designated Argentina as a major non-NATO ally in January 1998. Menem is an enthusiastic supporter of the Summit of the Americas process, which includes Argentina's decision to host the Second Specialized Inter-American Conference on Terrorism in November 1998, as called for in the Santiago Summit of the America Action Plan earlier that year. At the UN, Argentina is one of the U.S.'s closest collaborators. The Menem Administration supports the U.S. campaign to improve human rights in Cuba and joins with the U.S. in international disarmament efforts, the fight against international terrorism and narcotics trafficking, and efforts to control global warming. In November 1998, Argentina also hosted the United Nations conference on climate change. Eager for closer ties to developed nations, Argentina has pursued relationships with the OECD and has left the Non-Aligned Movement. It has become a leading advocate of nonproliferation efforts worldwide. A strong proponent of enhanced regional stability in South America, Argentina has revitalized its relationship with Brazil; settled lingering border disputes with Chile; served with the U.S., Brazil, and Chile as one of the four guarantors of the Ecurador-Peru peace process; and restored diplomatic relations with the United Kingdom. In September 1995, Argentina and the UK signed an agreement to promote oil and gas exploration in the Southwest Atlantic, defusing a potentially difficult issue and opening the way to further cooperation between the two nations. In 1998, President Menem visited the UK in the first official visit by an Argentine President since the 1960's.

Source: http://www.state.gov/www/background_notes/argentina_0199_bgn.html Data of access:02/19/2001

34. Protection of Domestic Enterprises from Government Mandated Costs: 3.0

From 1930 to 1989 Argentina became highly isolationist, fiscal deficits increased enormously creating inflation that reached 5,000 percent per annum in mid 1989. In 1991 President Menem adopted the "Convertibility Plan", designed to reduce inflation and achieve long-term economic growth, which included the convertibility of the Argentine peso into the US dollar at the rate of 1 Ps. = 1 US$ and provided for a prohibition on indexation (ending all price and wage adjustment clauses in contracts), certain tax increases and improvements in tax administration, a reduction in public sector employment, limits on Central Bank funding of official provincial banks, a program to strengthen the social security system's finances and the consolidation of the internal public debt owed to provincial governments, suppliers, retirees, pensioners and other creditors. ? Even though convertibility reduced inflation it became a mixed blessing, after the Asian crisis, followed by the Russian crisis and Brazilian devaluation of 1998, the Convertibility law became a burden for local enterprises as the Argentine Peso became too overvalued against other trading partners currencies. The Argentine economy is a commodity driven economy, as commodities prices plunged around the world during the last decade, and its currency became overvalued, local business that depended on the exports of grains, meat and the car industry were highly affected by the convertibility law. The government hands are tight since in order to keep foreign funds flowing into Argentina they must keep Convertibility in place. As a result Argentina’s main industries have been under continuous pressure. Layoffs are the norm and bankruptcies are on the rise. It is ironic, that a law that was meant to help the country escape an evil, inflation, drove the country into another evil, zero growth because of an overvalued currency.

Source: Marval, O’Farrell & Mairal (Argentine Law Firm), guide to doing business in Argentina. http://www.hg.org/guide-argentina.h Data of access:02/18/2001


DISCLAIMER

All the information and conclusions in each country analysis are solely the responsibility of the individual student and have not been verified, corrected, checked for copyright infringement or evaluated in any way by MIEPA or Mike P. McKeever. You are solely responsible for the results of any use you make of the information and conclusions in these studies. Use them at your own risk as interesting supplemental information only instead of seasoned judgements about the policy factors contained herein. Each student has granted permission for his or her work to be displayed here under his or her own name or wishes to remain anonymous and have either created a pen name or used no name at all; if you wish to contact them for any reason, forward your request to MIEPA and the student will be notified of your interest.

To learn more about other countries, click to other files here:

Return to MIEPA's Home Page

CONTENTS OF SITE

Return to MIEPA's Home Page list of country studies

Introduction and Policy Recommendations

Winning Essays: There Are Alternatives Project (TAA)

Essay: Balanced Trade: Toward the Future of Economics

Moral Economics

McKEEVER INSTITUTE of ECONOMIC POLICY ANALYSIS

Web address: http://www.mkeever.com

CONTACT MIEPA:

To contact MIEPA, please send an email to this email address:

mpmckeever@earthlink.net

Please place the acronym MIEPA in the subject line.