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TITLE: ARGENTINA ECONOMIC POLICY AND TRADE PRACTICES
DATE: FEBRUARY 1994
AUTHOR: U.S. DEPARTMENT OF STATE
Key Economic Indicators
(Billions of U.S. dollars unless otherwise noted)
1991 1992 1993 /1
GDP (at current prices) /2 189 226 244
Real GDP Growth (pct.) 8.9 8.7 5.0
GDP by sector (percent/GDP)
Agriculture 8.5 7.8 7.0
Manufacturing 27.4 27.0 27.5
Mining 2.3 2.3 2.3
Services 54.8 55.4 56.0
GDP Per Capita (U.S.$) 5,435 6,932 7,715
Labor Force (000s) 12,870 13,126 13,847
Unemployment Rate (percent) 6.9 6.9 9.9
Money and Prices
(annual percentage growth)
Money Supply (M1) /3 174 48 28
Commercial interest Rates
on 180 Day Deposits (pct.) /3 7.5 8.0 6.0 (9/93
Savings Rate (pct. of GDP) 13.3 13.1 13.5
Investment Rate (pct. of GDP) 14.6 16.7 18.0
Wholesale Inflation /3 57 4 3
CPI, percent change /3 84 18 8
Exchange Rate ($/peso) /4
- official .9552 .9300 .9980
- parallel .9552 .9300 .9980
Balance of Payments and Trade /1
Total Exports (FOB) /5 12.0 12.2 12.7
Exports to U.S. (FOB) 1.2 1.4 1.5
Total Imports (CIF) 8.2 14.9 15.3
Imports from the U.S. (FAS) /6 1.9 3.0 3.5
Aid from the U.S. ($ million) 1.2 1.1 1.7
External public debt /7 57.2 56.2 56.0
Debt service payments /8 5.2 4.2 3.3
Gold and FOREX reserves 9.0 12.5 16.0
Trade Balance /6 3.7 -2.6 -2.8
Balance with the U.S. /6 -0.63 -1.8 -2.2
1/ Figures for 1993 are Embassy estimates.
2/ Figures provided in nominal GDP are virtually the same in
dollars or pesos after 1991 when the convertibility plan took
effect, linking the peso at the rate of one to one with the
3/ End of period.
4/ Average for the period.
5/ Based on official Argentine Government data.
6/ Based on U.S. Department of Commerce data.
7/ Includes interest arrears.
8/ Includes net debt service paid by public sector to
international financial institutions and on Government of
Argentina Foreign Currency Bonds.
1. General Policy Framework
Argentina's far-reaching economic reforms, which began in
1989 under President Carlos Menem, have yielded impressive
results. In 1992 real GDP grew by nearly nine percent, and for
1993 the inflation rate is projected at less than 10 percent:
a major accomplishment given Argentina's experience with
hyperinflation only a few years ago. Meanwhile, the opening of
the economy to international competition through large
reductions in tariffs and other trade barriers, coupled with a
stable exchange rate, has resulted in a boom in imports,
particularly from the United States. For the period January
through July 1993, Argentina's trade deficit with the United
States totalled over $1 billion.
The public sector budget has been in the black for the past
two years - a result of more efficient tax collection, economic
activity providing a strong tax base, and large infusions of
revenue from the sale of state industries. A small surplus was
again forecast for 1993, in spite of an increase of nearly $4
billion in pension payments. Improved tax revenues and
proceeds from the privatization of the state oil firm YPF
largely made this possible.
The government has also eased the tax burden on business
and industry by eliminating charges on bank debt, freight,
shipping, and foreign currency transactions. In the process,
the tax burden was shifted to the consumer through increases in
the VAT and personal income tax rates.
The Central Bank of Argentina controls the money supply
through the buying and selling of dollars. Under the
Convertibility Law of 1991 the exchange rate of the Argentine
peso is fixed to the dollar at par value. Through the first
nine months of 1993, the Central Bank bought $2.2 billion,
selling an equal amount of pesos.
2. Exchange Rate Policy
There are no exchange controls in Argentina; foreign
currency may be bought and sold freely from banks and brokers
at market prices. The Convertibility Law, however, requires
the Central Bank to sell dollars at a fixed rate of one peso to
one dollar. The Bank buys dollars at a rate of 0.998 pesos per
The fixed exchange rate, which some observers believe has
led to an overvalued peso, and the release of pent-up demand
stemming from the overall economic recovery have made imports
increasingly competitive. Accordingly, the value of U.S.
exports to Argentina nearly tripled from 1990 to 1992, with
further growth forecast for 1993.
3. Structural Policies
The Menem Administration's reform program has made
significant progress in transforming Argentina from a closed,
highly regulated economy to one based on market forces and
exposed to international competition. The government's role in
the economy has diminished significantly through the
privatization of most state firms, including the oil firm YPF
in mid-1993. Meanwhile, the authorities have eliminated price
controls on all but a few goods in the marketplace.
The opening of the Argentine economy has resulted in
increased imports, particularly from the United States.
Capital goods are especially in demand as firms shed old
equipment and tool up to increase their productivity and
competitiveness. The ever-increasing trade deficit led the
government in late 1992 to implement measures designed to stem
the tide, at least partially. This included increasing the
statistics tax on imports from three percent to ten percent.
In 1993 the authorities went further and placed higher duties
on various textile imports which, the government claimed, were
being sold in Argentina below cost. The government also
imposed quotas on certain Brazilian goods, such as two-door
refrigerator/freezers and paper products because of oversupply
of the market. The government says that these are temporary
measures which are GATT-consistent; the reduction in the
statistics tax on capital goods is but the beginning of their
4. Debt Management Policies
The government has aimed to reduce the external debt burden
through participation in the Brady Plan as well as through a
Paris Club rescheduling. It has also carried out debt/equity
conversions to the tune of $3.4 billion in 1992. Accordingly,
Argentina has improved its external situation considerably.
From 1989 to 1993 (projected), Argentina's debt service fell
from 101 percent to under 50 percent of exports of goods and
non-factor services. Total public sector foreign debt (over 90
percent of Argentina's total obligations) came to $56.2 billion
at the end of 1992.
The IMF, World Bank, and the Inter-American Development
Bank (IDB) have been major sources of funds for Argentina.
Currently Argentina is in the second year of a three-year IMF
Extended Fund Facility (EFF) which could disburse up to 2.5
billion SDRs. Both the World Bank and IDB will likely obligate
approximately $1 billion annually in 1993-1994.
5. Significant Barriers to U.S. Exports
The ongoing reforms have opened the Argentine economy to
foreign producers. The authorities have eliminated the import
licensing system. Since 1990, the average tariff on imports
has fallen from nearly 29 percent to around 10 percent,
although many imports must pay a higher surcharge (the
"statistics tax"). Tariffs are as low as zero on capital goods
and 0.5 percent on raw materials. American exports to
Argentina have risen dramatically over the past few years.
Barriers to U.S. Exports: Despite the generally favorable
environment for foreign goods in Argentina, there are still
problems. In September 1993, responding to what it considered
widespread "dumping" of apparel, particularly from the Far
East, the authorities imposed import surcharges on an array of
clothing, rugs and textiles.
In addition, Argentina maintains a complicated quota system
for automobiles, but its scope is narrowing, and the number of
foreign-manufactured vehicles on the roads is increasing.
Services Barriers: There are some barriers in the services
sector as well. For example, foreign-based advertising is
effectively barred in the broadcast media since fifty percent
of the participants in the production must be Argentine.
Foreign banks resident in Argentina may not freely open
branch offices and no new banking licenses have been issued for
many years, which limits entry to acquisition of existing
banks. Furthermore, government bodies and state agencies must
direct their business to public banks, although this
stipulation's importance is declining, given the ongoing
privatization program. Despite these limitations, U.S. banks
are well represented in the country and include some of the
more dynamic players in the financial markets.
The authorities eliminated the tax on outgoing air courier
shipments in July 1993.
Investment Barriers: There are virtually no barriers to
foreign investment. Firms need not obtain permission to invest
in Argentina. Foreign investors may wholly own a local
company, and investment in shares on the local stock exchange
require no government approval.
Argentina has ratified a Bilateral Investment Treaty with
the United States. The U.S. Senate ratified the Treaty in
November, 1993. Final steps are now underway to bring the
treaty into force. Foreign investors enjoy national treatment
in all sectors except shipbuilding, fishing, uranium mining,
nuclear power generation and any businesses along Argentina's
borders (except mining).
Government Procurement Practices: "Buy Argentina"
practices have been virtually abolished. A preference for
Argentine sources will be shown only when all other factors
(price, quality, etc.) are equal.
Customs Procedures: Customs procedures are generally
extensive and time consuming, thus raising the costs for
importers, although installation of an automated system has
eased the burden somewhat.
6. Export Subsidies Policies
Argentina is a member of the GATT Subsidies Code and also
has a bilateral agreement with the United States to eliminate
remaining subsidies for industrial exports.
7. Protection of U.S. Intellectual Property
Argentina officially adheres to most treaties and
international agreements on intellectual property, including
the Paris Convention for the Protection of Industrial Property
(Lisbon Text and non-substantive portions of the Stockholm
Text), the Brussels and Paris Texts of the Bern Convention, the
Universal Copyright Convention, the Geneva Phonogram
Convention, the Treaty of Rome and the Treaty on the
International Registration of Audiovisual Works. In addition,
Argentina is a member of the World Intellectual Property
Organization. However, Argentina was placed on the Special 301
Watch List in 1992 because of the lack of patent protection for
Patents: Argentina's patent law, dating from 1864, is the
weakest component of the country's IPR regime. It specifically
excludes pharmaceutical "compositions" from patent protection
(costing U.S. drug firms hundreds of millions of dollars in
sales lost to pirates). Furthermore, the law contains
stringent working requirements and allows a maximum patent term
of only 15 years. The Menem Administration submitted a draft
of a new patent law to Congress in 1991. The new law would
improve patent protection and extend it to pharmaceuticals, but
as of November 1993, the bill was still not acted on.
Copyrights: Argentina's copyright law is generally
adequate by international standards, although it does not
explicitly protect new technologies such as computer software
or semi-conductors. Bills are currently pending in Congress
that would provide protection for software and extend copyright
protection for films from thirty to fifty years.
Trademarks: Trademark laws and regulations in Argentina
are generally good. The key problem is a slow registration
8. Worker Rights
a. Right of Association
Argentina,s labor movement, organized under the umbrella
confederation CGT, represents around one-third of the
workforce. Unions have the right to strike, subject to
compulsory conciliation and arbitration by the Ministry of
Labor. Several unions, particularly those representing
education workers, struck in 1993 with no interference from the
government. Argentine unions are free to associate
internationally, and officials play an active role in regional
international labor organizations.
b. The Right to Organize and Bargain Collectively
These rights are effectively protected by federal law
throughout the country. Complimentary provincial labor laws
often go beyond these rights, and anti-labor practices are
prohibited. Labor and management are legally bound by
collective bargaining agreements which, in theory, set basic
wage levels and working conditions on an industry-wide basis.
In practice, particularly in the last five years, these
agreements have tended to be less global in their scope, with
the current trend moving toward company, and in some cases,
region-specific agreements. The government's role in this
process is limited to ratifying these contracts and conferring
c. Prohibition of Forced or Compulsory Labor
Forced or compulsory labor is illegal and is not known to
be practiced in Argentina.
d. Minimum Age for the Employment of Children
Employment of children under 14, except within the family,
is illegal. Minors between ages 14 to 18 may work in certain
types of jobs restricted with regard to hours and safety/health
conditions, although exceptions are allowed in cases of extreme
necessity. The recent increase in the level of unemployment
has encouraged some families to seek work for their children,
resulting in the illegal employment of minors. A recent study
put the number of illegally employed minors (10-14 years) at
200 thousand, or six percent of the child population. Federal
and provincial labor authorities are not well-prepared to cope
with this because of budgetary and personnel limitations.
e. Acceptable Conditions of Work
In July 1993 the government raised the monthly minimum wage
to approximately $200.
Argentine law provides comprehensive protection for worker
rights and sets acceptable standards for health and accident
protection. The maximum workday is eight hours, the maximum
workweek is 48 hours. Premiums are paid for work beyond these
limits, which is frequently the case now, as employers seek
greater productivity without having to employ new workers. The
labor reform bill introduced in Congress in 1993 would give
management more flexibility to hire and fire, more control over
hours, and vacations, and would further reduce the government's
role in labor-management relations. Nationally legislated
occupational and health standards are comparable to those of
industrialized countries, but the federal government and many
provincial governments lack the resources to enforce these
standards, despite union vigilance against violations.
f. Rights in Sectors with U.S. Investment
Argentine law does not distinguish between worker rights in
nationally owned enterprises and those in sectors with U.S.
investment. The rights enjoyed by Argentine employees of
U.S.-owned firms in Argentina equal or surpass Argentine legal
Extent of U.S. Investment in Selected Industries
U.S. Direct Investment Position Abroad
on an Historical Cost Basis - 1992
(millions of U.S. dollars)
Total Manufacturing 1,633
Food & Kindred Products 465
Chemicals and Allied Products 371
Metals, Primary & Fabricated D
Machinery, except Electrical D
Electric & Electronic Equipment 46
Transportation Equipment 22
Other Manufacturing 254
Wholesale Trade 159
Finance and Insurance 538
Other Industries 35
TOTAL ALL INDUSTRIES 3,353
(D)-Suppressed to avoid disclosing data of individual companies
Source: U.S. Department of Commerce, Bureau of Economic
Analysis, unpublished data.
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