Comprehensive Country Evaluation On Argentina 2006

2374 words - 10 pages

ArgentinaFollowing independence from Spain in 1816, Argentina experienced periods of political conflict between conservatives and liberals. Democracy returned in 1983 and has persisted despite numerous challenges ("CIA - The World Factbook"). The country over the past years has suffered from inflation, external debt, capital fight, and budget deficits; however, by mid-year 2002 the economy has stabilized and has been expanding thanks to revival in domestic demand, solid exports, and favorable external conditions ("CIA - The World Factbook").The most formidable economic crises happened in 2001-2002 in which real GDP fell by 10.9 percent in 2002. After stabilization, GPD expanded by about 8 ...view middle of the document...

2 billion ("CIA - The World Factbook"). A statistical fee of 0.5 percent is added to most import. Argentina implemented a non-automatic import license requirement during 2004, which affects imports of textiles, refrigerators, and washing machines. However, import licenses are not required for textiles produced by companies in Brazil and Argentina ("ARGENTINA").The trade regime of Argentina is characterized by the interaction of several instruments: tariffs, quantitative restrictions, and several special regimes. The government imposes several tariffs favoring certain industries over others. During 1997, the average nominal tariff rate was 15 percent, higher for Manufacturing and lower for Agriculture and Mining. About manufacturing, the activities for higher than average were: Food, Textiles, Wood, Fabricated Metal products and Machinery. The rate structure according to the types of goods show higher nominal rates for Consumer goods, followed by Capital and Intermediate products. Most non-tariff barriers were eliminated by 2000. However, the government has been known to erect trade barriers in time of economic crisis and to protect domestic industries. Regarding automobiles, since 1994, import quotas were set at 10%/15% of national production according to the type of vehicle (Berlinski). Effective protection to sales in the domestic market remained high, inhibiting exports and increasing the resistance of domestic users to further import-substituting industrialization (ISI.) The government desire to make domestic industry more competitive and modern is reflected in low tariffs for capital goods. However, there have been complaints that non-tariff barriers to imports, such as time-consuming certification and registration procedures, especially for electrical goods and automobiles, represent an obstacle to access of the domestic market (Berlinski).One crucial concern when undertaking international business and trade is the exchange rate of the country in which one wishes to invest. Argentina's currency is the argentine peso. Between 1991 and 2002, the peso was pegged to the dollar. Under this system, interest rates and the money supply adjusted automatically to change in economic condition. The local money supply is limited to the level of foreign exchange reserves (Berlinski). Growth in 2000 was a negative due to skepticism raised from domestic and foreign investors about the governments' ability to pay debts and maintain the peso's fixed exchange rate with the US dollar. In 2001 the economic condition worsened and in January 2002 the peso's peg to the dollar was abandoned. The exchange rate plunged, but by mid-year the economy had stabilized ("CIA - The World Factbook"). However, dollarization remains desirable because the prospects are poor for making the peso into a stable currency that people will want to use without coercion. People trust the dollar; they do not trust the peso (Hanke).It may no longer be possible to return to an exchange rate...

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