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Argentina's economy began a recovery in March 2002 that has been far more impressive and robust than anticipated by leading international and domestic analysts. In 2003, an export-led boom triggered an 8.7% surge in real gross domestic product (GDP). Industrial activity and construction activity also performed well, growing 17.9% and 37.8%, respectively, in 2003. Domestic car sales and exports increased 105.4% and 19.2%, respectively, in 2003. Tourism activity boomed: Argentina received 3.3 million foreign tourists in 2003, a record high. The expansion is creating jobs and unemployment dipped from 17.8% in May 2003 to 14.5% in December 2003. Investment in real terms jumped 38.1%, and capital flight has decreased. The recovery’s strong impact on revenue levels, combined with the Kirchner administration’s prudent control of spending, achieved exceptional results, with the fiscal surplus reaching 2.3% of GDP.
Meanwhile, the move to a market-based exchange rate regime and high global commodity prices have lifted exports to record levels and assured hefty surpluses in the trade and current account balances of the balance of payments. The favorable balance of payments performance and Argentina’s non-payment of its private debt obligations has allowed a strong accumulation of foreign exchange reserves, which have reached nearly $17.7 billion, representing 15 months of current imports. The demand for pesos increased in 2003 and the first half of 2004 due to the recovery of economic activity and the appreciation of the peso. Argentina’s Central Bank has deftly managed monetary policy in support of the economic expansion, while maintaining inflation in check (consumer inflation was restrained at 3.4% in 2003). Banks are now in the black, and net credit levels to the private sector are positive.
Argentina’s impressive recovery is a function of a number of factors. First, following a decade of market reforms, the economy was fundamentally sound except for the high level of indebtedness. Second, the adoption of a market exchange rate and favorable international commodity and interest rate trends were catalytic factors in the export-led boom. Argentina has sound fundamentals and should continue to perform well in 2004, with growth projected to be in the 6%-8% range. Nevertheless, slowness in addressing energy, public debt, and banking compensation difficulties and a still-weak investment climate are major obstacles to sustaining the recovery.
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In 2003, foreign trade equaled about 33.7% of GDP--up from 11% in 1990--and plays an increasingly important role in Argentina's economic development. Exports represented about 23% of GDP in 2003, up from 14% from 2002. Argentina’s trade surplus was $15.5 billion in 2003.
The United States recorded trade surpluses with Argentina every year from 1993-2001, as Argentina's firms increased purchases of capital goods during that period. This trend reflects the Argentine Government's policy of encouraging modernization and improved competitiveness of industry through relatively lower tariffs on capital goods. Argentina’s exports to the U.S. were $3.1 billion in 2003, while imports were $2.2 billion, leaving Argentina a $0.9 billion trade surplus. The U.S. took 10.5% of Argentina’s exports in 2003, and provided 16.3% of its imports.
Although Argentina's trade patterns may be affected by the factors outlined above, its major export markets are likely to remain Southern Cone Common Market (MERCOSUR) countries, North American Free Trade Agreement (NAFTA) countries, and the European Union. These same areas are likely to remain the principal sources of Argentina's imports as well.
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MERCOSUR, the customs union that includes Argentina, Brazil, Paraguay, and Uruguay, remains the cornerstone of Argentina's international trade policy. Close cooperation between Brazil and Argentina--historic competitors--is the key to the integration process of MERCOSUR, which includes political and military elements in addition to a customs union. Chile and Bolivia have become associate members. MERCOSUR members are active participants in the negotiation of the Free Trade Area of the Americas (FTAA). MERCOSUR also continues to pursue an active program of trade negotiations with other countries and regional groups, including Mexico and the European Union.
Argentina adheres to most treaties and international agreements on intellectual property. It is a member of the World Intellectual Property Organization (WIPO) and the World Trade Organization (WTO). The Argentine Congress ratified the Uruguay Round agreements, including the provisions on intellectual property, as Law 24425 on January 5, 1995. However, extension of adequate patent protection to pharmaceuticals has been a highly contentious bilateral issue. In May 1997, the U.S. suspended 50% of Argentina's generalized system of preferences (GSP) benefits because of its unsatisfactory pharmaceutical patent law. In November 2000, after years of protracted debate, a new patent law took effect, and a number of pharmaceutical patents were issued. This law improved earlier Argentine patent legislation but provides less protection than that called for in the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).
In April 2002, negotiations between the Governments of the United States and Argentina clarified aspects of the latter's intellectual property system, such as provisions related to the patentability of microorganisms and the import restriction regime. In addition, the Government of Argentina agreed to amend its patent law so as to provide protection for products obtained from a process patent and to ensure that preliminary injunctions are available in intellectual property court proceedings, among other steps. Congress was expected to pass the outstanding amendment by the end of 2003. Finally, on the outstanding issues that remain, including data protection, the U.S. Government retains its right to seek resolution under the WTO dispute settlement mechanism. In return, the U.S. Government is committed to considering all Argentine requests to expand market access for Argentine products as soon as U.S. legislation reauthorizing trade preferences under the GSP is enacted.
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U.S. investment is concentrated in financial services, telecommunications, energy, petrochemicals, food processing, and motor vehicle manufacturing. However, the economic crisis and subsequent government decisions clouded the country's investment climate, and many U.S. firms substantially wrote down the value of their Argentine investments. Other major sources of investment include Spain, Chile, Italy, France, Canada, and Japan. Several bilateral agreements generated significant U.S. private investment during the 1990s. 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, and some U.S. investors are currently pursuing arbitration claims against the Government of Argentina.
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