ARGENTINA-ECONOMY: More Problems Looming say Economists

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Aug 21 1997 (IPS) - Argentina’s economy could be headed for trouble like that affecting several Southeast Asian countries if exports continue to decline and if there is no significant diversification of products and trade partners, economists say.

Debora Giorgi, an economist with Alpha Business Consultancy, believes that in the long-term, Argentina could suffer the trade deficits and devaluation that has hit countries like Thailand, the Philippines and Indonesia.

Argentina’s currency is tied to the US dollar in a convertibility system that has stabilized the Argentine economy while contributing to sustained gross national product growth – with the exception of the 1995 setback due to the Mexican crisis. The generally rosy economic outlook has also resulted in increased investment.

Nevertheless many economists believe that despite encouraging growth perspectives, the alarm bells are ringing in the overseas sector. Argentina has a foreign debt of more than 100 billion dollars, along with a savings rate of less than 20 percent of the gross national product, and remains vulnerable to capital movement in the wake of the Mexican financial crisis.

If a country’s solvency is measured by what it sells, Argentina’s export picture suggests that the country is not passing through its finest moment even though its growth rate for this year is estimated at eight percent.

According to Enrique Mantilla, president of Argentina’s Export Chamber, total foreign trade – which was positive in 1995 and 1996 – could account for a three billion dollar deficit in 1997. During the first 7 months of this year, the deficit totaled 1.272 billion.

President Carlos Menem’s government has predicted a cumulative deficit of 1.8 billion dollars by year’s end. However, agricultural exports reached a plateau during the first half of the year, while foreign purchases continued to rise. In the first 3 months of 1997, exports grew by 10.8 percent while imports grew by 29.2 percent. The trade deficit is added to the balance of payments which in turn gives a net deficit currently estimated at nine billion dollars for the year.

A recent publication issued by the economic reserach unit at the Andean Foundation says that Argentine exports are concentrated within Mercosur, the southern common market, particularly with Brazil which ranks as Argentina’s foremost trading client.

So far this year, neither the United States nor the European Union have significantly increased purchase of Argentine goods. The Andean Foundation concludes that Argentina “is increasingly dependent on a limited number of foreign buyers”.

Of the 1,500 products which Argentina exports, a mere 50 comprise 67 per cent of all overseas sales. The Andean Foundation reports that “this situation leaves Argentina very susceptible to price fluctuations in very few products”.

Currently, Brazil purchases 30 per cent of all Argentine exports. However, Argentine industrial products account for more than 60 per cent of the goods shipped to Brazil. According to Giorgi, growth trends of most industrial products are very languid with the exception of seamless steel tubes, automobiles and a number of petrochemicals.

On the other hand, Giorgi points out that Argentina is expanding its exports in the area of basic food commodities which, unfortunately, have little added value.

Economist Jose Luis Machinea, a leader of the new Alliance for Work, Education and Justice – a political party hewn from the two chief opposition parties – says that poor performance by Argentina’s international trade sector is one of the principal criticisms his group has of current government policy.

The Alliance represents one of the most prominent challenges which President Menem will face when October elections re-vamp Argentina’s Chamber of Deputies. According to opinion polls, the Alliance could seize the Presidency when Menem’s term in office ends next year.

In analyzing current foreign trade trends, Machinea says that “things could get complicated at the current rate”. He warns that “if exports don’t become more dynamic, the situation could become untenable”. Machinea recommends economic stimulus packages to promote small and mid-sized business.

Other critics of Argentina’s foreign trade patterns say that the nation’s products seem competitive in Brazil but only because they enjoy favorable customs arrangements as a result of Mercosur membership. Low shipping costs are another factor that make Brazilian trade seem disproportionately favorable.

Nevertheless, government economists and foreign ministry officials who guide economic integration insist that Argentina’s current trade picture should be viewed with considerable optimism. Argentina’s former ambassador to Brazil, Diego Guelar, says that exports are undergoing significant diversification.

According to a study undertaken by the embassy, 250 Argentine products were exported to Brazil in 1996, a figure that rose to 311 during the first 3 months of 1997.

Alieto Guadagni, Guelar’s predecessor at the Argentine embass^CàKX72 current Industry Secretary – says that Argentina’s exports to non-Mercosur countries have grown at a 20 per cent annual rate over the last two years.

Guadagni and Guelar both contend that economists who view Argentina as unduly dependent on Brazil are mistaken. Assistant foreign minister, Andres Cisneros, discounts this persistent criticism, saying “it’s a myth”.

Cisneros believes that Argentina is taking full advantage of Mercosur, but meanwhile is pursuing a strategy of aggressive market conquest in the newly globalized world economy.