ECONOMY-ARGENTINA: Asian Crisis Claims its Price

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Feb 8 1998 (IPS) - Since the stabilisation of the Argentine economy in 1991, local industry has become competitive thanks to technological upggrading, lower taxes and lay-offs. But most of the advances have been wiped out by the financial crisis sweeping East Asia.

A study conducted by the Institute of Industrial Development last month, concludes that the Asian crisis has devoured 40 percent of what was saved in the costs of exports in general and 70 percent of industrial exports.

The reductions in costs were achieved when a “convertibility” plan, that pegged the peso to the dollar, went into effect in 1991 and purchases of marhinery, cuts in social security costs, downsizing and labour reforms that eased hiring and firing followed.

The Asian crisis and the wave of devaluations in countries in that region hit Argentina’s automobile, textile and footwear industries particularly hard, and also had an impact on sales of oil and agricultural products.

As Asian currencies depreciated, however, the world market is being flooded by merchandise from that region which is more competitive than Latin American goods.

The footwear sector illustrates the effects of the crisis here. In July, Argentina imported 340,000 pairs of shoes and boots from Asia, 590,000 in August, and more than two million a month in October and November.

Sales of Argentine agricultural producrs were more than two billion dollars lower than in the same month in 1996. Of the grains, corn was hit the hardest, because Argentina sells 40 percent of its surplus corn to Asia but, wheat and other producers are also worried.

Farmers say that if Argentina fails to find alternative markets for its grain, the rural sector could lose around 624 million dollars in lost sales.

The entire region has caught at the best a mild cough from the financial flu sweeping Asia. Compared to 5.3 percent growth by the close of 1997, the UN Economic Commission for Latin America (ECLA) forecasts 3.8 percent growth for the region in 1998.

ECLA economists point out that while Chile will be directly affected by the drop in exports to Asia, the fallout will be indirect for Argentina and Uruguay, the result of the Asian- induced downturn in Brazil.

Brazil is Argentina’s main trading partner, the buyer of more than 30 percent of its exports. Brazil’s efforts to avoid devaluation have already been felt in Argentina, where shipments of cars, oil, cereal and food dropped in 1997.

Automobile production plunged 18.4 percent in November from the previous month. In that same month in 1996, production had risen more than four percent. Carmakers have announced further dismissals over the next few months.

The Ford factory, which had moved its workers summer vacations forward to November (the southern hemisphere springtime), announced this month that due to the fall in demand in Brazil it would dismiss 500 employees – more than 10 percent of its total workforce in Argentina.

Labour Minister Antonio Erman Gonzalez has already said the fallout from the crisis will interrupt the fall in unemployment, which had dropped to 13.7 percent by last October.

Macroeconomic projections for 1998 also reflect the impact of the Asian crisis. Argentina’s economic growth rate is expected to fall from 7.7 to four percent; the current accounts deficit, which stood at 14 billion dollars in 1997, could run higher than 18 billion dollars; and the trade deficit, totalling five billion dollars in 1997, could climb to twice that level this year.

Authorities are concerned because this year the government must pay off some 18 billion dollars in foreign debt, and the private sector two billion dollars.

Local economists say that although the Asian crisis found Argentina with a healthy and concentrated financial system, the effects of the currency devaluations in Asia combined with a drop in investor confidence in Argentina are already affecting the economy.

If a devaluation occurs in Brazil – a threat hanging over the region for the past few months – authorities here will have to be on their toes this year to face new challenges presented by the globalised economy, say the financial experts.

ECONOMY-ARGENTINA: Asian Crisis Claims its Price

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Feb 8 1998 (IPS) - Since the stabilisation of the Argentine economy in 1991, local industry has become competitive thanks to technological upggrading, lower taxes and lay-offs. But most of the advances have been wiped out by the financial crisis sweeping East Asia.
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