Development & Aid, Economy & Trade, Food and Agriculture, Headlines, Latin America & the Caribbean

ECONOMY-ARGENTINA: Poised for the Qualitative Leap?

Marcela Valente

BUENOS AIRES, Apr 3 2008 (IPS) - A new ECLAC study highlights Argentina’s robust economic recovery in the past five years, and signals an opportunity to progress towards a model that adds value to raw materials, which make up most of the country’s exports.

Written by a score of economists, the study is part of a wider investigation into the effects of specialisation of production on poverty and equality in the region. It will be published in book form this month with the title “Crisis, recuperación y nuevos dilemas. La economía argentina 2002-2007” (Crisis, Recovery and New Dilemmas: The Argentine Economy 2002-2007).

“Argentina has come the first part of the way,” Bernardo Kosacoff, editor of the study and head of the Argentine office of the Economic Commission for Latin America and the Caribbean (ECLAC), told IPS.

“The country has achieved consistent macroeconomic growth and remarkable economic recovery, and has now reached the jumping-off point for dynamic structural change,” he said.

But “in order to ensure sustainability in the long term, and be certain there will not be another crisis in 10 years’ time, it is essential to move towards new industrial patterns that will expand the wealth generation base and guarantee greater social inclusion,” he said.

In Kosacoff’s view, the government of Cristina Fernández “is quite aware of the need to add value to production and to encourage foreign sales of services.”

Economy Minister Martín Lousteau says that adding value to local exports “is a fundamental direction that economic development must take in the coming years.”

With respect to the increased taxes on grain exports, a measure that unleashed a fierce three-week conflict with farmers, who finally called a truce on Wednesday, Lousteau says that the government is trying to promote industrialisation of grain crops, in order to produce food products and biofuels that command higher export prices.

But for now this goal belongs to the realm of rhetoric rather than practical implementation, Kosacoff said. “A systematic effort over a long period of time is needed to change the pattern of industry,” he said. Meanwhile, the sector is growing and creating jobs, but has not made a qualitative leap forward.

The absence of this industrial transformation is shown by Argentina’s trade deficit with Brazil, whose industry is more advanced.

Last week, Foreign Minister Jorge Taiana visited Brazil, accompanied by governors, mayors, and over a hundred representatives of small and medium local businesses that produce high value-added goods for export.

The aim of the mission was to reduce the Argentine trade deficit, which has been high since 2003. According to statistics from the Argentine Industrial Union (UIA), 35 percent of Argentine imports from Brazil are manufactured goods, whereas only six percent of Brazil’s purchases from Argentina fit that description.

Argentines would like to expand sales to Brazil of gourmet foods, cosmetics, software, electrical conductors, and toys.

Economist Aldo Ferrer, head of the state oil company ENARSA, told IPS that in recent years there has been strong industrial recovery, but “the huge task of incorporating cutting-edge technology remains. Our industry is highly dependent on imported supplies.”

“With the rise in international commodities prices, Argentina runs the risk of reactivating its old industrial structure, which has not undergone the required internal transformation,” said Ferrer, who called on companies to develop telecommunications and microelectronics products.

According to the ECLAC study, the Argentine economy has performed remarkably well since the crisis that broke out in late 2001. The average gross domestic product (GDP) growth rate between 2002 and 2007 was 8.2 percent a year. Foreign debt was restructured, employment and investment recovered, and poverty decreased considerably, the report says.

Not even the most optimistic analysts had predicted such a strong recovery, the authors emphasise. The decline of industry in the 1990s, when its relative share of GDP fell, was reversed and it became one of the most dynamic sectors in terms of generating new jobs, they point out.

Industry grew by 32.8 percent between 2002 and 2006, initially as greater use was made of spare capacity, and later as a result of higher investment levels, which rose from 11 percent of GDP to 23 percent over the same period.

However, the ECLAC study says that in spite of this growth, there are no clear signs of a process of structural change that will generate a more diversified export base. Neither has there been any progress in substituting imports of technologically complex intermediate and finished goods.

According to the report, although some sectors have been restructured, steps need to be taken towards more sophisticated processes of production and innovation, and response to macroeconomic stimuli has been conditioned by the structures inherited from the previous decade.

To illustrate the pending challenges, ECLAC noted that 85 percent of Argentine exports are still primary products, fuel, and low-tech manufactured goods. The level of external specialisation has not changed so far, the study says. Foods make up 50 percent of exports. Of the rest, approximately 30 percent are low- tech goods (fuels and metals), 20 percent employ medium technology (cars and chemicals) and a very small percentage are high-tech products, particularly pharmaceuticals.

The persistence of an industrial structure that continues to specialise in the lower or less complex levels of the production chain may compromise competitiveness in the future, the experts warn. There are exceptions to the general picture, but they do not constitute a critical mass, they say.

To overcome these limitations, a new model of production is required, combining a qualitative leap in present activity and the introduction of new activities with higher productivity levels, says the ECLAC study.