Development & Aid, Economy & Trade, Financial Crisis, Headlines, Latin America & the Caribbean

ECONOMY-ARGENTINA: The Worst Is Over

Marcela Valente

BUENOS AIRES, Jan 6 2010 (IPS) - The year that has just ended was the worst for the Argentine economy since the 2002 and 2003 economic collapse. However, both government officials and economic analysts say the worst of the present crisis is over and that growth will return this year, in the light of improved internal and external conditions.

This is an encouraging forecast following a critical year. According to the government’s budget for 2010, GDP grew only 0.5 percent in 2009, indicating virtual stagnation after six years of economic growth at an average annual rate of close to eight percent.

But the official picture is contradicted by more pessimistic assessments by a private group of experts. Economic consultants Orlando Ferreres and Associates estimate that GDP fell by 4.5 percent in 2009, while the firm Rubinstein and Associates put the decline at 4.2 percent.

In an interview with IPS, Marina Dal Poggetto, of the studio Bein and Associates, said GDP fell by 2.2 percent in 2009. “There was a strong contraction in the second quarter, when the full impact of the drought hit home, and recovery did not begin to be seen until September,” the economist said.

“The worst of the crisis is clearly over, and for this year we forecast GDP growth of 4.8 percent,” she said. “We foresee a good scenario, with things getting back to normal, and growth at least in the short term, but there is also uncertainty and there will be a fierce struggle over wealth distribution,” she predicted.

According to Dal Poggetto, “the phenomenal capital flight in 2008 and 2009 (due, among other factors, to the clash between the government and farmers’ associations over agricultural export taxes) has been stemmed.” While there are no big investment plans for 2010, there is a “brighter” horizon, she said.

In its Preliminary Overview of the Economies of Latin America and the Caribbean, published in December, the Economic Commission for Latin America and the Caribbean (ECLAC) also predicts that Argentina will experience economic growth of four percent in 2010.

ECLAC stresses that in spite of considerable outflows of private capital, during 2009 Argentina was able to cushion the crisis with its trade surplus and substantial foreign reserves.

President Cristina Fernández said the crisis has been left behind, and Argentina “will have a very good year in 2010.”

The budget assumes 2.5 percent growth in 2010, which is probably an underestimate, as has become standard in the Fernández administration and that of her husband and predecessor, former president Néstor Kirchner (2003-2007).

However, the International Monetary Fund (IMF) and some orthodox economists like Miguel Kiguel agree with the prognosis of low growth. Others, in contrast, like Dal Poggetto and a group of experts from different consultancy firms, predict GDP growth between three and four percent.

But all are agreed that the recovery of the global economy, and particularly the robust economic progress forecast for Brazil, will fuel higher exports and production in Argentina.

Argentina’s giant South American neighbour, Brazil, is its main trading partner, and private analysts estimate that Brazilian GDP will grow by at least five percent in 2010.

Domestic factors, such as an end to a prolonged drought which will reinvigorate agricultural activity, will also boost growth in Argentina.

Dal Poggetto calculates that Argentina’s total harvest will rise from 61 million tonnes in 2009 to 83 million tonnes this year, and the soy crop alone will increase from 33 to 52 million tonnes, thanks to the rains.

The recovery of agricultural output alone will account for much of this year’s GDP growth, she said.

Another factor that will drive production is a new monthly family allowance of nearly 50 dollars per child paid out as of December to parents who are unemployed or work in the informal economy. The new cash payments will benefit the families of 3.5 million children, stimulating demand and adding half a percentage point to GDP growth.

In terms of employment, economists do not expect drastic changes. Unemployment increased in 2009 due to the global crisis, and the National Institute of Statistics and Censuses (INDEC), which has lost credibility since it was subjected to government intervention in 2007, quotes the current unemployment rate as 9.1 percent.

“Companies are not considering hiring people,” said Dal Poggetto. Other economists say businesses have idle capacity which can be covered by underemployed workers already on the payroll.

Experts say one variable that should be watched closely is the inflation rate.

Economists Eduardo Levy, of Torcuato Di Tella University, and Dante Sica, of the consultancy firm Abeceb, say inflation will be the most pressing concern this year.

The official budget predicts that the consumer price index will grow by only 6.1 percent in 2010, but the experts estimate that it will rise to double digits.