Title Argentina : selected issues

Published Washington, D.C. : International Monetary Fund, 2016 ©2016

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Description 1 online resource (145 pages) : color illustrations Series IMF Country Reports ; no. 16/347 IMF country report ; no. 16/347. Contents How large is Argentina's capital accumulation gap and how can it be reduced?: lessons from past investment surges -- Argentina's fiscal adustment: how can it be done? -- Argentina's pension and social security system: a sustainability analysis -- Disinflation under inflation targeting: a small-macro model for Argentina -- Enhancing the effectiveness of inflation targeting in Argentina -- Argentina's exports and competitiveness: a sectoral view on trends and prospects -- Medium-term prospects for Argentina's external balance sheet Summary Argentina's exports and competitiveness: a sectoral view on trends and prospects: Argentina's export performance has worsened markedly since 2012. Overall export values contracted at an average of over 9 percent per year between 2012 and 2015, nearly four times faster than world exports. This underperformance coincided with tighter trade and foreign exchange controls and an overvalued currency. On the back of high inflation and a tightly managed exchange rate, Argentina's real effective exchange rate (REER) accelerated its upward trend after 2011, with staff estimates suggesting an overvaluation that peaked at over 50 percent by November 2015 (Figure 1, left chart). Export taxes on commodities, some as high as 35 percent, added a further wedge to the relative prices for Argentine exporters. A complex array of foreign exchange controls (the so-called "cepo cambiario"), led to a parallel foreign exchange market and further hindered external trade. External competiveness was also hampered by fast increasing unit labor costs (Figure 1, right chart), with wages growing well above productivity, a high tax and administrative burden, deteriorating infrastructure, limited access to markets and financing for exporters, and restrictions on intermediate and capital goods imports that disrupted production in exporting firms Argentina's fiscal adustment: how can it bhe done?: Argentina's fiscal balances deteriorated sharply over the past decade, becoming a key contributor to growing macroeconomic imbalances. From a near flat overall fiscal balance in 2007, the overall balance of the general government deteriorated to a deficit of 6½ percent of GDP in 2015, the worst deficit in over two decades. At the same time, the primary balance (net of transfers from the BCRA and ANSES) worsened from an average surplus of 1½ percent of GDP between 2002-10 to a deficit of 5¼ percent of GDP in 2015 Argentina's pension and social security system: a sustainability analysis: During the past ten years, Argentina's social security spending has been posing increasing pressure on the fiscal accounts. In particular, spending on pensions doubled, in percent of GDP, during 2005-15, not only reaching one of the highest level in the region (7.4 percent of GDP) but also becoming the largest single expense in the federal budget (about 35 percent of total federal government spending, MECON, 2015). The excess of social security spending above contributions reached 2.8 percent of GDP in 2015, weighing heavily on public finances Disinflation under inflation targeting: a small-macro model for Argentina: The Argentine administration that took power in December 2015 has announced a gradual disinflation to single digits by the end of its mandate in 2019. The starting point has been one of the highest inflation levels in the world. Despite the issues in measurement, using a variety of indicators (both public and private) shows that inflation in the city of BA rose sharply from single digits in 2007 and stabilized between 25 and 35 percent (y/y) during 2009 and 2015, with inflation expectations well anchored within that range.2 To a large extent this reflects the earlier administration's decision to fund the large increase in public sector spending with an inflation tax. Inflation in early 2016 spiked to above 40 percent (y/y using the city of BA CPI index) reflecting the normalization of utilities tariffs needed to phase off energy subsidies, and the sharp depreciation following the removal of ER controls and unification of ER markets in late 2015. Since April 2016, real interest rates have remained positive and core inflation has been on a declining trend, while the economy has moved into recession Enhancing the effectiveness of inflation targeting in Argentina: Inflation in Argentina has been chronic throughout most of its modern history. By the 1950s, Argentina already featured two-digit inflation and, from 1975 onward, it accelerated and reached three-digit rates. To cope with persistent inflation, successive stabilization plans--of a variety of nature--were put in place, but most of them eventually failed. Thus, inflation hit a record high of more than 3,000 percent by the late 1980s (see Box 1). The Convertibility Plan introduced in the early 1990s, which had a currency board arrangement (CBA) as anchor, defeated inflation. However, price stability lasted only a decade as the CBA was abandoned in the midst of a financial crisis and inflation re-emerged as a result of expansionary fiscal and monetary policies How large is Argentina's capital accumulation gap and how can it be reduced?: lessons from past investment surges: Over the last three and a half decades, Argentina's investment rate has been among the lowest among peer advanced and emerging market countries. Investment rates (defined in this paper as gross fixed capital formation in percent of GDP) fell in the 1980s from already relatively low levels and recovered strongly in the 1990s. After rebounding rapidly from the historical lows experienced during the 2001 economic crisis, the investment rate fell again over the last decade, reflecting the deterioration of the macroeconomic environment and increasing government interventionist policies (Figure 1). As of 2015, Argentina's investment rate was well below the average of Latin American countries and that of a peer group of advanced and emerging market countries, with a larger gap in private investment (Figures 2 and 3).2 The low investment rates may have contributed to the relative decline in Argentina's GDP per capita over the same period Medium-term prospects for Argentina's external balance sheet: Following the 2001/2 crisis, Argentina has experienced a steady contraction in its external balance sheet. After a build-up of external imbalances in the late 1990s, the 2001/2 crisis precipitated a collapse in the currency, sovereign default and large scale private sector debt restructuring: all of which led to significant external deleveraging. This trend of external balance sheet contraction continued for the proceeding decade, as capital account openness declined. An improvement in the terms of trade and a current account surplus meant that liabilities declined at a faster rate than assets, leading to the net International Investment Position (IIP) becoming positive and reaching 9 percent of GDP in 2014 Notes "November 2016." "October 26, 2016; prepared by Jorge Iván Canales-Kriljenko, Paolo Dudine, Luis Jácome, Lusine Lusinyan, Mariano Ortiz Villafañe, Alex Pienkowski, José Luis Saboin, and Diva Singh"--Page 2 of pdf Bibliography Includes bibliographical references Notes Description based on online resource; title from pdf title page (IMF website, viewed December 9, 2016) Subject International Monetary Fund -- Argentina SUBJECT International Monetary Fund. fast (OCoLC)fst00556666 Subject Capital movements -- Argentina Deflation (Finance) -- Argentina Economic development -- Argentina Exports -- Argentina Financial risk management -- Argentina Financial statements -- Argentina Fiscal policy -- Argentina Inflation (Finance) -- Argentina Inflation targeting -- Argentina Public investments -- Argentina Social security -- Argentina Capital movements. Deflation (Finance) Economic development. Economic policy. Exports. Financial risk management. Financial statements. Fiscal policy. Inflation (Finance) Inflation targeting. Public investments. Social security. SUBJECT Argentina -- Economic policy Subject Argentina. Form Electronic book Author Canales-Kriljenko, Jorge Iván, author. Dudine, P. (Paolo), author. Jácome, Luis Ignacio, author. Lusinyan, Lusine, author. Ortiz Villafañe, Mariano, author. Pienkowski, Alex, author. Saboin, Jose, author. Singh, Diva, author. International Monetary Fund. issuing body. ISBN 1475552645 9781475552645

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