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ARGENTINA’S TRADE POLICY Martín Redrado Secretary of International Trade ARGENTINE REPUBLIC.

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Presentation on theme: "ARGENTINA’S TRADE POLICY Martín Redrado Secretary of International Trade ARGENTINE REPUBLIC."— Presentation transcript:

1 ARGENTINA’S TRADE POLICY Martín Redrado Secretary of International Trade ARGENTINE REPUBLIC

2 In the 90s, Argentina started along a road of ambitious reforms: openness, privatization, State reform, deregulation. However, 10 years after the beginning of that process, the results are poor: a 4-year-long recession, 20% unemployment and 45% of the population living below the poverty line. Regional Risks: the pendulum reaction Thinking that everything that was done was a mistake and beginning a counter-reform (closing the economy, increasing State ownership, market regulations) Quite the contrary, some unfinished reforms should be completed (Public Sector reform) and new reforms should be encouraged, tax reforms and social expenditures, among others

3 CAUSES OF THE CRISIS Internal: Lack of systemic competitiveness: structural deficit in the current account Permanent fiscal deficit: increase in the public debt External: Competitive devaluations in emerging markets (Asia, Latin America) Reversion of capital flows to developing countries

4 60,000 80,000 100,000 120,000 140,000 160,000 1991 19931995 19971999 2001 INTERNAL CAUSES: EVOLUTION OF PUBLIC DEBT Source: Ministry of Economy

5 EXTERNAL CAUSES FINANCIAL FLOWS TO DEVELOPING COUNTRIES Source: Institute of International Finance

6  Recession with a procyclic tax system led to fiscal insolvency  There was no room for the application of a countercyclic fiscal policy  The constant rise in country risk exacerbated the financial asphyxia  Markets considered the fiscal deficit as unsustainable  Any financial engineering (bail-out I and II, mega-swap) proved inadequate  There was consensus on the existance of an inescapable exchange rate trap  Economic policy fluctuated between facilitating a deflationary adjustment and an expansionary fiscal policy  Partial Fiscal incentives plans collided with the “zero deficit policy” IN EARLY 2001 THE TERMINAL STAGE OF THE CRISIS STARTED:

7 This scenario triggered the trauma that led to: - Devaluation - Default - Pesification and the freeze on deposits “corralito” As the result of the crisis, we now have: Institutions that have successfully overcome the political crisis A new exchange regime under way A real exchange rate closer to the break even point A context of uncertainty that will slowly fade away.

8 What is the challenge? What is the challenge? 1) To travel the best path, which is not necessarily the easiest or most popular one (populism) 2)To avoid the worst of Argentine mistakes: the economic pendulum What does this mean? What does this mean? - To correct and improve, without destroying all that has been done - If economic reforms have had defects, they must be improved

9 WHAT IS THE WAY OUT? FISCAL SOLVENCY AND AN EXPORT-ORIENTED MODEL Systemic Competitiveness + Openness  DEVELOPMENT DEVELOPMENT Competitiveness is the axis of Argentina´s New Economic Program Openness is the guiding principle of Argentina´s New Trade Policy Openness and Competitiveness enhance each other and must be simultaneous

10 SYSTEMIC COMPETITIVENESS Requires a New Generation of Reforms State Reform Making Public Social Expenditure more efficient. Tax Reform New Fiscal Regime between the Federal Government and the Provinces

11 FOCUSING SOCIAL EXPENDITURE Distribution of Students in the State Education System Primary School 52% 24% 13% 7% 4% Poorer 20%Quintile IIQuintile IIIQuintile IVWealthier 20% Wealthier quintile Poorer quintile Universities 6% 15% 20% 30% 29% Poorer 20%Quintile IIQuintile IIIQuintile IVWealthier 20% Wealthier quintile Poorer quintile

12 THE PROBLEM IS NOT RESOURCES... BUT EFFICIENCY Variation in Public Social Spending (in percentages) 0 5 10 15 20 25 30 35 40 TotalEducationHealth (%) Variation% 2000/93Variation% 2000/96

13 MISMATCH BETWEEN REVENUE AND EXPENDITURE Revenue Municipat 7% Federal gov´t 76% Provincial 17% Expenditure Fed. gov´t 46% Provinces 43% minicipal gov´t 11%

14 REGIONAL DISTRIBUTION OF TRABAJAR EMPLOYMENT PROGRAMS

15 0 500 1000 1500 2000 T. del Fuego San Luis Catamarca La Rioja Formosa La Pampa San Juan Salta Santa Fe Chaco Jujuy Entre Ríos Chubut Río Negro Corrientes S. del Estero Tucumán Neuquén Misiones Santa Cruz Córdoba Mendoza Buenos Aires Cdad. Bs.As. in pesos TRANSFERS TO PROVINCES PER INHABITANT (includes revenue sharing and other items)

16 SOCIAL INDICATORS AND REGIONAL ALLOCATION OF FEDERAL EXPENDITURE (population-weighted averages) Region Average Income (pesos) Unemployed (% PEA) Poverty (% NBI) Infant Mortality (%) Federal Expenditure Per capita (pesos)* Central261.317.513.320.8566.8 Cuyo232.811.514.217.7882.9 NW183.817.125.620.9751.9 NE162.811.326.420387.9 Patagonia297.911.313.817.4763.1 * Pesos as of 1999

17 AN AGRESSIVE AND ONGOING TRADE POLICY: AN AGRESSIVE AND ONGOING TRADE POLICY: Openness is the guiding principle of Argentina´s new Trade Policy THE PILLARS: THE PILLARS: - Multipolar Negotiation Strategy - Development of markets

18 A new Managing Model Permanent Argentinean Politics in the International Field Private Sector Academic Sector PUBLIC SECTOR

19 Multipolar Strategy Hemispheric Side European Side Multilateral Side Mercosur Platform False dichotomy USA or EU, Mercosur or FTAA It is MERCOSUR and FTAA and EU and USA Integration Argentina is not a single issue country as a single producer country. Agriculture+ Industrial Goods + Services Opening should be reciprocate Multilateral

20 GENERAL BALANCE MODEL SIMULATED SCENARIOS FTAA MERCOSUR + EU FTAA + (MERCOSUR + EU) 4 + 1 (free trade area between MERCOSUR and the US) Free world trade (framework)

21 AGGREGATE RESULTS ARGENTINA GDP GROWTH 2.6 3.5 4.3 5.6 7.2 0 2 4 6 8 4 + 1FTAAMERCOSUR + EU Free World Trade ALCA + (MERCOSUR +EU) percentage Source: CEI Full variant * * Growing yields to scale, trade-related externalities and capital accumulation in the medium term

22 AGGREGATE RESULTS GROWTH OF ARGENTINE EXPORTS Full Variant 8.9 14.2 15.7 27.2 28.5 0 5 10 15 20 25 30 4 + 1FTAAMERCOSUR + EU FTAA + (MERCOSUR + EU) Free World Trade percentage Source: CEI

23 Multipolar Negotiation Strategy Country per country, product per product United States:Bilateral Trade and Investment Council: Steel, Citric, Cooked Meat, General System of Preferences Brazil:: Automotive agreement - Removal of Phitosanitary barriers - Medicine. Chile: Automotive agreement - Deepening of the General Agreement of Preferences South Africa: New businesses, Opening of markets, Food Sector, Automotive Sector. México:Bilateral Trade and Investment Council - Automotive Agreement - Beginning conversations for Free Trade Area. FTAA: Due date to end negotiations 31/12/2004 - Approval on time of methods and modes, acces to markets, agriculture, services, inversions, government procurement EU: Reopening meat market + Aditional Hilton Quota - To accelerate negotations and finish as soon as possible (Madrid statement)

24 Multipolar Strategy Country per country, product per product First results: U$S 2.200 million of new markets Product Country U$S million CarsBrazil CarsMexico310310 CarsChile270 MeatEurope300 Meat (aditional Hilton quota)Europe65 Cooked MeatUnited States60 Food, Timber, ClothingUnited States570 SteelUnited States150* MedicineBrazil50 Food (Phitosanitary barriers)Brazil50 Flours, oils Chile90 This is not a new market, instead negotations prevented from its disappearance 300

25 MARKET DEVELOPMENT POLICY MARKET DEVELOPMENT POLICY Our priority is to help launch the private sector to world markets Through market intelligence and democratization of market information By turning every government office into a window to offer Argentine products (goods, tourism and services) With an active agenda of trade mission to unexplored markets (i.e. South Africa) Communicating our export supply offer to the world through a new official website Identify any potential demand for Argentine goods and services

26 CONCLUSIONS: CONCLUSIONS: - The typical “Argentine pendulum” should be avoided - A sustainable balance should be sought - Once macro-financial stability has been restored, Argentina´s economy has considerable growth potential - FISCAL SOLVENCYand the EXPORT-ORIENTED MODEL (systemic competitiveness) are the pillars for a sustainable development, the only way to honour our commitments.

27 ARGENTINA’S TRADE POLICY Martín Redrado Secretary of International Trade ARGENTINE REPUBLIC


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