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1 ARGENTINA: EMERGING FROM THE GREATEST CRISIS Dr. Horacio D. Casabé

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Presentation on theme: "1 ARGENTINA: EMERGING FROM THE GREATEST CRISIS Dr. Horacio D. Casabé"— Presentation transcript:

1 1 ARGENTINA: EMERGING FROM THE GREATEST CRISIS Dr. Horacio D. Casabé

2 2 Basic Information Country ARGENTINA Capital BUENOS AIRES Surface 2.766.890 Km2 Climate TEMPERATE Population 36,6 mill. Literacy rate 96% GDP Income per capita 2001 2002 2005 U$S 165 BILL U$S 7.500 U$s 2.900 U$s 4.500 Average life expectancy 70 YEARS OLD Cattle Stock 53 mill. Sheep Stock 14 mill. Other Stock 5 mill. Shepherding surface 50 % Cultivable surface 15%

3 3 THE SINGLE THOUGHT (NOW WE KNOW THAT...) THE WASHINGTONS CONSENSUS WAS NOT INFALLIBLE ONE MUST CONSIDER THE INDIVIDUAL CHARACTER OF EACH COUNTRY DANI RODRIK (Professor of International Political Economy – John F. Kennedy School of Government – HARVARD UNIVERSITY

4 4 THE REASONS OF THE CRISIS THE FIX EXCHANGE RATE (FIX PEG) CONSTANT INTERNATIONAL TRADE DEFICITS (11 BILL – 2.5%) STRONG INCREASE OF PUBLIC SPENDING (100% IN 10 YEARS) CONSTANT FISCAL DEFICITS (GD 6%) TWINS DEFICITS Continue

5 5 THE REASONS OF THE CRISIS CONSTANT GROWTH OF PUBLIC DEBT (FROM 60 BILL IN 1991 TO 170 BILL IN 2001) FRAGILITY TO FACE EXTERNAL CRISES (MEXICO, RUSSIA, SOUTHEST ASIA, BRAZIL, ETC.) MASSIVE PRIVATIZATIONS WITHOUT GOVERNMENT CONTROL (LOSS OF SOVEREIGN RISK – RODRIK) Continue

6 6 THE REASONS OF THE CRISIS REGRESSIVE TAX SYSTEM – INSUFFICIENT FISCAL PRESSURE – 16% O/GDP - INEFFICIENT ADMINSTRATION SOCIAL SECURITY BANKRUPTCY SUDDEN HALT OF INFLOW CAPITALS

7 7 THE CONVERTIBILITY (FIX PEG) AGGRAVATED THE STRUCTURAL PROBLEMS PRODUCTION LABOUR MARKET INCOME DISTRIBUTION INTERNATIONAL TRADE DEBT/GDP RELATIONSHIP

8 8 CONSEQUENCES OF THE CRISES SURGING COUNTRY RISK (6000 BASIC POINTS) STRONG GDP DECREASE (20% ) WSP INFLATION 70% (5 months in 2002) SUDDEN FLIGHT OF CAPITALS (U$S 20.3 BILL = 7.6% GDP) STRONG PLUNGE OF FEDERAL RESERVE SAVINGS (FROM U$S 28 BILL IN 2000 TO U$S 12 BILL IN 2002) Continue

9 9 CONSEQUENCES OF THE CRISES UNEMPLOYMENT RECORD 25% PLUS UNDEREMPLOYMENT 15% POVERTY REACHED 54% (EXTREME POVERTY 25%) FROZEN BANK ACCOUNTS VANISHING NATIONAL CURRENCY AND CREATION OF 14 STATE CURRENCIES (BONDS) Continue

10 10 CONSEQUENCES OF THE CRISES EXTERNAL DEBT DEFAULT INTERNATIONAL FINANCING HALTED HYPER DEVALUATION (1 TO 4) SOCIAL CONFLICTS (RIOTS, PICKETING, STRIKES, VIOLENCE, ETC.) INSTITUTIONAL CRISIS (5 PRESIDENTS IN 15 DAYS)

11 11 THE ECONOMIC RECOVERY A. TAKE ADVANTAGE OF DEVALUATION B. EMERGENCY FISCAL POLICY C. RE-NEGOTIATE EXTERNAL DEBT D. FINANCIAL SYSTEM RECOVERY E. ECONOMIC ACTIVITY RECOVERY F. NEW INTERNATIONAL CONTEXT

12 12 A. ADVANTAGES OF DEVALUATION INCREASE OF EXPORTATIONS DECREASE IMPORTATIONS IMPORTATION SUBSTITUTION PROCESS STRONG INTERNATIONAL TRADE SUPERAVIT

13 13 INTERNATIONAL TRADE GLOBAL BALANCE U$S BILL. 2002200320042005 EXP.25.629.934.640.0 IMP. 9.013.922.428.7 SUP.16.616.012.211,3

14 14 EXPORTATIONS

15 15 INTERNATIONAL TRADE (BY SECTOR)

16 16 INTERNATIONAL TRADE PER REGION

17 17 B. EMERGENCY FISCAL POLICY EXPORTATION TAX FINANCIAL ACTIVITIES TAX INCREASE INCOME TAX COLLECTION FINANCIAL AID PLANS STRONG CONTROL OF PUBLIC EXPENDITURES MULTILATERAL INSTITUTIONS PAY OFF (IMF, WB, IDB)

18 18 TAX COLLECTION (ARGENTINE CURRENCY) 2005

19 19 C. RENEGOTIATION OF EXTERNAL DEBT STRONG DISCOUNT 65% ACCEPTANCE 76% BETTER PROFILE EXPIRIES INTERNAL DEBT PESIFICATION DIMINISH INTERESTS BETTER RELATIONSHIP DEBT OVER GDP FROM 120% TO 70%

20 20 EXTERNAL DEBT

21 21 D. FINANCIAL SYSTEM RECOVERY BANK DEPOSITS RECOVERY BANK SYSTEM IN NATIONAL CURRENCY REAPPERANCE OF BANK LOANS

22 22 E. ECONOMIC ACTIVITY AND EMPLOYMENT RECOVERY USE OF NEW TECHNOLOGY BENEFITED FROM IDLE CAPACITY (IND.CAP. From 50% to 80%) INDUSTRIAL ACTIVITY INCREASE INDUSTRIAL CONSTRUCTION IMPROVEMENT PUBLIC WORKS NEW EMPLOYMENT AND MORE JOBS 2 MILL - 12% UNEMP. RATE

23 23 ECONOMIC ACTIVITY GENERAL Base 1993 = 100 CONSTRUCT. Base 1997 = 100 INDUSTRY Base 1997 = 100

24 24 F. NEW INTERNATIONAL CONTEXT LOW INTERESTS RATES COMMODITIES PRICES INCREASE SOY BEAN BOOM NEW PLAYERS (CHINA, INDIA, BRAZIL, ETC.)

25 25 + 29% GDP

26 26 WARNINGS AND PENDING PROBLEMS IMPROVE THE EXPORTATION PROFILE DEVELOP A USEFUL INDUSTRIAL MODEL ATTRACT LONG TERM FOREING INVESTMENTS CONTROL THE INFLATION PROCESS CONTAIN THE DISTRIBUTIVE BIDDING (Prices vs. Wages) Continue

27 27 INFLATION (RETAIL PRICES) % SOURCE INDEC

28 28 WARNINGS AND PENDING PROBLEMS CONSOLIDATE THE FINANCIAL SYSTEM ARRANGE THE PUBLIC SERVICES TARIFFS MONITOR THE ENERGY CRISIS ACTIVE TAX SYSTEM REPLACE SUBSIDIZED EMPLOYMENT SOLVE THE BLACK LABOUR MARKET (4.8 mill = 46%) Continue

29 29 LABOUR SITUATION 2005

30 30 WARNINGS AND PENDING PROBLEMS RENEGOCIATE THE EXCLUDED EXTERNAL DEBT IMPROVE HEALTH CARE, SOCIAL SECURITY AND EDUCATIONAL SYSTEMS IMPROVE THE INCOME RE-DISTRIBUTION 707/1 9030/1 200531/1

31 31 SUMMARY CRUCIAL ISSUES PROMOTE STRUCTURAL REFORMS MACROECONOMIC STABILITY BUILD A COMPETITIVE AND FORESEEABLE COUNTRY

32 32 THE ARGENTINE CHALLENGE TO CHANGE THE PARADIGM DURING THE 90S ARGENTINA WAS BELIEVED TO BE AN OPPORTUNITY FOR THE WORLD DURING THE XXI CENTURY, THE WORLD MUST BE AN OPPORTUNITY FOR ARGENTINA

33 33 SOME WORLD ECONOMICS INDICATORS IN THE LAST 20 YEARS Trade: 6% per year Foreign investments: 7% per year International loans: 8% per year G.D.P. 3,5 per year Currency Trade: 25% per year 2004: + 3.000 billion

34 34 THANKS FOR EVERYTHING casabe@latinfocus.com.ar


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