ARGENTINA: EMERGING FROM THE GREATEST CRISIS

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ARGENTINA EMERGING FROM THE GREATEST CRISIS
Dr. Horacio D. Casabé
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BasicInformation
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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

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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

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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)

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THE REASONS OF THE CRISIS

• REGRESSIVE TAX SYSTEM
• INSUFFICIENT FISCAL PRESSURE
• 16 O/GDP - INEFFICIENT
• ADMINSTRATION
• SOCIAL SECURITY BANKRUPTCY
• SUDDEN HALT OF INFLOW
• CAPITALS

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THE CONVERTIBILITY (FIX PEG) AGGRAVATED THE
STRUCTURAL PROBLEMS

• PRODUCTION
• LABOUR MARKET
• INCOME DISTRIBUTION
• INTERNATIONAL TRADE
• DEBT/GDP RELATIONSHIP

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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 (US 20.3 BILL
• 7.6 GDP)
• STRONG PLUNGE OF FEDERAL RESERVE
• SAVINGS (FROM US 28 BILL IN 2000 TO
• US 12 BILL IN 2002)

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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)

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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)

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THE ECONOMIC RECOVERY

• TAKE ADVANTAGE OF DEVALUATION
• EMERGENCY FISCAL POLICY
• RE-NEGOTIATE EXTERNAL DEBT
• FINANCIAL SYSTEM RECOVERY
• ECONOMIC ACTIVITY RECOVERY
• NEW INTERNATIONAL CONTEXT

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A. ADVANTAGES OF DEVALUATION

• INCREASE OF EXPORTATIONS
• DECREASE IMPORTATIONS
• IMPORTATION SUBSTITUTION
• PROCESS
• STRONG INTERNATIONAL TRADE
• SUPERAVIT

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INTERNATIONAL TRADEGLOBAL BALANCE
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EXPORTATIONS
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INTERNATIONAL TRADE(BY SECTOR)
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INTERNATIONAL TRADE PER REGION
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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)

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TAX COLLECTION (ARGENTINE CURRENCY)
2005
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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

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EXTERNAL DEBT
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D. FINANCIAL SYSTEM RECOVERY

• BANK DEPOSITS RECOVERY
• BANK SYSTEM IN NATIONAL
• CURRENCY
• REAPPERANCE OF BANK LOANS

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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

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ECONOMIC ACTIVITY
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F. NEW INTERNATIONAL CONTEXT

• LOW INTERESTS RATES
• COMMODITIES PRICES INCREASE
• SOY BEAN BOOM
• NEW PLAYERS (CHINA, INDIA,
• BRAZIL, ETC.)

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GDP
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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)

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INFLATION (RETAIL PRICES)
SOURCE INDEC
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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)

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LABOUR SITUATION 2005
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WARNINGS AND PENDING PROBLEMS

• RENEGOCIATE THE EXCLUDED
• EXTERNAL DEBT
• IMPROVE HEALTH CARE, SOCIAL
• SECURITY AND EDUCATIONAL
• SYSTEMS
• IMPROVE THE INCOME
• RE-DISTRIBUTION
• 70 7/1
• 90 30/1
• 2005 31/1

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SUMMARY CRUCIAL ISSUES

• PROMOTE STRUCTURAL REFORMS
• MACROECONOMIC STABILITY
• BUILD A COMPETITIVE AND FORESEEABLE COUNTRY

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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

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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

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THANKS FOR EVERYTHING casabe_at_latinfocus.com.ar