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What is the state of Argentina’s economy?
Argentina is the third-largest economy in Latin America, behind Brazil and Mexico. Its major industries include automobiles, textiles, mining, technology, agriculture, and tourism. Additionally, analysts say there is significant economic potential in the development of renewable energy, such as solar and wind power, and related resources, such as lithium.
Argentina has historically shifted between pro-business and populist administrations, which have taken a more heavy-handed role in the economy and increased social spending. Before taking office, Fernandez promised to reverse the austerity measures enacted under Macri. His administration has since increased taxes on exports and high-income households, lowered interest rates, and raised the minimum wage. However, while year-on-year unemployment has fallen recently, the country still has one of the highest inflation rates in the world, and four in ten Argentines live below the national poverty line.
Argentina’s top trading partners are the United States, Brazil, and China. The United States is also Argentina’s largest foreign investor, with more than three hundred U.S. companies operating there. In addition, Argentina is a member of several regional trade groups, including the Southern Common Market (Mercosur) and the Latin American Integration Association, and it is currently a prospective member for the Organization for Economic Cooperation and Development, a bloc of the world’s most advanced economies.
What are Argentina’s major economic challenges?
Argentina’s climate for business and investment has worsened in recent years, weakening due to political dysfunction, price and capital controls, high inflation, debt concerns, and the COVID-19 pandemic. In 2020, foreign investment dropped to $4.1 billion, down 38 percent from the previous year, and several international companies announced they were downsizing or leaving Argentina amid the country’s ongoing recession. The overall economy has shrunk each year since 2018.
Argentina was one of the ten wealthiest countries per capita in the early twentieth century. However, economists say that its overreliance on commodity exports and unsustainable government spending fueled frequent boom-bust cycles, resulting in political instability and economic decline in the decades that followed.
Successive administrations have struggled to keep the country’s finances in check during periods of economic turmoil. As a result, Argentina has often failed to pay its international creditors; it has defaulted on its sovereign debt nine times over the last two centuries, one of the most frequent in the world to do so. The largest default occurred in December 2001, when the government reneged on nearly $93 billion in loans, causing Argentina to lose access to international debt markets. To restore its ability to borrow, Macri cut export taxes, lifted currency controls, and negotiated a debt settlement with holdout creditors in 2016. While these actions were successful, Argentina lost access again following the country’s default in May 2020.
As of December 2020, Argentina’s total national debt was $336 billion, or nearly 90 percent of its gross domestic product (GDP). Of that, the government owes $45 billion to the International Monetary Fund (IMF) and $2.4 billion to the Paris Club, an informal group of private creditors.
