CRA Assessment- Argentina Global Business Environment/ Session: 1Country Risk Analysis - Argentina Submitted by : Bhaskar Tripathi
Contents Global Business Environment/ Session: 1 Overview Political analysis Economy analysis Balance of Payment Risk analysis Strengths & Weaknesses
Overview Global Business Environment/ Session: 1• Area: total: 2,766,890 sq km ; land: 2,736,690 sq km ;water: 30,200 sq km.• Coastline: 4,989 km.• Climate: mostly temperate; arid in southeast; subantarctic in southwest.• Terrain: Rich plains of the Pampas in northern half, flat to rolling plateau of Patagonia in south, rugged Andes along western border.• Natural resources: Fertile plains of the pampas, lead, zinc, tin, copper, iron ore, manganese, petroleum, uranium.• Land use: Arable land: 10.03% , permanent crops: 0.36% , other: 89.61% (2005).• Irrigated land: 15,500 sq km (2003).• Population: 39,921,833 (July 2006 est.)• Age structure: 0-14 years: 25.2% (male 5,153,164/female 4,921,625) 15-64 years: 64.1% (male 12,804,376/female 12,798,731) 65 years and over: 10.6% (male 1,740,118/female 2,503,819) (2006 est.)
Overview (contd..) Global Business Environment/ Session: 1• Literacy: definition: age 15 and over can read and write total population: 97.1% male: 97.1% female: 97.1% (2003 est.)• Languages: Spanish (official), English, Italian, German, French.• Natural resources: Fertile plains of the pampas, lead, zinc, tin, copper, iron ore, manganese, petroleum, uranium• Natural hazards: San Miguel de Tucuman and Mendoza areas in the Andes subject to earthquakes; pampers are violent windstorms that can strike the pampas and northeast; heavy flooding• Environment - current issues: environmental problems (urban and rural) typical of an industrializing economy such as deforestation, soil degradation, desertification, air pollution, and water pollution Note: Argentina is a world leader in setting voluntary greenhouse gas targets
Argentina History Global Business Environment/ Session: 1Argentina’s population and culture are heavily shaped by immigrants fromthroughout Europe, but most particularly Italy and Spain, which provided thelargest percentage of newcomers from 1860 to 1930.After a long period of internal struggle Democracy returned to Argentina in 1983,and has persisted despite numerous challenges, the most formidable of which wasa severe economic crisis in 2001-02 that led to violent public protests and theresignation of several interim presidents.Successful negotiations with the IMF allowed Argentina to sidestep some fiscaldiscipline measures normally imposed in such circumstances. Since 2003, thegovernments efforts to stem the crisis have led to rapid economic recovery.Argentina has a market-oriented economy with abundant natural resources.However, high inflation has been a weakness of the Argentine economy fordecades.
Political Analysis - Argentina Global Business Environment/ Session: 1
Politics and government of Argentina Global Business Environment/ Session: 1• President : Cristina Fernández de Kirchner (since December 10, 2007)• Government type: Democracy, Presidential, Multi-party system.• Capital: Buenos Aires.• Constitution: 1853 Original with reforms in 1860, 1866, 1898, 1949, 1957.• Cabinet : Cabinet of Ministers is appointed by the President.• Political Structure : Argentina is a federal republic formed by 23 autonomous provinces and one autonomous city, the capital Buenos Aires. The Executive Branch is headed by a president elected for a period of four years. The Argentine Constitution allows for one successive re-election. Legislative power is exercised by a bicameral legislature with a Lower Chamber (254 members representing the people) and a Senate (72 elected Senators representing the provinces and the autonomous capital city, 3 for each).
PRA – Judicial System and Law Global Business Environment/ Session: 1• Judiciary and Legal system: Current legal system is based on the constitutional reforms of 1994 . The Judiciary is independent and the highest federal court is the Supreme Court, made up of nine judges.Each of the provinces has its own government and courts. While substantive law is largely the same at both the federal and provincial levels, procedure may vary in provincial courts. Under Argentina’s constitution, the provinces delegate to the federal legislature the power to enact laws of national scope governing civil and commercial issues, foreign relations, defence and other matters. Federal employees mandatory retirement age of 70.• Healthcare: Health care is provided through a combination of employer and labor union- sponsored plans, government insurance plans, public hospitals and clinics and through private health insurance plans. Health care costs amount to almost 10% of GDP. Argentina has raised life expectancy at birth from 60 years to 76 since 1948 to 2009.• Corruption Index (In 2002 -> 2.8, In 2009 -> 3.0).
Elections and present government Global Business Environment/ Session: 1 Seats by Party (2011 elections) President and vice president elected on the same Justicialist Party ticket by popular vote for four-year terms. Front for Victory Justicialist Front Legislative power is exercised by the National Congress, which consists of the Chamber of Deputies Others and the Senate Total Kirchnerism (Left-wing peronism) Civic and Social Agreement The Chamber of Deputies is composed of 257 Radical Civic Union members directly elected for a four-year term of office; Front for Everyone nevertheless, half the seats are renewed every two Others years. Total Civic and Social Agreement (Radicalism center-left) Senates 72 members are directly elected for a six-year Republican Proposal (Liberal-conservatism and term of office, but Senate elections are held every two years for one-third of the seats. 3% 1% 10% 9% 5% 1% Ever since 2003 elections and the economic 1%1% 3% policies laid by Kirchner Govt, Argentina has ended 11% its economic crisis, got fiscal and trade surpluses 19% and paid off debts with the IMF and nationalized 18% some previously privatized enterprises. The last 8 12% years have embarked a much needed present political stability in Argentina. 2% 1% 2%
Political Analysis Global Business Environment/ Session: 1 Strengths Since 1984, the democratic framework proved durable through severe economic crisis, despite Argentina’s long historyof dictatorship and military coups. This is remarkable for a democracy.Political Risk Rating of Argentina is P2- on a scale of P1 (lowest risk), P2+, P2-, P3+, P3-, P4 (highest risk).Under President Kirchners, economic policy has moved in the direction of greater state intervention and away fromeconomic orthodoxy.Combined with the impressive economic growth and fiscal stability in Argentina since last 8 years, investors are likely tomaintain or boost their stake in Argentina. WeaknessFor long term, standpoint, it is unclear what polices will emerge post-election given a history of political instability inArgentina. Argentina is highly regulated economyArgentinas ever rising inflation rate (estimates to be 12% in 2011 and uncertainties about electricity supply are limitinggovernments ability to implement necessary policy adjustments. This, in turn, might threaten Argentinas economicrecovery since 2003, and even raise doubts about political stability in the medium to long-term.Argentina ranks 105th out of 178 countries in the Transparency Internationals Corruption Perceptions Index for 2010.Reported problems include both government and private-sector corruption, the latter of which include money laundering,trafficking in narcotics and contraband, and tax evasion. This creates skepticism for FDI and prospective investors.
Economy Analysis Global Business Environment/ Session: 1Argentina Economy - Strengths/Weakness and Risks
Economic overview Global Business Environment/ Session: 1 Summary : The economy of Argentina is third-largest in Latin Americas, with a high quality of life and GDP percapita.An upper middle-income economy, Argentina has a firm foundation for future growth for its market size, the levelsof foreign direct investment, and percentage of high-tech exports as share of total manufactured goods. History : Despite such a huge wealth of literate people and natural resources, Argentinas historical economicperformance has been very uneven, in which high economic growth alternated with severe recessions, particularly duringthe late twentieth century, and income maldistribution and poverty increased. Early in the twentieth century it was one ofthe richest countries in the world and the richest in the Southern hemisphere, though it is now an upper-middle incomecountry. Stagflation : Record foreign debt interest payments, tax evasion and capital flight resulted in a balance of paymentscrisis that plagued Argentina with severe stagflation from 1975 to 1990.2001 Economic Crisis : In 2001,Argentine economy suffered its sharpest decline since 1930; by 2002, Argentina haddefaulted on its debt, its GDP had shrunk, unemployment reached 25% and the peso had depreciated 70% after beingdevalued and floated.A rgentine debt restructuring offers in 2005 and 2010 resumed payments on the majority of itsalmost $100 billion in defaulted bonds from 2001.Economic Recover since 2003 :Expansionary policies and commodity exports triggered a rebound in GDP from 2003 onwards. This trend has been largelymaintained, creating millions of jobs and encouraging internal consumption. The socio-economic situation has beensteadily improving and the economy grew around 9% annually for five consecutive years between 2003 and 2007, and 7%in 2008. The global recession of 2007–10 affected the economy in 2009, with growth slowing to 0.8%.High economicgrowth resumed, and GDP expanded by around 9% in both 2010 and 2011
Argentine Economic Structure Parameters Global Business Environment/ Session: 1
Argentina Economy - Basic Indicators Global Business Environment/ Session: 1 Expected growth in 2011 is well above the average of the past ten years.
Argentina Economy - Basic Indicators Global Business Environment/ Session: 1
Argentina Economy - Basic Indicators Global Business Environment/ Session: 1
Argentina - Country Risk Assesment Global Business Environment/ Session: 1
Credit Rating Global Business Environment/ Session: 1 Latin America’s Credit Rating ComparisonStandard & Poors Ratings:AAA: The best quality borrowers, reliable and stableAA: Quality borrowers, a bit higher risk than AAAA: Economic situation can affect financeBBB: Medium class borrowers, which are satisfactory at the momentBB: More prone to changes in the economyB: Financial situation varies noticeably
Argentina – Balance of Payment Global Business Environment/ Session: 1Balance of payment has improved since 1998 signifying improved cash flow.
Risk Analysis Global Business Environment/ Session: 1Argentina– Risk Strengths/ Weaknesses and Risk Analysis
Risk Assesment - Strengths Global Business Environment/ Session: 1 StrengthsRelatively stable credit Rating : B. Source : (S&P – March 2012)Fiscal and monetary policy has been prudent and pragmatic since last 5 years.Domestic market potential, natural resources and low labour costs have continued to attractforeign investors.The democratic framework proved durable through severe economic crisis (2001),notwithstanding Argentina’s long history of dictatorship and military coups.External debt restructuring on sustainable terms and moderate debt ratios.Strong external liquidity position.The socio-economic situation has steadily improved GDP growth expanded by around 9% in both2010 and 2011 which will build investor confidence.Political stability seems to have returned to Argentina and with people’s needs getting satiated bythe state there are low chances of instability.
Risk Assesment - Weaknesses Global Business Environment/ Session: 1 WeaknessAlthough restructuring of its bond debt has allowed Argentina to sharply reduce its foreign debt, itstill has very high debt ratios and substantial financing needs.In addition, it cannot remain isolatedby Global recession.Poor long-term growth record and history of financial crises.External debt restructuring not fully concluded.Over dependence on high commodity prices.Accelerating inflation and lack of credibility of official inflation data. Unofficially, the inflation ofArgentina could be as high as 24%. [source : click here]Lack of access to international finance.Adequate but below average Structural Business Environment.Gini Index (2009- World Bank) for Argentina was 46, indicating high inequality of income.
Overall Risk Assessment Global Business Environment/ Session: 1 Economic Stability Short term financial flow indicators also do not point to an imminent crisis.However, the in past frequently disastrous economic policies and political instability have led tovolatile growth over an extended period, oscillating between boom and bust, despite a rich gift ofagricultural resources. Overall Argentina is projected to ameliorate its power in Latin America with apositive investor mood. Change of approach of the current government is needed to overcome thelacks access to international finance and prevent financial isolation from the world. Social & Political stability Economic growth prospects Domestic financial stability External Liquidity Inflation Balance Of Payment (BOP)
Data Sources Global Business Environment/ Session: 1Central Intelligence Agency (CIA) Euro Monitor Latin America Monitor World Bank The Institute of International Finance (IIF) International Monetary Fund (IMF) Latin Business Chronicle UNDP Rating & Investment Information Standard & Poor’s Transparency International Euler Herms Google Scholars
The End Global Business Environment/ Session: 1