Argentina paper - final

Running Header: Manufacturing in Argentina – Pro’s & Con’s 1
Manufacturing in Argentina – Pro’s & Con’s
Joanne Weddle
Friend’s University

Manufacturing in Argentina – Pro’s & Con’s 2
Introduction to Argentina
The U.S. is one of Argentina's largest trading partners with a historic high of $22 million
in trade in goods and services in 2011. U.S. exports to Argentina include machinery, oil, organic
chemicals, and plastic. U.S. imports from Argentina include mineral fuel and oil, aluminum,
wine, iron and steel products, and preserved foods. The two countries have signed a bilateral
investment treaty, and the more than 500 U.S. companies are among the top investors in the
country with nearly $15 billion invested in the country. U.S. direct investment in Argentina is
mostly in mining, nonbank holding companies, and manufacturing. In 2007, the U.S. and
Argentina modernized a bilateral civil aviation agreement to update safety and security and
provide for more-frequent flights between the two countries, allowing for increased volumes of
tourism and business travel. (CIA World Factbook, 2013)
Argentina benefits from rich natural resources, a highly literate population, an export-oriented
agricultural sector, and a diversified industrial base. Although one of the world's
wealthiest countries 100 years ago, Argentina suffered during most of the 20th century from
recurring economic crises, persistent fiscal and current account deficits, high inflation, mounting
external debt, and capital flight. A severe depression, growing public and external indebtedness,
and an unprecedented bank run culminated in 2001 in the most serious economic, social, and
political crisis in the country's turbulent history.
History U.S. – Argentina Relations
Argentina first established diplomatic relations with the U.S. in 1823 upon gaining
independence from Spain. Since that time both countries have enjoyed “regional peace and
stability, non-proliferation, human rights, education, cultural exchanges, and commercial ties.

The Government of Argentina has supported U.S. national and international security goals
through participation in international peacekeeping operations and advocacy for the
nonproliferation of weapons of mass destruction.” (Department, 2013)
Cooperation between both countries includes initiatives in the fields of science and
technology, “peaceful uses of nuclear energy, agricultural research and biotechnology, medicine,
and the environment.” (Department, 2013) The first bilateral joint science and technology
working group met in 2010, and in 2011 the two countries signed an agreement on the peaceful
uses of outer space. They also have a “bi-national energy working group.” (Department, 2013)
As of July 2013 Argentina is currently in dispute with the U.S. over defaulted payments
tied to investments in Hedge Funds that were tied to the mortgage market collapsed in the U.S.
economy during 2008. Argentina’s leadership frequently refers to the Hedge Fund as “Vulture
Funds”. “Argentina is appealing a lower court ruling that bars payments to the investors in
restructured Argentine debt unless holders of the nation’s defaulted bonds, led by billionaire Paul
Singer’s Elliott Management Corp. and its NML Capital Ltd. unit, are also paid.” (MercoPress.
South Atlantic News Agency, 2013)
In addition to strained U.S. relations, the bilateral relationship with Argentina has been
“difficult, due to the country’s relationship with the international financial community.” (US
admits relations with Argentina are “difficult” and calls for positive attitude, 2012)
To improve relations Argentina must “go back to having a positive relationship with the
international financial community and its creditors in the US and in the world,” (US admits
relations with Argentina are “difficult” and calls for positive attitude, 2012)
Argentina’s refusal to implement positive changes has “led president Barack Obama to
temporarily suspend tariff benefits to Argentina because the country has yet to honor

compensation payments involving 300 million dollars to two US companies, following a
favorable ruling from an international arbitration court.” (US admits relations with Argentina are
“difficult” and calls for positive attitude, 2012)
According to U.S., Assistant Secretary of State Western Hemisphere, Roberta Jacobson
“Of great concern is Argentina’s “decision to seize 51% of YPF belonging to Spanish oil
corporation Repsol arguing it creates “a very negative climate for investments” and affects the
“whole international community” (US admits relations with Argentina are “difficult” and calls
for positive attitude, 2012)
In addition to the “financial difficulties … security issues” … in February 2011 … the
Argentine government decided to seize instruments and other materials from a US Air Force
aircraft that was delivering in Buenos Aires support equipment for police training.” As a result
of the incident U.S. Officials have been unable to work issues such as cooperation in combating
the drugs trade.” (US admits relations with Argentina are “difficult” and calls for positive
attitude, 2012)
Numerous attempts to advance the U.S and Argentina relations in a positive directions
are routinely met with resistance. Republican Congressman Connie Mack, a member of the
Foreign Affairs committee said “Argentina was planning nothing good” and is ignoring “court
rulings” in reference to the International Centre for Settlement of Investment Disputes, which
depends from the World Bank … besides the suspension of tariff benefits, the diplomatic
disappointment, and the military aircraft incident, relations … suffered a further blow last March
when the country was included for the first time in the black list of countries not doing enough
about money laundering.” (US admits relations with Argentina are “difficult” and calls for
positive attitude, 2012)

Political History
Interim President Adolfo RODRIGUEZ SAA declared a default - at the time the largest
ever - on the government's foreign debt in December of that year, and abruptly resigned only a
few days after taking office.
His successor, Eduardo DUHALDE, announced an end to the peso's decade-long 1-to-1
peg to the US dollar in early 2002. The economy bottomed out that year, with real GDP 18%
smaller than in 1998 and almost 60% of Argentines under the poverty line. Real GDP rebounded
to grow by an average 8.5% annually over the subsequent six years, taking advantage of
previously idled industrial capacity and labor, an audacious debt restructuring and reduced debt
burden, excellent international financial conditions, and expansionary monetary and fiscal
policies.
Inflation also increased, however, during the administration of President Nestor
KIRCHNER, which responded with price restraints on businesses, as well as export taxes and
restraints, and beginning in 2007, with understating inflation data.
Cristina FERNANDEZ DE KIRCHNER succeeded her husband as President in late
2007, and the rapid economic growth of previous years began to slow sharply the following year
as government policies held back exports and the world economy fell into recession. The
economy in 2010 rebounded strongly from the 2009 recession, but has slowed since late 2011
even as the government continued to rely on expansionary fiscal and monetary policies, which
have kept inflation in the double digits. The government expanded state intervention in the
economy throughout 2012. In May the Congress approved the nationalization of the oil company
YPF from Spain's Repsol. The government expanded formal and informal measures to restrict

imports during the year, including a requirement for pre-registration and pre-approval of all
imports. In July the government also further tightened currency controls in an effort to bolster
foreign reserves and stem capital flight. (CIA World Factbook, 2013)
Economic Relations & Economy
Argentina’s economy is well known for its extreme volatility. In the past decade alone
Argentina has experience two very distinct periods in which there was a sudden rise and fall in
the economy and periods of hyperinflation. “Despite areas of concern, structural reforms
implemented in the 1990s have set Argentina on the path to sustained growth” (Pou, 2000) but
they implemented other measures that later eliminated the positive sustain growth.
In the late 1990’s Argentina removed most restrictions on trade and capital movements.
Which significantly opened the economy up to foreign investment and development. They
eliminated export taxes and most quantitative restrictions on imports. They also reduced import
duties, and established free entry and exit of portfolio and direct investment.
Public sector reforms substantially “reduced the scope of the public sector, entailed
privatizing almost all of the major public enterprises and had three main results. Public subsidies
to the enterprises were reduced or eliminated; the enterprises' efficiency and provision of
services improved dramatically; and funds became available to cover a substantial part of the
government deficit while other reforms, including of the tax system, were under way.” (Pou,
2000)
“Tax reforms increased consumption and income taxes and gradually eliminated many of
the more distortionary taxes (such as the one on exports). New and stronger laws increased the

government's ability to control tax evasion, while accelerated economic growth increased public
revenues.” (Pou, 2000)
A system combining public transfers and private capitalization replaced the public pay-as-
you-go pension system. The private pension system was optional but the majority of workers
switched to it. They reduced most industrial subsidies and encouraged the entry of new
international firms into the local market. This resulted in a dramatic change in the composition
and prices of goods publically available. The cumulative effect of “the reforms was to enable the
country to return to voluntary financing of its external public debt, which had been rescheduled
under the Brady Plan (named after the then U.S. Treasury Secretary, Nicholas Brady).” (Pou,
2000)
In 2008 however, Argentina announced it was taking over the 14-year old pension
system. The private pension system has been routinely raided in times of economic trouble. In
2008 the pension was worth $30 Billion and the move “channeled $400 million into the public
coffers to prevent default.” (Business, 2008) Argentina also nationalized a private oil company,
Repsol from Spain, further discouraging foreign investment.
Financial system reforms
Financial system reform is a process that continues to evolve, “with two benchmark
developments: the Convertibility Law of 1991 and the Central Bank Charter of 1992. The
convertibility law fixed the exchange rate at one Argentine peso per U.S. dollar, eliminated
indexing, and required the central bank to back two-thirds of the monetary base with
international reserves. These rules converted the central bank into a form of currency board (a
monetary arrangement in which domestic currency can be issued only in exchange for a specified

foreign currency at a fixed rate, limiting the board's discretion to create money by extending
credit to the government or the banking system), eliminating the possibility of inflationary
financing of the government deficit.” (Pou, 2000)
Banking regulations
Banking regulations increased competition between banks ensuring the safety of the
banking system. Restrictions on the entry of foreign banks and on the opening of new domestic
bank branches were eliminated. September 1991, capital requirements were implemented with an
initial rate of 3% and gradually increased to 11.5% in January 1995, substantially above the 8%
Basel Committee on Banking Supervision's recommendation for industrial countries. Reserve
requirements were set high, on average: 40% (later 43%) on checking and savings deposits and
0% (later 3%) on time deposits. Because of concern about moral hazard, deposit insurance was
eliminated, and the currency board restrictions on monetary policy stipulated in the Central Bank
Charter and the Convertibility Law curtailed the role of the central bank as a lender of last resort.
These measures strongly limited the safety net available to banks, reducing moral hazard in the
financial system.” (Pou, 2000)
The Tequila crisis in 1995 lead to a run on the banks following the devaluation of the
Mexican’s currency at the end of 1994. The devaluation of the peso lead to a decline of 18% of
the deposits within five months. This lead to severe repercussions for liquidity in the banking
system. (Pou, 2000) The decline was a valuable lesson for the authorities and “led them to revise
bank regulations significantly. They created two trust funds: one to help privatize provincial
banks and the other to aid in the restructuring or merger of troubled private banks. The central
bank's ability to extend rediscount operations with financial institutions under extraordinary

circumstances was increased through a change in the Financial Institutions Law that gave
substantial powers to the central bank to restructure troubled banks. The changes allowed the
central bank to divide the assets and liabilities of a troubled bank into a "good" bank to be sold
and a "bad" one (comprising the nonperforming assets of the original bank) to be liquidated,
which it achieved by transferring the "bad" bank's nonperforming assets—plus cash provided by
the deposit insurance agency—to the bank or group of banks absorbing its deposits.” (Pou, 2000)
The central bank set up a limited program of mandatory private deposit insurance in April
1995 with an initial limit of $20,000 per depositor, later raised to $30,000 to restore confidence
in the system. The central bank also opened contingent repurchase agreements with 13 private
international banks, triggered at its discretion. The contingent repurchase facility had been
enhanced by a line of credit with the World Bank and the Inter-American Development Bank for
a total of $1 billion, which became available if the private repurchase facility was triggered and
the central bank was required to meet margin calls because of declines in the prices of public
securities. (Pou, 2000)
Since 1995, bank regulations were further revised to impose more regulatory and market
discipline on banks. First, banks are now supervised under a CAMEL system—capital, assets,
management, earnings, and liabilities, where each aspect was assessed on a scale of 1 to 5, and
an overall rating for each bank is then expressed as an average of these scores, similar to that
used by the Office of the Comptroller of the Currency in the U.S.—and a BASIC system—
bonds, external auditing, supervision, information, and credit rating. All banks are inspected on
site by the superintendency at least every 18 months and more often if banks are having
problems.

Second, traditional reserve requirements were replaced by remunerated liquidity
requirements, which were based on the residual time to maturity of deposits and other bank
liabilities. The requirements had a decreasing rate that started at 20% for liabilities due in less
than 90 days and reaches 0% for liabilities due in one year or longer. Only 20% of these
requirements were channeled through the central bank. The rest was invested in a wide range of
very safe and liquid international assets. Minimum capital requirements were based on
counterparty risk, interest rate risk, and market risk for the trading portfolio. Total capital
requirements were the sum of the three requirements. Counterparty risk along Basel lines was
further adjusted by the bank's CAMEL rating and by loan interest rate spreads over
intermediation costs (as a proxy for risk premiums).
Following the Asian crisis of 1997-98, a rule (the so-called anti-bubble rule) was
introduced that increases the capital requirement for new mortgage loans when a nationwide real
estate price index surpasses certain thresholds. Standardized procedures for the origination of
home mortgages were introduced in 1998 to facilitate loan securitization. (Pou, 2000)
As a further measure of bank reform, between 1991 and August 1999, the number of
banks in the financial system declined from 167, of which 35 were public, to 119, of which 16
are public, and primarily as a result of mergers or closures following the Tequila crisis. In
addition, 16 small government-owned banks, mainly provincial, and the National Mortgage Bank
were privatized. (Pou, 2000)
The Central Bank Charter also made the central bank independent of the executive and
legislative branches and set as its principal goal that of maintaining the value of the domestic
currency. Also, by providing for the presidential appointment of a standing central bank
president and directors, it intentionally made their removal difficult. Under the charter, the

central bank is prohibited from financing provincial or municipal governments, public firms, or
the private nonfinancial sector. It can back the monetary base up to one-third with dollar-denominated
Argentine central government securities evaluated at market prices, but its holdings
of these securities may not grow more than 10% a year. (CIA World Factbook, 2013)
Payment system reforms
Before the reforms of the mid-1990s, payments were effected through 84 clearinghouses,
which were inefficiently operated. In 1995, the central bank and the banking associations
established a working group that generated widespread reform through the adoption of new
technologies. The system today consists of a real-time gross settlement system managed by the
central bank, an automated large-value clearinghouse, and two automated low-value
clearinghouses. (Pou, 2000)
Monetization advanced rapidly, and by 1999 M3* was over 30% of GDP. This broad
measure of money includes the monetary base plus both peso and dollar deposits and thus gives a
measure of the size of the financial system. Deposits per bank employee rose from $96,000 in
private institutions ($69,000 in public institutions) in March 1991 to $877,000 in private
institutions ($729,000 in public ones) in August 1999, and spreads have declined significantly.
Since the Financial Institutions Law took effect, 16 banks have been restructured, and in only 2
of these restructurings did the depositors suffer losses. The success of the reform is highlighted
by the fact that although the Asian, Russian, and Brazilian crises increased Argentina's country
risk, caused dramatic declines in asset prices, and precipitated a recession, they did not
precipitate either international or domestic capital flight from the banking system. (Pou, 2000)

Ongoing reforms
The reforms of the 1990s were extremely successful in bringing the economy back to a
sustained growth path. GDP growth averaged 4.7% in 1991-99 notwithstanding two recessions.
During 1992-99, the value of exports increased by 8.2% a year on average, and the volume by
9.4% a year, while employment increased by 12%. (Pou, 2000)
Two areas in which reforms are continuing were the public sector deficit at the national
and provincial levels and the sharing of revenues between the national government and the
provinces. Although the public sector deficit grew during 1999, in part because of the recession,
congress has recently passed three measures to address this problem. The Law of Fiscal
Responsibility mandates a reduction in the federal deficit over the next three years until a
balanced budget is reached in 2003. A tax reform law increased the tax rates on incomes,
personal net worth, and a number of consumer products. The third measure is related to
financing provincial governments that continue to depend on taxes raised at the federal level,
while the municipalities depend on taxes raised at the provincial level. A system needs to be
developed that improves the balance, at each level of government, between the political benefits
of public services and the political costs of raising revenues. A step has been taken in this
direction with a recent agreement that established a ceiling on future federal revenues to be
shared with the provinces. Federal tax revenues that exceed this ceiling will all go to the federal
government. (Pou, 2000)
The labor market was deeply affected by the structural reforms of the 1990s. Argentina's
unemployment rate remained high (14.3% in 1999), especially by historical standards (it
averaged 4-5% during the 1980s and 7.3% in 1990). Following the opening of the economy and
the privatization of public sector firms, capital imports increased dramatically and new capital-

intensive technologies were introduced. The rigidities of labor market institutions (such as
centralized bargaining, high severance costs, and high wage taxes) impeded the necessary
adjustments in labor demand. On the one hand, although some progress has been made in labor
market flexibility and wage tax reductions, the remaining rigidities limit the ability of labor
markets to adapt to the restructuring of the industrial sector. On the other hand, the introduction
of new technologies implies changes in the labor force skills that will be in demand. Education
will play a crucial role in helping the labor force adapt to changes in labor demand. (Pou, 2000)
Today Argentina currently boasts a labor force of 17.05 million people or which 5%
belong to the agriculture, 23% Industry, and 72% in the services secure as estimated in 2009.
The average unemployment rate for 2012 was 7.2% with an estimate of 30% below the poverty
line in 2010. (CIA World Factbook, 2013)
Some concerns remain
Although much progress has been made in establishing the basis for a sound financial
system, there are a number of ongoing concerns. Argentina's country risk premium remains high
and variable. The financial sector is still small by international standards and is expected to
continue growing more rapidly than output; thus, care needs to be taken to maintain the stability
of the system. Financial innovation, if too rapid, can weaken the regulatory framework and
requires continuous monitoring. Small and medium-sized companies are the main sources of
employment and output, and more needs to be done to improve their access to the system's
financial resources without impairing loan portfolio quality. The expected growth of the financial
system, as well as administrative and technological innovation, will further reduce
intermediation spreads and help Argentina achieve its objectives. (Pou, 2000)

As of July 2013 Argentina has disputed U.S. claims over defaulted payments tied to
investments in Hedge Funds (Vulture Funds) investments. Argentina has appealed a lower court
ruling that bars payments to the investors in restructured Argentine debt unless holders of the
nation’s defaulted bonds, led by billionaire Paul Singer’s Elliott Management Corp. and its NML
Capital Ltd. unit, are also paid. (MercoPress. South Atlantic News Agency, 2013)
Argentina was forced to restructured 93% of its debt due to the moratorium of almost
$100 billion dollars declared in the middle of the 2001 crisis, but a remnant of 7% of creditor and
bondholders that took the country to trial, in order to recover 100% of capital plus interest, in one
single payment without refinancing. The German courts rejected a petition from bondholders
related to the Argentine debt 'default', using a similar interpretation based in the 'pari passu'
clause that hedge funds pursued in New York which was accepted by Judge Thomas Griesa.
(German courts reject petition from hedge fund holders of Argentine debt, 2013) Britian and
other many other countries have publically stated that they would not support any more IMF
World Bank loans as a result of the current status.
The Argentine president made the admission during her speech to her peers in support of
Mercosur unity and condemning the attitude of four European countries that denied their air
space to Bolivian president Evo Morales who was forced to land in Vienna and wait thirteen
hours.
“I am going to be extremely sincere. I cannot fly to some countries in Europe with my
presidential airplane, because there might be a judge who will dispose a seizure order after a
‘vulture fund’ request”, explained Fernández de Kirchner.

“If I am aboard, I don't know if they won't seize me as well,” she said. “There are new
forms of colonialism, more subtle than those practiced centuries ago.” (Cristina Fernandez
admits few European countries are a flying option for her, 2013)
After joking that probably they would keep the plane and let her go “To the
disappointment of the opposition in my country”, Cristina Fernandez insisted that “we still see
people that want to disunite us, they want to divide us, and so they can take our natural
resources”. (Cristina Fernandez admits few European countries are a flying option for her, 2013)
Gross Domestic Product History
The GDP purchasing power in 2012 was estimated at $755.3 billion with an official
estimated exchange rate of $475 billion. At the beginning of 2012, Argentina experienced a
GDP real growth rate of 1.9%, while in 2011 the estimated growth rate was 8.9% and in 2012 the
estimate was 9.2%. The GDP per capita in is estimated for 2012 $18,400; 2011 $18,300, and
2010 $17,000. The 2012 GDP consisted of the following sectors; agriculture 9.1%, Industry
30.5%, and the service sector with 60.4% (CIA World Factbook, 2013)
Capital investment represents 21.8% of the GDP as estimated in 2012 with an annual
budget of $121.3 Billion in revenues with expenditures of $133.6 billion. This leaves a net
shortage of 12.3 billion. As a result the country has defaulted on a number of foreign loans.
Current public debt is 43.6% of the GDP (2012 est.) As of 2012 the current inflation rate is
25.3% and the average Commercial prime lending rate is 14.06% as of 2012. (CIA World
Factbook, 2013) 25.5% of the GDP in 2012 were attributed to income generated by taxes.
Inflation

“Argentina’s June inflation according to the ‘congressional index’ was 1.93%, and
23.78% in the last twelve months, it was announced on Thursday by the opposition members
from the Lower House Freedom of Speech committee.”
“Current policies implemented by Cristina Fernandez every day they pinch into
Argentine citizens’ pockets through inflation and the income tax floor which remains particularly
low and nets most wage earners”, claimed member of Congress Patricia Bullrich (Argentina:
private estimates’ June inflation reached 1.93% and 23.78% in twelve months, 2013)
“Lawmaker Ricardo Gil Lavedra said that the inflation data “can only mean suffering and
sadness for those unemployed, with fiscal problems and for who have to face soaring prices for
health and education services” and then blasted Domestic Commerce Secretary Guillermo
Moreno “whose hooligan and bully tactics have only confirmed the failure of this government in
containing prices”.
“Finally Eduardo Amadeo, another opposition lawmaker said he hoped that President
Cristina Fernandez makes decisions that favor the people and not Moreno. He admitted that after
a few months in which prices were frozen and seemed to ‘plateau’ they have again started to
climb steeply.”
“Private economic consultants Ferreres said that inflation in Argentina climbs in the
context of “an increasing budget fiscal deficit and with the country using (Central bank) reserves
to meet payments which means other strong alternatives will have to be found by the
government”
“Every month Argentina loses a billion dollars in reserves, 12 billion in a year, and this
will certainly complicate the economy by mid-2015”, anticipated Ferreres. However he
anticipates the government will continue “with the current policy until the end of its mandate in

2015, hoping to generate sufficient confidence among consumers and investors to paddle along.
(Argentina: private estimates’ June inflation reached 1.93% and 23.78% in twelve months, 2013)
Another financial indicator was the recent statements made from the Argentina Domestic
Commerce Secretary, Guillermo Moreno has given mills and exporters until Friday to normalize
the wheat market which has been under stress with bread prices doubling in the last month, and
farmers’ complaining about the worst harvest in decades because of government policies. The
Argentine Wheat Association (Argentrigo) criticized the policies of the federal government for
the grain market “over the last seven years.” The association said that the “interference in the
commercial sector” led to “a limited stock.” (Argentina prepares to confiscate wheat stocks to
ensure bread supply at ‘normal prices’, 2013)
Government Foreign Investment
“Argentina will offer energy companies incentives if they invest 1 billion dollars or more
over a five-year period as the country struggles to lift output and pare fuel imports a year after
seizing a majority stake at YPF from Spain’s Repsol.”
“Concern over Argentina's erratic policy on foreign investments is pushing regional
business entrepreneurs toward caution and or keeping them away from South America’s second
largest economy. Argentina nationalized Spanish oil major Repsol's majority stake in local
energy giant YPF last year, a move that triggered alarm in the international investor community.”
“The considerable drop in the parallel market contrary to forecast, can be attributed to the
strong campaign by the government of President Cristina Fernandez, particularly in anticipation
of the ‘tax amnesty’ bill or ‘whitewashing bill’ that is expected to become effective next week

following Congressional approval. (Argentina dollar markets waiting for implementation of the
‘whitewashing bill’, 2013)
Argentina's Membership in International Organizations
Argentina and the U.S. are active participants in many of the same international
organizations and forums, including the United Nations, Organization of American States,
International Atomic Energy Agency, the G-20, and the World Trade Organization. Argentina
joined the UN Security Council as a non-permanent member in January 2013.
Market Challenges
The primary market challenges for Argentina will arise from the slowing economic
growth, as well as the restrictions on import and foreign exchange restrictions imposed in late
2011 and early 2012. Argentine’s economy is uncertain in 2013 due to various factors including
lower commodity prices which is trending downward from historic highs. Economic disruptions
caused by the foreign exchange and import restrictions. GDP growth slowed markedly in 2012 to
1.9% from 8.9% in 2011, according to official statistics. However, the IMF and some private
analysts believe the official statistics may be inflated. Strong commodity prices and automobile
exports to Brazil contributed to Argentina’s rapid growth over the past several years. “Non-automatic
import licenses (NAILs) were ended late last year for all but a few products, but a
regime erected by the GOA February 2012 whereby all importers are required to request
approval from the Argentine Tax and Customs Authority (AFIP) prior to making each purchase
for import from abroad is still in effect and constitutes import licensing in all but name. This
system is a subject of WTO complaint by the U.S. and other countries against Argentina.

Moreover, the GOA’s policy of tying the percentage age of import application approvals to
changes in the trade balance and foreign exchange levels has added to the uncertainty. Sustained
inflation generally estimated at 25+% has raised the unit labor costs and resulted in a more
challenging business environment, especially as the real effective exchange rate has appreciated.
Limits on profit remittances have also discouraged new investment in Argentina. Lack of
transparency and a public comment period for new regulations adds to business uncertainty, as
does the lack of a credible national statistics agency. As a result of the aforementioned
government policies, many local and international firms based in Argentina have put on hold
plans for expansion or the adoption of new product lines until the economic climate and
regulatory regime become more clear, consistent and predictable.” (Doing Business in
Argentenia, 2013)
Market Opportunities
This Country Commercial Guide presents information for companies to determine the
market potential of the Argentine market. “This year’s top market sectors described in Chapter
Four are: Agricultural Machinery and Parts; Electronic Security Equipment; Food Processing
Equipment; Information and Communication Technology (ICT); Medical Equipment,
Instruments, and Supplies; Mining Machinery and Equipment; Renewable Energy Equipment,
and Travel & Tourism to the U.S. In the agribusiness sector bull semen, food ingredients, and
planting seeds are key areas with high potential.” (Doing Business in Argentenia, 2013)
If a company choose to do business in Argentina, it is “encouraged to work with the U.S.
Embassy to explore opportunities in all sectors. Services offered to American firms in Argentina
include help with market-entry or expansion strategies and advocacy for tender bid and policy

obstacles. The U.S. Embassy also stands ready to help U.S. companies understand and address
market challenges.” (Doing Business in Argentenia, 2013)
“In addition to the services of the U.S. Embassy, the U.S. Export-Import Bank is open for
short-and medium-term financing for U.S. exports to private sector clients in Argentina, but not
for entities tied to the GOA. The Overseas Private Investment Corporation (OPIC) offers
assistance to U.S. private investors in the form of political risk insurance, as well as loans and
loan guarantees for their direct investment in Argentina.” (Doing Business in Argentenia, 2013)
Market Entry Strategy
 Marketing U.S. products and services requires a high level of research, preparation, and
involvement.
 Companies intending to export to Argentina must ensure that their customers fulfill all
import requirements. Companies should contact the U.S. Commercial Service in
Argentina for advice.
 U.S. companies exporting to Argentina generally market products and services through
local agents, representatives and distributors.
 Close personal relationships are important to develop.
 U.S. companies need to consider Argentina’s unique economic, demographic, and
cultural characteristics that make it unique from other Latin American countries.
 The Argentine "typical customer" is difficult to predict due to new purchasing habits and
to the variability of income distribution and demography.

 Promotion is an important component of the marketing mix. Visiting local or trade show
regional trade shows in Argentina, and to visit trade shows in the U.S. frequented by
Argentine buyers.
 To protect intellectual property companies must engage qualified local professionals and
lawyers in contract negotiations. (Doing Business in Argentenia, 2013)
 The U.S. Embassy Commercial Service in Argentina provides a wide range of services to
help U.S. companies enter and expand operations in the country.

Economic Freedom Index
(Argentina's Economic Freedom Score , 2013)
Background:
Under President Cristina Fernández de Kirchner, respect for markets and the rule of law
has deteriorated and corruption has boomed. Mrs. Kirchner has strengthened ties to regional
strongmen such as Venezuela’s Hugo Chávez and the Castro brothers in Cuba and threatened the
right of self-determination on the U.K.’s Falkland Islands. The government’s seizure of nearly
$30 billion in private pension funds in 2008, failure to settle with creditors since the 2002
default, and expropriation of Spanish oil company Repsol’s YPF subsidiary in 2012 have
severely damaged the country’s investment profile. The end of central bank independence has
also disturbed investors. Although the economy has benefited from booming commodity prices,

Mrs. Kirchner’s pursuit of expansionary fiscal and monetary policies has fueled already high
inflation. (Argentina's Economic Freedom Score, 2013)
Argentina’s economic freedom score is 46.7, making its economy the 160th freest in the
2013 Index. Its overall score has decreased by 1.3 points. With lower scores on six of the 10
economic freedoms including property rights and government spending, Argentina now ranks
27th out of 29 countries in the South and Central America/Caribbean region, and its overall score
is far below the regional and world averages. (Argentina's Economic Freedom Score , 2013)
The foundations of economic freedom in Argentina are increasingly fragile, severely
hampered by structural and institutional problems caused by growing government intrusion into
the marketplace. The judicial system has become more vulnerable to political interference, and
corruption is prevalent. (Argentina's Economic Freedom Score , 2013)
The policy mix of harsh capital controls, restrictions on imports and a series of
nationalizations have severely undercut economic freedom. Regulatory pressure on the private
sector has continued to rise, with populist spending measures and price controls further distorting
markets. The central bank’s independence was essentially destroyed in 2012 when its charter was
changed to allow the government unlimited use of the bank’s reserves to pay its debts. Efforts to
reform the rigid labor market have long been stalled. (Argentina's Economic Freedom Score ,
2013)

(Argentina's Economic Freedom Score, 2013)
Rule of Law
 Property Rights 15.0
 Freedom From Corruption 30.0
The courts are slow, inefficient, and vulnerable to corruption and executive branch influence.
Though the crime rate is fairly low, corruption is ingrained in the upper echelons of leadership
and the police. Typical court cases can take up to 14 years to be heard. Patent protection is lax,
and pirated copies of copyrighted products are widely available. The government manipulates
official statistics. In 2011, harsh restrictions were imposed on foreign-currency transactions to
protect dwindling dollar reserves. In 2012, the state expropriated the country’s largest privately
owned oil company. (Argentina's Economic Freedom Score , 2013)

Limited Government
 Government Spending 52.1
 Fiscal Freedom 64.3
The top individual and corporate tax rates remain at 35%. Other taxes include a value-added
tax (VAT), a wealth tax, and a tax on financial transactions. The overall tax burden now equals
33.5% of total domestic income. Government spending has risen to 40% of GDP. Public debt
remains at around 44% of domestic income. The budget deficit has doubled over the past year
due to pension nationalization and increased subsidies. (Argentina's Economic Freedom Score ,
2013)
Regulatory Efficiency
 Business Freedom 60.1
 Labor Freedom 47.4
 Monetary Freedom 60.4
The business environment has deteriorated as bureaucratic interference has increasingly
undermined efficiency and productivity growth. The labor market remains rigidly controlled.
The government regulates prices of electricity, water, and retail-level gas distribution, pressuring

companies to fix prices and wages. Official government statistics on inflation are not
trustworthy. (Argentina's Economic Freedom Score , 2013)
Open Markets
 Trade Freedom 67.6
 Investment Freedom 40.0
 Financial Freedom 30.0
A variety of restrictive non-tariff barriers reduce trade freedom. Hostility to foreign
investment persists, and through an emergency decree to bypass Congress the state has increased
its voting rights in partially government-owned companies. The financial system remains
hobbled by state interference and uncertainty about the direction of economic policies. State-owned
banks play a dominant role, reducing competition in the sector. (Argentina's Economic
Freedom Score , 2013)

References
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Argentina prepares to confiscate wheat stocks to ensure bread supply at ‘normal prices’. (2013, 07 05).
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bread-supply-at-normal-prices
Argentina: private estimates’ June inflation reached 1.93% and 23.78% in twelve months. (2013, 07 12).
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on-foreign-investments-keeping-businesses-away
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