Macroeconomics of Argentina - Research Paper Example

Macroeconomics of Argentina Introduction The collapse of Argentina’s economy in December 2001 appears to be one of the most emblematic evidences that indicated the failure of neoliberalism among developing countries to provide equitable and sustainable economic growth. Traditionally, Argentina was one of the countries in Latin America that had better social indicators. Compared to the other nations in this region, Argentina’s inequality and poverty levels were very low. The country had widespread labor protection policies and the unemployment rate was low1. Scholarly research and other academic studies show that the socioeconomic status of Argentina has been deteriorating since 1970s with the sharp increase in poverty levels being the most dramatic sign of this deterioration. However, when the last deep crisis of 2001/02 ended, the economy started showing signs of recovery as the major social indicators continued improving significantly. This paper will seek to research about the microeconomics of Argentina by analyzing the country’s economic environment, which involves the monetary and fiscal policy, growth rates, unemployment rates, inflation, and currency exchanges. Unemployment rate In order to understand the macroeconomics of Argentina better, it is imperative to look at the factors that contributed to the advent shifts in this country’s labor market. Argentina formulated two macroeconomic policy frameworks, namely the ‘Convertibility Plan’ and the ‘stable and competitive real exchange rate’. The setting of these two policy programs sought to empower the economic environment of this country but as many scholars put down their researches into writing, the programs resulted to mixed approaches towards employment, fiscal policy, inflation, and currency exchange. Ideally, when the setting of the convertibility plan came into being, the ideal pillar of this framework inspired market friendly approach to legal fixation of nominal exchange rates2. As such, this macro policy acted as an anchor to price stabilization. Consequently, the labor market became unfavorable as it depicted negative readings. The country’s Gross Domestic Product continued growing at a vast rate until sometimes in 1995 when the Tequila effect hit the country’s economy. The Convertibility regime of 2001-2002 is the factor that separates the Convertibility Plan and the SCRER due to its deep crisis. Fact-findings show that the macroeconomics of Argentina indicate that the social indicators and labor market underwent a vigorous, additional, and abrupt worsening as demonstrated by the stiff fall in the employment rate. Nevertheless, documented evidence shows that the post crisis period experienced a series of extended reversion of whatever was observed in the nineties. In this case, the employment sector recovered at a vast pace to indicate that both employment and underemployment rates reduced substantially3. Additionally, the distribution of income between and amongst Argentines improved considerably. These early stages of the early twentieth century witnessed unprecedented employment growth in this country with many job opportunities being recorded in different agencies particularly in the manufacturing sector. In contrast, from late 2006, a different phase emerged whereby the SCRER setting appeared to fade away. The coherence of this policy setting started to weaken progressively. The 2007/2008 economic recession had a negative and relatively limited effect on the SCRER policy setting in that, it led to the country’s economy to a short-lived recession. According to the second quarter survey of 2012 on this country’s macroeconomics, Argentina’s unemployment rate was 7.2 percent. History documents the number of people actively seeking jobs in Argentina at an average rate of 10.4 percent. Additional researches carried out in 2002 records the highest rate of unemployment in Argentina at 20.8 percent, which happens to be the country’s all-time high level of unemployment within this country4. In December 2011, Argentina recorded its rate of unemployment at 6.7 percent, which was the lowest level in her history of unemployment. With reference to these findings regarding the unemployment rate in Argentina, it is observable that the last twelve years have played an active role in providing substantial information, which is cognitive for wooing investors to invest in this country’s economy. Generally, investors seek to venture into markets where labor is available and cheap at the same time5. Indeed, this is a congruent factor as it aids in projecting the kind of profits that an investor can amass upon investing in a particular field. This shows that if the level of unemployment was at its lowest in 2011 in this country’s unemployment history, it is rather tricky to invest in this nation, as labor availability may be problematic. This may appear so because the percentage of people seeking employment actively may be low. Currency exchanges Some economists opine that, nowadays, the Argentine economy is the same as that of other economies of nations in the Latin America region. They find it common because of the fact that Argentines take a less keen interest in their currency. Observations show that econometrics studying the Argentine economy considers this economy as less developed because currency woos. Argentines change their currency the same way they change their presidents. Nonetheless, this aspect has changed and Argentina’s currency is strongly gaining grip to the extent that it is considerable for exchange and valuable for domestic use6. The evolution of exchange rate along with its history shows that policies that tended to moderate imbalances between foreign accounts and domestic accounts originated from substantial fluctuations of the exchange rate that tended to overvaluation the opening up of the country’s economy. It is worth noting that, conversely to what took place in the late 1970s, the evolution of consumer prices in the 2002 to 2008 period has increased to outstand that of wholesale prices. This is supposedly due to the increased cost of services. In the former years before 2001 and 2002 crisis, the price indexes differed which explained the rise in imports and the subsequent reasonable level maintained by exports. This shows that importers are affected by currency appreciation more than exporters. Attributively, this aspect follows the facet of Brazil and the other Mercosur countries’ adoption of policies that produce currency appreciation. Thus, the future of currency exchange in Argentina will depend highly on simultaneous adjustments between and among these countries. Statistically, economists usually link exchanges rates that act in favor of exports to higher international rates of interests7. this means that such rates of exchange sterilizes foreign savings with reference to domestic investment potential and eases the flight of domestic capitals which in turn makes the market favorable for both domestic and international investment. Inflation in Argentina The economic context described by many financial analysts depicts the inflation rate of Argentina as being unsustainable. Years before 2002 portray inflation in Argentina as fluctuating and considerably high at levels between 380 percent and 3000 percent annually. However, the rate of inflation in this nation recorded at its lowest before the Tequila effect at 4 percent a year and almost at zero a year after this effect. In 2007 when the economy was experiencing stiff crisis, inflation brought in ferocious intersectional struggle of distribution and a permanent excess in the public expenditure, which emanated from the services related to foreign and domestic debt. As noted, this situation impaired Argentines’ real wages and resulted to regressive income distribution8. Through currency convertibility, the level of inflation dropped drastically but remains high with regard to currency exchange rate, which overvalued local currency since the beginning. In August 2012, Argentina’s rate of inflation recorded at 10 percent, which is a considerable percentage, compared to other Latin American Countries and its average rate, which is 209.5 percent. With regard to CPI measurements, the prices of products and the level of purchasing of power among Argentines are favorable for investments. Imperatively, the recurrent economic and political turmoil throughout the larger part of the twentieth century shaped Argentina’s political economy. Economically, the appropriate role of the state was the center of debate while market facilitated the pursuit of development. Politically, crises that resulted from misunderstandings between the conservative elites and certain popular organizations led to the intermittent periods of unstable democracy coupled with authoritarian rule9. Preferably, investing in the Argentine market is considerable but this choice will depend highly on the prospects of the investor. Growth rates In the rather preferable second quarter of 2012, the Argentine Gross Domestic Product contracted 0.80 percent compared to the previous quarter. The average growth of Argentina’s GDP is 0.9 percent while her highest is 3.7 percent, which was last recorded in March 2003. On the other side, Argentina recorded the lowest GDP in December 2001 at -5.7 percent. This indicates that the changes in value of goods and services produced by this economy depict a sustainable economy with research findings indicating that it is the third largest economy in Latin America. Furthermore, Argentina has a large educated population with abundant natural resources suitable for both domestic and foreign investment. Apart from that, Argentina has an export-oriented sector of agriculture as well as a relatively diversified base of industrial activities10. In this except, it is noteworthy to indicate that global trends and domestic instability led to Argentina’s fall from its worthwhile position as the 10th wealthiest nation per capita during the 1913 measurement to number 47 in 2008 worldwide. Conclusion In conclusion, the emergence and the subsequent introduction of a brand new economic nationalism after the 2002 crisis marked an end to an era fashioned by the so-called neoliberalism to provide a distinguished and sustained growth with equity. This era paved way for a different form of experience, which led to the development of alternative economic and political governance. According to experts, Neodearrollismo is generally an ambitious strategy, if sometimes ad-hoc and vague, that encourages growth, manages it with reference to the macroeconomic prudence, re-industrialization, and moderate state intervention11. To some extent, this strategy represents a new approach of social inclusion that bases economically on the revival of domestic markets led by the state. As of now, it is possible to say that a new paradigm of a stable political governance and economic simulation is in the making presenting Argentina as a re-institutionalized market for investment and economic growth. Bibliography Baer, Werner, and David V. Fleischer. The Economies of Argentina and Brazil: A Comparative Perspective. Cheltenham: Edward Elgar Publishing, 2011. Cherif, Reda, and Fuad Hasanov. The Volatility Trap: Precautionary Saving, Investment, and Aggregate Risk. London: International Monetary Fund, 2012. Collyns, Charles, G. Russell Kincaid, and International Monetary Fund. Managing Financial Crises: Recent Experience and Lessons for Latin America. London: International Monetary Fund, 2003. Datz, Giselle. What Life After Default? Sovereign Debt Restructuring and Credit Access in Argentina. Oklahoma: ProQuest, 2007. Desai, Padma. Financial Crisis, Contagion, and Containment: From Asia to Argentina. Princeton: Princeton University Press, 2003. Everson, Robert E., and Prabhu Pingali. Handbook of Agricultural Economics: Agricultural Development: Farm Policies and Regional Development. Oxford: Elsevier, 2009. Kotlikoff, Laurence, J. Generational Policy. Cambridge, MA: MIT Press, 2003. Martin, Maximilian. Globalization, Macroeconomic Stabilization, And the Construction of Social Reality: An Essay in Interpretive Political Economy. Berlin: LIT Verlag Münster, 2004. Mundlak, Yair. Agriculture and Economic Growth: Theory and Measurement. Harvard: Harvard University Press, 2003. Solimano, Andres. Development Cycles, Political Regimes and International Migration: Argentina in the Twentieth Century. Washington, D.C: United Nations Publications, 2003. Read More