Economy of Argentina

Debt restructuring and the role of the IMF

A significant share of the blame for the crisis has been placed on the IMF. In a speech before the United Nations General Assembly in 2004, President Kirchner asked for "a structural redesign of the International Monetary Fund", which has changed "from being a lender for development to a creditor demanding privileges".

Shortly after, at the meeting of the IMF and the World Bank, leaders of the IMF, the European Union, the Group of Seven industrialised nations, and the Institute of International Finance (IIF), warned Kirchner that Argentina must come to a debt-restructuring agreement, increase its primary budget surplus to pay more debt, and impose "structural reforms" to regain the trust of the world financial community.

The debt restructuring process was long and complex. Argentina offered a steep discount on its obligations (approximately 70%) and finally settled the matter with over 76% of its defaulted creditors (the default did not include the IMF, which has continued to be paid in due time).

In December 2005, Kirchner decided to liquidate the Argentine debt to the IMF in a single payment, without refinancing, for a total of $9,810 million. The payment was partly financed by Venezuela, who bought Argentine bonds for $1,600 million.

In May 2006, Argentina reentered international debt markets selling US$ 500 million of its Bonar V five year dollar denominated bonds, with a yield of 8.36%, mostly to foreign banks and Moody's boosted Argentina's debt rating to B from B-. However, the reliance of Argentina on Venezuela for a large portion of its financing needs has not been well received in Wall Street circles. On July 18, 2006 Goldman Sachs Emerging Markets Research noted: "Instead of trying to restore its credibility with the broad capital markets, the government keeps on relying on Venezuela as its main credit supplier" (as quoted in the Wall Street Journal on July 28, 2006). The total amount of Argentina's debt held by Venezuela is estimated at around US$ 4 billion.

Economic expansion

With a high rated dollar in comparison with the local currency that allowed to produce goods with competitive prices in the international market, some industries in Argentina started re-flourishing after the crisis, mainly the construction (40% increase in 2005), textiles, food and car parts. The increment in the volume of exportations and their associated taxes also provided the country a positive balance of trade, cash flow and reserves.

According to the Heritage Foundation, a Washington-based conservative think tank, the state's role in the economy has expanded since the start of the Kirchner administration, primarily through price fixing in some industries and the creation of a state-owned airline and a state-owned energy company. The Heritage Foundation assigns Argentina a score of 3.3 (mostly unfree) in economic freedom on a scale of 1 to 5 of, which places the country in the 109th position of the 157 evaluated at the Index of Economic Freedom.

Foreign trade

Argentine exports are mainly of the agricultural type. Soy products (soybeans, vegetable oil, etc.) account for more than one quarter of the total exports. Cereals (mostly maize and wheat) make up less than one tenth. The petroleum-related complex takes up roughly another 20% of the total. Next come the automotive complex and the bovine products (beef, leather and milk), each about 6% of the total exports, and the smaller siderurgical industry.

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