Cra argentina - copy

Global Business Environment/ Session: 1

CRA Assessment- Argentina

Submitted by : Bhaskar Tripathi

Country Risk Analysis - Argentina


Contents

Overview

Political analysis

Economy analysis

Balance of Payment

Risk analysis

Strengths & Weaknesses


Overview

• 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..)

• 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

Argentina’s population and culture are heavily shaped by immigrants from throughout Europe, but most particularly Italy and Spain, which provided the largest 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 was a severe economic crisis in 2001-02 that led to violent public protests and the resignation of several interim presidents. Successful negotiations with the IMF allowed Argentina to sidestep some fiscal discipline measures normally imposed in such circumstances. Since 2003, the government's 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 for decades.


Political Analysis - Argentina


Politics and government of Argentina

• 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

• 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

9% 5%

1% 3%

19%

12%

2% 1% 2%

18%

11%

1% 1%

1%

3%

10%

Seats by Party (2011 elections)

Justicialist Party

Front for Victory

Justicialist Front

Others

Total Kirchnerism (Left-wing peronism)

Civic and Social Agreement

Radical Civic Union

Front for Everyone

Others

Total Civic and Social Agreement (Radicalism center-left)

Republican Proposal (Liberal-conservatism and

President and vice president elected on the same ticket by popular vote for four-year terms.

Legislative power is exercised by the National Congress, which consists of the Chamber of Deputies and the Senate

The Chamber of Deputies is composed of 257 members directly elected for a four-year term of office; nevertheless, half the seats are renewed every two years. Senate's 72 members are directly elected for a six-year term of office, but Senate elections are held every two years for one-third of the seats.

Ever since 2003 elections and the economic policies laid by Kirchner Govt, Argentina has ended its economic crisis, got fiscal and trade surpluses and paid off debts with the IMF and nationalized some previously privatized enterprises. The last 8 years have embarked a much needed present political stability in Argentina.


Political Analysis

Strengths

Weakness

Since 1984, the democratic framework proved durable through severe economic crisis, despite Argentina’s long history of 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 from economic orthodoxy. Combined with the impressive economic growth and fiscal stability in Argentina since last 8 years, investors are likely to maintain or boost their stake in Argentina.

For long term, standpoint, it is unclear what polices will emerge post-election given a history of political instability in Argentina. Argentina is highly regulated economy Argentina's ever rising inflation rate (estimates to be 12% in 2011 and uncertainties about electricity supply are limiting government's ability to implement necessary policy adjustments. This, in turn, might threaten Argentina's economic recovery 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 International's 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

Argentina Economy - Strengths/Weakness and Risks


Economic overview

Summary : The economy of Argentina is third-largest in Latin America's, with a high quality of life and GDP per capita.An upper middle-income economy, Argentina has a firm foundation for future growth for its market size, the levels of 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, Argentina's historical economic performance has been very uneven, in which high economic growth alternated with severe recessions, particularly during the late twentieth century, and income maldistribution and poverty increased. Early in the twentieth century it was one of the richest countries in the world and the richest in the Southern hemisphere, though it is now an upper-middle income country.

Stagflation : Record foreign debt interest payments, tax evasion and capital flight resulted in a balance of payments crisis 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 had defaulted on its debt, its GDP had shrunk, unemployment reached 25% and the peso had depreciated 70% after being devalued and floated.A rgentine debt restructuring offers in 2005 and 2010 resumed payments on the majority of its almost $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 largely maintained, creating millions of jobs and encouraging internal consumption. The socio-economic situation has been steadily 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 economic growth resumed, and GDP expanded by around 9% in both 2010 and 2011


Argentine Economic Structure Parameters


Argentina Economy - Basic Indicators

Expected growth in 2011 is well above the average of the past ten years.


Argentina Economy - Basic Indicators


Argentina - Country Risk Assesment


Credit Rating

Standard & Poor's Ratings: AAA: The best quality borrowers, reliable and stable AA: Quality borrowers, a bit higher risk than AAA A: Economic situation can affect finance BBB: Medium class borrowers, which are satisfactory at the moment BB: More prone to changes in the economy B: Financial situation varies noticeably

Latin America’s Credit Rating Comparison


Argentina – Balance of Payment

Balance of payment has improved since 1998 signifying improved cash flow.


Risk Analysis

Argentina– Risk Strengths/ Weaknesses and Risk Analysis


Risk Assesment - Strengths

Relatively 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 attract foreign 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 both 2010 and 2011 which will build investor confidence.

Political stability seems to have returned to Argentina and with people’s needs getting satiated by the state there are low chances of instability.

Falling unemployment Rate – 24% (2002) to 6.7% (2012) [source : tradingeconomics.com].This will

Strengths


Risk Assesment - Weaknesses

Although restructuring of its bond debt has allowed Argentina to sharply reduce its foreign debt, it still has very high debt ratios and substantial financing needs.In addition, it cannot remain isolated by 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 of Argentina 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.

Weakness

http://www.investmentpostcards.com/2011/11/17/argentina-balance-of-payments-crunch/

http://www.investmentpostcards.com/2011/11/17/argentina-balance-of-payments-crunch/


Overall Risk Assessment

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 to volatile growth over an extended period, oscillating between boom and bust, despite a rich gift of agricultural resources. Overall Argentina is projected to ameliorate its power in Latin America with a positive investor mood. Change of approach of the current government is needed to overcome the lacks access to international finance and prevent financial isolation from the world.

Economic Stability

Social & Political stability Economic growth prospects Domestic financial stability

External Liquidity Inflation Balance Of Payment (BOP)


Data Sources

Central 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

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Education

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