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ARGENTINA’S TRADE POLICY
Martín Redrado
Secretary of International Trade
ARGENTINE REPUBLIC
• In the 90s, Argentina started along a road of ambitious
reforms: openness, privatization, State reform,
deregulation.
• However, 10 years after the beginning of that process,
the results are poor: a 4-year-long recession, 20%
unemployment and 45% of the population living below
the poverty line.
• Regional Risks: the pendulum reaction
Thinking that everything that was done was a mistake
and beginning a counter-reform (closing the
economy, increasing State ownership, market
regulations)
• Quite the contrary, some unfinished reforms should
be completed (Public Sector reform) and new reforms
should be encouraged, tax reforms and social
expenditures, among others
CAUSES OF THE CRISIS
• Internal:
 Lack of systemic competitiveness: structural deficit in
the current account
 Permanent fiscal deficit: increase in the public debt
• External:
 Competitive devaluations in emerging markets (Asia,
Latin America)
 Reversion of capital flows to developing countries
INTERNAL CAUSES:
EVOLUTION OF PUBLIC DEBT
160,000
140,000
120,000
100,000
80,000
60,000
Source: Ministry of Economy
EXTERNAL CAUSES
FINANCIAL FLOWS TO DEVELOPING COUNTRIES
180000
Millons of Dollars
160000
140000
120000
100000
80000
60000
40000
20000
0
1993-97
Source: Institute of International Finance
1998-01
IN EARLY 2001 THE TERMINAL STAGE OF THE
CRISIS STARTED:
 Recession with a procyclic tax system led to fiscal insolvency
 There was no room for the application of a countercyclic fiscal
policy
 The constant rise in country risk exacerbated the financial
asphyxia
 Markets considered the fiscal deficit as unsustainable
 Any financial engineering (bail-out I and II, mega-swap) proved
inadequate
 There was consensus on the existance of an inescapable
exchange rate trap
 Economic policy fluctuated between facilitating a deflationary
adjustment and an expansionary fiscal policy
 Partial Fiscal incentives plans collided with the “zero deficit
policy”
This scenario triggered the trauma that led to:
- Devaluation
- Default
- Pesification and the freeze on deposits “corralito”
As the result of the crisis, we now have:
 Institutions that have successfully overcome the political crisis
 A new exchange regime under way
 A real exchange rate closer to the break even point
 A context of uncertainty that will slowly fade away.
What is the challenge?
1) To travel the best path, which is not necessarily the easiest or
most popular one (populism)
2) To avoid the worst of Argentine mistakes: the economic
pendulum
What does this mean?
- To correct and improve, without destroying all that has been done
- If economic reforms have had defects, they must be improved
WHAT IS THE WAY OUT?
FISCAL SOLVENCY AND AN EXPORT-ORIENTED
MODEL
Systemic Competitiveness + Openness 
DEVELOPMENT
• Competitiveness is the axis of Argentina´s New Economic Program
• Openness is the guiding principle of Argentina´s New Trade Policy
• Openness and Competitiveness enhance each other and must be
simultaneous
SYSTEMIC COMPETITIVENESS
Requires a New Generation of Reforms
• State Reform
• Making Public Social Expenditure more efficient.
• Tax Reform
• New Fiscal Regime between the Federal Government
and the Provinces
FOCUSING SOCIAL EXPENDITURE
Distribution of Students in the State Education System
Primary School
4% Wealthier quintile
7%
13%
52%
Poorer quintile
24%
Poorer 20%
Quintile II
Quintile III
Quintile IV
Wealthier 20%
Universities
Wealthier quintile
29%
6%
Poorer quintile
15%
20%
30%
Poorer 20%
Quintile II Quintile III Quintile IV Wealthier 20%
THE PROBLEM IS NOT RESOURCES... BUT
EFFICIENCY
Variation in Public Social Spending
(%)
(in percentages)
40
35
30
25
20
15
10
5
0
Total
Education
Variation% 2000/93
Health
Variation% 2000/96
MISMATCH BETWEEN REVENUE AND EXPENDITURE
Revenue
Provincial
17%
Municipat
7%
Federal gov´t
76%
Expenditure
minicipal gov´t
11%
Provinces
43%
Fed. gov´t
46%
REGIONAL DISTRIBUTION OF TRABAJAR
EMPLOYMENT PROGRAMS
90
80
18.6
70
60
17.1
22.3
50
12.2
13.0
16.6
18.4
15.2
12.6
19.2
12.3
13.3
30
15.6
10.6
4.1
10.1
14.8
20
2.1
18.5
12.5
13.9
14.0
Temporary government work plans (per 10,000 inhabitants)
The figures next to the line s are the unemployment rates in each jurisdiction (%)
13.4
La Rioja
Chubut
Buenos Aires
Córdoba
San Luis
Santa Cruz
San Juan
Entre Ríos
Misiones
Río Negro
T. del Fuego
Santa Fe
Neuquén
La Pampa
Tucumán
Formosa
Corrientes
S. del Estero
Salta
Chaco
Catamarca
Jujuy
0
Mendoza
10.7
10
Cdad. Bs.As.
40
0
Cdad. Bs.As.
Buenos Aires
Mendoza
Córdoba
Santa Cruz
Misiones
Neuquén
Tucumán
S. del Estero
Corrientes
Río Negro
Chubut
Entre Ríos
Jujuy
Chaco
Santa Fe
Salta
San Juan
La Pampa
Formosa
La Rioja
Catamarca
San Luis
T. del Fuego
in pesos
TRANSFERS TO PROVINCES PER INHABITANT
(includes revenue sharing and other items)
2000
1500
1000
500
SOCIAL INDICATORS AND REGIONAL ALLOCATION
OF FEDERAL EXPENDITURE
(population-weighted averages)
Region
Average
Income
(pesos)
Central
Cuyo
NW
NE
Patagonia
* Pesos as of 1999
261.3
232.8
183.8
162.8
297.9
Unemployed
(% PEA)
17.5
11.5
17.1
11.3
11.3
Poverty
(% NBI)
13.3
14.2
25.6
26.4
13.8
Infant
Mortality (%)
20.8
17.7
20.9
20
17.4
Federal
Expenditure
Per capita
(pesos)*
566.8
882.9
751.9
387.9
763.1
AN AGRESSIVE AND ONGOING TRADE POLICY:
Openness is the guiding principle of Argentina´s new
Trade Policy
THE PILLARS:
- Multipolar Negotiation Strategy
- Development of markets
A new Managing Model
Private Sector
Permanent
Argentinean Politics in
the International Field
PUBLIC SECTOR
Academic Sector
Multipolar Strategy
Integration
 False dichotomy USA
or EU, Mercosur or
FTAA
 It is MERCOSUR and
FTAA and EU and USA
Mercosur
Platform
 Hemispheric Side
Multilateral
 Argentina is not a single
issue country as a single
producer country.
 Agriculture+ Industrial
Goods + Services
 Opening should be
reciprocate
 European Side
 Multilateral Side
GENERAL BALANCE MODEL
SIMULATED SCENARIOS
•
FTAA
•
MERCOSUR + EU
•
FTAA + (MERCOSUR + EU)
•
4 + 1 (free trade area between MERCOSUR and the US)
•
Free world trade (framework)
AGGREGATE RESULTS
ARGENTINA GDP GROWTH
Full variant*
8
5.6
6
percentage
7.2
4.3
3.5
4
2.6
2
0
4+1
FTAA
MERCOSUR +
EU
Free
World
Trade
ALCA +
(MERCOSUR
+EU)
Source: CEI
* Growing yields to scale, trade-related externalities and capital accumulation in the
medium term
AGGREGATE RESULTS
GROWTH OF ARGENTINE EXPORTS
Full Variant
30
27.2
28.5
FTAA +
(MERCOSUR
+ EU)
Free
World
Trade
percentage
25
20
14.2
15
10
15.7
8.9
5
0
4+1
Source: CEI
FTAA
MERCOSUR
+ EU
Multipolar Negotiation Strategy
Country per country, product per product
• United States:Bilateral Trade and Investment Council: Steel,
Citric, Cooked Meat, General System of Preferences
• Brazil:: Automotive agreement - Removal of Phitosanitary
barriers - Medicine.
• Chile: Automotive agreement - Deepening of the General
Agreement of Preferences
• South Africa: New businesses, Opening of markets, Food Sector,
Automotive Sector.
• México:Bilateral Trade and Investment Council - Automotive
Agreement - Beginning conversations for Free Trade Area .
• FTAA: Due date to end negotiations 31/12/2004 - Approval on
time of methods and modes, acces to markets, agriculture,
services, inversions, government procurement
• EU: Reopening meat market + Aditional Hilton Quota - To
accelerate negotations and finish as soon as possible (Madrid
statement)
Multipolar Strategy
Country per country, product per product
First results: U$S 2.200 million of new markets
Product
Country
Cars
Brazil
300
Cars
Mexico
310
Cars
Chile
270
Meat
Europe
300
Meat (aditional Hilton quota)
Cooked Meat
Europe
United States
65
60
Food, Timber, Clothing
United States
570
Steel
United States
150*
Medicine
Brazil
50
Food (Phitosanitary barriers)
Flours, oils
Brazil
50
Chile
90
U$S million
This is not a new market, instead negotations prevented from its
disappearance
MARKET DEVELOPMENT POLICY
Our priority is to help launch the private sector to world markets
• Through market intelligence and democratization of market
information
• By turning every government office into a window to offer
Argentine products (goods, tourism and services)
• With an active agenda of trade mission to unexplored markets
(i.e. South Africa)
• Communicating our export supply offer to the world through a
new official website
•
Identify any potential demand for Argentine goods and services
CONCLUSIONS:
- The typical “Argentine pendulum” should be avoided
- A sustainable balance should be sought
- Once macro-financial stability has been restored, Argentina´s economy
has considerable growth potential
- FISCAL SOLVENCYand the EXPORT-ORIENTED MODEL
(systemic competitiveness) are the pillars for a sustainable
development, the only way to honour our commitments.
ARGENTINA’S TRADE POLICY
Martín Redrado
Secretary of International Trade
ARGENTINE REPUBLIC