Trade integration after the great recession: The case of
The international crisis has brought Argentina’s longest sustained economic expansion in decades to a halt. According to the Ministry of Economy and Public Finance, seasonal adjusted output expanded for 26 consecutive quarters between mid 2002 and the third quarter of 2008, when financial problems in advanced countries turned global. Figure 12.1 shows real GDP growth and the contribution of aggregate demand components to output growth between 2003 and 2009. It also shows how these variables are expected to evolve in 2010, whereas Table 12.1 displays aggregate demand figures in addition to other key macroeconomic data. As can be observed through these data, Argentina expanded fast between 2003 and 2008. Output grew on average more than 8 percent per year during this period; an expansion that has been promoted by the sustained growth of all components of aggregate demand3 (which was only at first linked to the recovery from 2001-2002
economic crisis in Argentina and the deflationary years which preceded it). Table 12.1 shows that investments (although starting from low levels) and exports (until the outbreak of the international crisis in 2008), which are two key variables for the sustainability of growth processes in developing countries, expanded faster than output during Argentina’s golden years. Investment, it is worth noting, reached a historical peak in 2008, as the investment rate grew to 24 percent and accounted for 50 percent of expansionary demand impulses (see Figure 12.1).4 Private consumption in these years grew at a similar rate of output and government consumption grew on average slower than other variables. Economic growth in Argentina has been in part related to international conditions. It benefited from fast economic growth and trade in the world economy, but especially from the good performances in developing countries. As shown in Table 12.2, whereas advanced economies grew around 2.5 percent between 2003 and 2007, output levels in the developing world and in South America (the largest destination of Argentina’s industrial exports), grew 6.8 percent and 5.2 percent per year, respectively. In addition to a growing export demand, Argentina in these years experienced a sustained improvement in the external terms of trade. The ratio between Argentina’s exported and imported goods improved 2.7 percent per year between 2002 and 2005, and at an annual rate of 7.5 percent between 2005 and 2008 (see Table 12.2). Improvements in Argentina’s external terms of trade have been in part due to skyrocketing primary commodity prices. As shown in Table 12.2, mounting demands for food and raw materials from rapidly growing China and India and speculation in financial markets increased the dollar price of primary commodities at an annual rate of 23 percent in the period 2005-2008. Although Argentina faced favorable international conditions before the crisis, economic policies also played a critical role in shaping the country’s macroeconomic performance, improving socio-economic conditions and encouraging a more diversified export structure. Argentina’s competitive exchange rate policy has been of particular importance in this respect. The policy regime, which included export taxes in addition to the Central Bank’s interventions in the foreign exchange market, have since 2003 encouraged industrial production, exports and employment (see Table 12.3 and Tavosnanska and Herrera 2010). Together with the renegotiation of Argentina’s external debt in 2005, the policy regime contributed to achieving surpluses in current account and primary and financial government accounts (see Table 12.1). In so doing, the regime limited vulnerabilities that had historically conditioned Argentina’s economic development. Argentina’s economic authorities, it is also worth mentioning, imposed capital controls in 2005 to discourage speculative capital inflows and actively prevented Dutch disease type adjustments during the recent primary commodity boom (Serino 2009b). This approach to dealing with external shocks, which differs from the one taken in other South American countries like Brazil and Chile, where capitals inflows have been encouraged and the exchange rate has been used as the adjustment variable, expresses Argentina’s decision to integrate in the international economy that is based on trade – rather than financial flows.