Economy of Argentina - History

History

Prior to the 1880s, Argentina was a relatively isolated backwater, dependent on the salted meat, wool, leather, and hide industries for both the greater part of its foreign exchange and the generation of domestic income and profits. The Argentine economy began to experience swift growth after 1875 through the export of livestock and grain commodities, however, as well as through British and French investment, marking the beginning of a significant era of economic expansion.

During its most vigorous period, from 1880 to 1905, this expansion resulted in a 7.5-fold growth in GDP, averaging about 8% annually. One important measure of development, GDP per capita, rose from 35% of the United States average to about 80% during that period. Growth then slowed considerably, though throughout the period from 1890 to 1939, the country's per capita income was similar to that of France, Germany and Canada (although income in Argentina remained considerably less evenly distributed).

The great depression caused Argentine GDP to fall by a fourth between 1929 and 1932. Having recovered its lost ground by the late 1930s partly through import substitution, the economy continued to grow modestly during World War II (in sharp contrast to what had happened in the previous World War). Indeed, the reduced availability of imports and the war's beneficial effects on both the quantity and price of Argentine exports combined to create a US$ 1.7 billion cumulative surplus during those years. Benefiting from innovative self-financing and government loans alike, value added in manufacturing surpassed that of agriculture for the first time in 1943, and employed over 1 million by 1947.

The administration of Juan Perón nationalized strategic industries and services from 1945 to 1955. Inflation first became a chronic problem during this period (it averaged 26% annually from 1944 to 1974) and Argentina did not become "industrialized" or fully "developed"; but, from 1932 to 1974, Argentina's economy grew almost fivefold (or 3.8% in annual terms), while its population only doubled. This expansion was well-distributed and resulted in several noteworthy changes in Argentine society. For example, it led to the development of the largest proportional middle class (40% of the population by the 1960s) in Latin America as well as the region's highest-paid, most unionized working class.

The partial enactment of Developmentalism after 1958 was followed by a promising fifteen years. The economy, however, declined during the military dictatorship from 1976 to 1983, and for some time afterwards. The dictatorship's chief economist, José Alfredo Martínez de Hoz, advanced a disorganized, corrupt, monetarist policy of financial liberalization that increased the debt burden and interrupted industrial development and upward social mobility; over 400,000 companies of all sizes went bankrupt by 1982, and economic decisions made from 1983 through 2001 failed to reverse the situation.

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. Attempting to remedy this, economist Domingo Cavallo pegged the peso to the U.S. dollar in 1991 and limited the growth in the money supply. His team then embarked on a path of trade liberalization, deregulation, and privatization. Inflation dropped and GDP grew by one third in four years; but external economic shocks and failures of the system diluted benefits, causing the economy to crumble slowly from 1995 until the collapse in 2001. That year and the next, the economy suffered its sharpest decline since 1930; by 2002, Argentina had defaulted on its debt, its GDP had declined by nearly 20% in four years, unemployment reached 25%, and the peso had depreciated 70% after being devalued and floated.

Expansionary policies and commodity exports triggered a rebound in GDP from 2003 onwards. This trend has been largely maintained, creating over five million jobs and encouraging domestic consumption and fixed investment. A number of important firms privatized during the 1990s were renationalized beginning in 2003. These include the Postal service, AySA (the water utility serving Buenos Aires), Pension funds (transferred to ANSES), Aerolíneas Argentinas, and the energy firm YPF.

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. Argentine debt restructuring offers in 2005 and 2010 resumed payments on the majority of its almost $100 billion in defaulted bonds from 2001. 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. The Argentine government bond market is based on GDP-linked bonds, and investors, both foreign and domestic, netted record yields as a result.