Five years ago in the middle of political and economic chaos Argentina defaulted and devalued the currency putting an end to a decade of a fixed exchange rate of one peso equivalent to one US dollar.
Since then, gradually at the beginning, the Argentine economy has for the last four years (47th month) expanded at "Chinese" rates and is expected to continue in 2007. In 2006, GDP grew 8.5%; exports reached 45 billion US dollars; tax revenue and the primary surplus kept expanding at a healthy pace, unemployment was down and investment reports record percentages. However even when the country has overtaken production levels of 1998, --when the four year recession extending to 2002 begun--, farmers, construction and car manufacturing that were the prima donnas of the first three years, in 2006 they were pushed aside by banking and the financial sector as the most dynamic. According to official Argentine statistics in the first three quarters of 2006, banking expanded over 20% and banks doubled 2005 earnings, (1.5 billion US dollars), although they still have to recover the seven billion lost between 2002 and 2004. Micro consumer credit, (with rates ranging 30% and deposits at 8%) and a boom in sales of electric and electronic equipments together with the Central Bank paying 8% to sterilize the massive inflow of US dollars into the Argentine market that helps keep the peso depreciated against the US dollar, have seen the financial sector break all expectations. But Fausto Spotorno, chief economist of a Buenos Aires think bank estimates that private credit currently at 12% of GDP still has much to expand to reach the 20% of 1998. "But it's not that good to basically invest in the short term to finance a consumers' boom", also warns Spotorno. Manufacturing has also had a good 2006 with an expansion of 8.3%, above last year's 7.7% and with not much idle capacity (over 70% utilization) can expect another bountiful year. Construction outstood in 2006 and has been the shinning star since recovery begun in 2002. Growth last year was between 16 and 19%, absorbing almost 60% of Argentina's record investment level of 24% of GDP. Fernando Lago from the Argentine Construction Chamber recalls that between 1998 and 2002 "our industry was cut in half. We needed another four years to recover the 1998 level and now we stand 20% ahead". Lago nevertheless admits that growing 20% annually "is not sustainable" although he admits that real estate will continue to be a good attractive business, "with the cost of an apartment in London you could buy ten in Buenos Aires". Diego Petrecolla head of Argentina's Industrial Union Studies Centre is also optimistic. "Manufacturing in 2006 expanded 8.5% and is forecasted to reach 7.5 to 8% this year. There shouldn't be medium term problems. Since abandoning the Peso/US dollar convertibility industry's growth has been spectacular, 70% and now stands 15% above 1998 level", admits Petrecolla. But some yellow lights can be seen in the horizon. "So far we're ensuring domestic demand by cutting on exports, but at some moment, possibly in two years time, we might have to begin importing if local investment in industry does not keep pace with demand". In spite of international booming prices, the extractive industries in Argentina have not kept up. "Oil and gas industries expanded 2.7% and there's virtually not much new drilling going on" warns Spotorno. And another sector which was the locomotive of the recovery seems to be flattening out. Livestock and agriculture production in 2006, on average increased 2%. Unstable meteorological conditions and politics combined have had their sour effect. "It was a year full of uncertainties, with lack of reliability and investment dropped in cattle ranching and to a lesser extent in cereals", said Enrique Ambrosetti chief economist from Argentina's Rural Society, the country's major farmers' lobby. Investment in livestock is estimated to have fallen 30% in 2006 and soybean farmers are furious with this month's decision to increase export taxes with the purpose of financing a food basket stabilization fund. Retailing, including supermarkets, had a good year with overall sales increasing 20% last year. However for supermarkets under the tight control and arm twisting of the government to ensure consumer prices inflation remains in the one digit range, it was "a very positive year" but it's hard to see how long the industry can stand "prices' control". Juan Vasco Martinez from the Supermarkets Association says "there's that point when you'd better not keep pumping air into a tireÃÂ¢€Ã‚Â¦"