MercoPress. South Atlantic News Agency

WTO praises Argentina but warns about inflation

Argentina has successfully emerged from one of the worst recessions in its history, and the economy has been growing at a fast pace since 2003, according to a World Trade Organization Secretariat report on the trade policies and practices of Argentina released this week.

However Argentina needs economic growth to become stable and sustained in time for which it needs to drastically reduce inflation, increase competitiveness and attract foreign investment. The report notes that the recovery came hand-in-hand with the adoption of a wide range of policy measures that have included the abandonment of a fixed exchange rate, the renegotiation and reduction of the external debt, and government intervention in domestic price formation. Although Argentina's heterodox mix of measures has, arguably, underpinned its remarkable economic turnaround, the report states that the systemic implications for the global economic system of such a strategy and whether it will prevent another boom-bust cycle in Argentina remain open questions. Argentina in the last three years has averaged 9% growth and reduced unemployment to 11.4% as well as the percentage of the population living below the poverty line from 57% in 2002 to 34% at the end of 2006. Fiscal accounts have been in surplus since 2003, in part as a result of measures identified as temporary by the authorities, such as the widened use of export taxes and inflation has declined but, at over 11%, controlling it remains the Government's main macroeconomic concern. To report points out that to achieve its economic goals Argentina has made use of a range of instruments including the use of price moderation agreements to prevent price increases, the freezing of prices for certain utilities and services previously granted in concession to the private sector, and the renegotiation of contracts with service concessionaires. Some such measures have been taken under the Economic Emergency Law of 2002. The report also mentions that a successful transition to a sustainable growth path calls for policy measures to avoid economic overheating and prevent market distortions from becoming entrenched, and that attracting investment is important to address emerging supply constraints, and depends in part on enhancing investor confidence. It also stresses the importance of the international economic environment, which Argentina can help shape by continuing to play an active role in the Doha Development Agenda. After suspending payments for over three years, Argentina managed to renegotiate about three-quarters of its public debt on very favourable terms, exchanging new for old obligations at a ratio of around 1:3. Argentina has repaid its entire debt to the IMF but a settlement is still to be reached with private creditors on some 20 billion US dollars of its debt. According to WTO, the main impulse to growth has stemmed from strong domestic demand, particularly investment, as well as from a favourable international context, facilitating a rapid expansion of exports. Argentina has been posting high surpluses in its current account of the balance of payments since 2002. This has been mainly a result of lower external debt payments, growing exports and, initially, lower imports. There has been a shift in trade patterns during the period under review, with exports being redirected to countries outside the MERCOSUR.