$Unique_ID{COW00166} $Pretitle{273} $Title{Argentina Chapter 3F. Trade} $Subtitle{} $Author{Robert S. North} $Affiliation{HQ, Department of the Army} $Subject{percent billion exports foreign increased deficit million capital trade total} $Date{1987} $Log{Industry*0016601.scf Agriculture*0016602.scf Infrastructure*0016603.scf Natural Gas*0016604.scf } Country: Argentina Book: Argentina, A Country Study Author: Robert S. North Affiliation: HQ, Department of the Army Date: 1987 Chapter 3F. Trade Wide fluctuations in the effective exchange rate of Argentina's currency over the 1976-84 period were mirrored in the overall trade balance, which shifted from a surplus of US$883 million in 1976 to a deficit of US$2.5 billion in 1980 and returned to a surplus of US$3.5 billion in 1984. Fluctuating import levels were responsible for the wide swings in the trade balance. Between 1976 and 1980 the value of exports increased at an annual rate of 15.4 percent, while the import value rose by an average of 28.3 percent yearly. In 1979 and 1980 imports increased by 75 and 57 percent, respectively, in response to the lowering of import tariffs and the overvalued exchange rate. Protective barriers were reduced as part of the government's policy to open the economy to foreign competition in order to stimulate productivity and restrain inflation. Argentina's trade surpluses in 1981 and 1982 were attained as a result of sharp contractions in imports during the economic recession. After the first quarter of 1982, numerous import restrictions and difficulties in obtaining import financing reduced the level of imports further. The value of exports increased by 14 percent in 1981, despite weak prices for a number of export items. In 1982 exports fell by almost 20 percent; they improved only marginally in 1983 owing to the steady decline of export prices. In 1984 a trade surplus was achieved largely through a modest expansion of exports. During the 1976-84 period, agricultural products accounted for an average of 75.5 percent of the country's total export receipts (see table 6, Appendix). The share of agricultural exports increased, however, from 73.5 percent in 1980 to almost 80 percent in 1984. Agricultural exports dropped significantly in 1982 as a result of adverse weather and the disruption of trade flows during and after the South Atlantic War. In 1983 and 1984 bumper cereal and oilseed crops caused the volume of agricultural exports to reach record levels. These gains were offset, however, by large declines in industrial exports. Between 1980 and 1984 the proportion of cereals in total agricultural export value increased from 30 to 36 percent. The category of meat, hides, and animal products declined from 23 to 11 percent; oilseed oils and meals increased from 13 to 25 percent; and oilseeds increased from 11 to 15 percent. The total value of cereals, oilseeds, and their by-products climbed from 54 to 76 percent of agricultural exports and from 40 to 60 percent of total export receipts. Other important exports included sugar, which declined from 5 percent to less than 2 percent of total agricultural exports; fruits and fruit products, from 4 to almost 2 percent; wool, from almost 4 percent to 2.5 percent; and cotton, from 2 to 1 percent. In 1983 cereals accounted for 71 percent of the total volume of agricultural exports; cereal by-products, 3 percent; oilseeds, 5 percent; and oilseed oils and meals, 14 percent. Beef made up 0.08 percent of the total export volume; sugar, 2.8 percent; and fruit and fruit products, 1.4 percent. Of the total of 454,000 tons of fruit and fruit products, fresh apples accounted for 47 percent; other fresh, dry, and canned fruits, 40 percent; fruit juices and pastes, 12 percent; and lemon oil, less than 1 percent. Argentina's overall share of world agricultural exports declined from 3.1 percent during the 1961-65 period to 2.9 percent during 1966-70, then dropped to 2.4 percent during 1971-75, increased to 2.6 percent during 1976-79, and fell to 2.5 percent during the 1980-82 period. Beef exports declined from 58 percent of the world total during 1924-33 to 29 percent during 1961-65, then dropped to 9 percent during the first half of the 1970s, increased to 10 percent during 1976-79, and fell to 7 percent in the 1980-82 period. Wheat steadily declined from a high of 23 percent during 1934-38 to 3 percent during the first half of the 1970s, then rose to 5 percent during 1976-79 and fell to 4 percent during 1980-82. The share of corn dropped from 65 percent of the world total between 1924 and 1938 to 8 percent between 1976 and 1982. Sorghum increased from 9 percent in the second half of the 1950s to 36 percent during the 1976-79, then fell to 29 percent during 1980-82. From a peak of 94 percent during 1959-63, sunflower seed exports fell to 25 percent of the world total during 1976-79, then recovered to 64 percent during 1980-82. Although soybeans were only introduced into Argentina in the first half of the 1970s, they achieved a 5-percent share of the world market by the second half of the 1970s. By the 1980-82 period their export share had risen to 8 percent. During the 1976-84 period, industrial products accounted for an average of about 24.5 percent of the total value of exports. Industrial export receipts increased by 84 percent between 1976 and 1978 in response to the real depreciation of the peso and reduced import barriers that resulted in the wider availability of necessary capital and intermediate inputs. As the peso appreciated from 1979 to 1981, most industrial firms produced for the domestic rather than for the export market. Thus industrial exports stagnated during 1979. During the height of the economic recession in 1981 and 1982, numerous firms were forced to enter the export market. Concurrently, the government attempted to promote exports through devaluations and the introduction of incentives to export to new markets, as well as through temporary tax reimbursement schemes. The world economic recession hindered the effort to expand exports, during 1982 and 1983 and the continued overvaluation of the peso in 1984 caused a further reduction of exports. In 1983 and 1984 industrial exports declined to 21 and 20.2 percent, respectively, of the total value of exports. Exports of chemical and plastic goods increased by 59 percent in 1980, stagnated in 1981, declined by 5 percent in 1982, and dropped by 3.2 percent in 1983. Between 1980 and 1983 textile exports declined by 39 percent. From 1980 to 1982 metal exports increased by 137 percent, then fell by 38 percent in 1983. Machinery exports declined by 47 percent during 1980-83. Transport equipment declined by 4.4 and 28 percent in 1980 and 1981, increased by 71 percent in 1982, and fell by 57 percent in 1983. Fuel and lubricants climbed by 460 percent in 1980 and by a further 122 percent in 1981. In 1982 and 1983 they dropped by 11 and 37 percent, respectively. During the 1980-84 period Argentina's export markets shifted away from such traditional trading partners as the EEC and other European countries toward the Soviet Union. As recently as 1979 the EEC took 32 percent of Argentina's total exports. Exports to the EEC dropped from 27 percent in 1980 to only 21 percent in 1983. Exports to other European markets declined from 7 percent to less than 5 percent over the same period. Exports to the Latin American Integration Association (LAIA) countries dropped from almost 22 percent in 1980 to below 11 percent in 1983. Argentina did not join the United States-led partial trade embargo against the Soviet Union in 1980; instead, it signed a five-year trade agreement with the Soviet Union to export 4.5 million tons of cereals and oilseeds annually. Consequently, exports to the Soviet Union jumped from a low of only 5.3 percent of total exports in 1979 to about 20 percent in 1980. In 1981 trade flows to the Soviet Union peaked at 32 percent. They then declined to 21 percent in 1982 and edged up to about 22 percent in 1983. Exports to the United States expanded from 8.7 percent of total exports in 1980 to a peak of 13.2 percent in 1982, then dropped to 9 percent in 1983. In 1984 Argentina recorded its first trade surplus with the United States since 1959. Other significant export markets included China, Iran, and Japan. On the import side, the value of intermediate goods increased from 60 percent of the total import value in 1980 to about 77 percent in 1983 (see table 7, Appendix). Capital goods dropped from almost 24 percent to about 18 percent in that period. Consumer goods fell from 18 percent in 1980 to about 5 percent in 1983. Over the 1976-84 period agricultural products represented an average of about 6.2 percent of the total import bill. From a peak of 9.5 percent in 1980, the total agricultural import value declined to 6 percent in 1984. In 1980 the five leading agricultural imports in value terms were wood, fruit, coffee, vegetables, and meat. By 1983 the five leading import products were coffee, wood, cocoa, fruit, and live animals. The combined values of these categories increased from 60 percent of all agricultural imports in 1980 to more than 63 percent in 1983. The share of imports from the EEC and other European countries declined between 1980 and 1983 from 26 to less than 24 percent. Imports from the rest of Europe stagnated at about 9.4 percent. Imports from the United States declined from 22.5 percent in 1980 to about 20 percent in 1983. Those from the LAIA countries increased from about 20 percent in 1980 to over 30 percent in 1983. In 1982 Argentina had a trade surplus with the Soviet Union that exceeded US$3 billion. The trade imbalance between the two countries was unlikely to be resolved in the immediate future by a compensating flow of imports from the Soviet Union because of the unsuitability of Soviet capital goods to Argentina's industrial infrastructure. Moreover, the large body of public opinion within Argentina opposed increased trade with the Soviet Union because of ideological differences. Balance of Payments The overall balance of payments was in deficit during each of the years between 1980 and 1983. During 1980 and 1981 the government financed its large current account deficits and capital account outflows by resorting to foreign loans and drawing down the country's foreign reserves. Despite a narrowing of the current account deficits in 1982 and 1983, Argentina's access to foreign loans was curtailed at the same time that capital outflows resumed. The resulting capital account deficits caused a severe contraction of foreign reserve holdings. In 1980 Argentina recorded a current account deficit of US$4.8 billion. The deficit was primarily caused by the US$2.5 billion trade deficit stemming from a huge inflow of imports. Tourism, like trade, proved to be highly responsive to changes in the exchange rate. Between 1978 and 1980 tourist expenditures abroad increased by 200 percent in response to the overvaluation of the Argentine peso in relation to the United States dollar. In comparison with Argentine tourists' expenditures abroad of US$1.8 billion in 1980, foreign tourists visiting the country spent only US$345 million. Net royalty payments abroad amounted to US$226 million; profit and dividend remittances totaled US$606 million in comparison with inflows of only US$22 million. Interest payments of almost US$2.2 billion on the foreign debt exceeded Argentina's US$1.2 billion in interest earnings on its foreign reserves. In 1981 the country registered a trade deficit of US$287 million, but it contributed only marginally to the overall current account deficit of more than US$4.7 billion. The overvaluation of the peso again caused a net outflow of tourist expenditures abroad of about US$1.4 billion. Royalty payments to foreign firms remained at about the 1980 level. Interest payments on the foreign debt increased by 77 percent to US$3.8 billion, while interest receipts on foreign reserve holdings declined by 28 percent to US$886 million in response to the liquidation of foreign reserves to cover the overall deficit. In 1982 the current account deficit was halved to US$2.3 billion from the 1981 level. The continuation of the economic recession, the consequent decline of economic activity, difficulties in obtaining trade financing, and import controls reduced the huge 1981 flow of imports. Consequently, the trade balance moved into a surplus of US$2.2 billion. The introduction of foreign exchange controls in April 1982 caused tourist expenditures abroad to drop by 62 percent to US$565 million, and foreign tourists in Argentina spent a total of US$609 million, so that the country gained about US$44 million from tourism. In 1982 royalty payments increased by more than 47 percent to US$363 million, owing largely to payments to foreign firms that were constructing the Center-West natural gas pipeline (see Energy, this ch.). Net profit and dividend remittances declined by 57 percent largely as a result of currency devaluations. Net interest payments fell by 48 percent, recording a deficit of US$4.4 billion as a result of a 28-percent increase of interest payments on the foreign debt, and a 41 percent drop of interest earnings on foreign reserves. In 1983 the current account deficit inched up to about US$2.4 billion. The trade balance surplus grew by 45 percent to US$3.3 billion in response to an almost 3-percent climb in export levels and a 15-percent fall of imports. Tourism outflows remained depressed during the year as foreign exchange controls prevented Argentines who planned to travel abroad from purchasing foreign currencies at the preferred official rate of exchange, forcing them instead to buy currency at the more expensive parallel exchange rate. Net royalty payments to foreign firms for the natural gas pipeline were largely responsible for an increase in currency outflow to US$521 million. Trends toward lower interest receipts on foreign reserve holdings and increased interest payments on the foreign debt continued in 1983. Interest earnings fell by 16 percent to US$440 million, while interest payments increased by 10 percent to US$5.4 billion. Between 1980 and 1983 interest payments on the foreign debt more than doubled as a result of the higher interest rates that prevailed in world financial markets. Large private and public sector capital inflows during 1978 and 1979 caused the overall capital accounts to record surpluses of US$1.2 billion and almost US$4.8 billion, respectively. In 1980 private sector capital outflows amounted to more than US$1.4 billion. Despite a 160-percent increase in public sector borrowing to US$2.9 billion, the capital account surplus declined by 54 percent to US$2.2 billion, an amount insufficient to offset the large current account deficit. Consequently, the overall balance of payments was in deficit by US$2.5 billion, compared with the 1979 surplus of US$4.4 billion. Long-term capital inflows increased from almost US$4.7 billion in 1980 to almost US$9.7 billion in 1981. In 1981 about 96 percent of the long-term capital comprised private and public sector borrowing, with the remainder including a US$927 million inflow of direct foreign investments. The large short-term capital outflow of US$8.8 billion, however, caused the capital account to register a surplus of only US$1 billion. Overall net public sector borrowing of about US$4.4 billion and direct foreign investments of US$927 million offset the net outflows of some US$3.4 billion in trade financing and US$890 million in private sector funds. The combination of a US$4.7 billion current account deficit and a small capital account surplus of US$1.1 billion produced a total balance of payments deficit of US$3.6 billion in 1981. As a result of the South Atlantic War, public sector organizations found it difficult to obtain foreign loans in 1982, while private sector capital outflows increased. Net trade financing outflows of almost US$2.4 billion, private sector capital outflows of US$1.1 billion, and public sector debits of US$500 million combined with an inflow of US$257 million in direct investments to create a capital account deficit of about US$3.8 billion in 1982. The deficit in the capital account combined with a smaller current account deficit to produce an overall balance of payments deficit of US$6.3 billion-60 percent greater than that recorded in 1981. In 1983 the capital account deficit was reduced by 97 percent to US$112 million as capital flight was almost brought to a halt. Net direct investment inflows totaled US$183 million, and trade credit outflows declined by 85 percent over 1982 levels. Private sector inflows increased for the first time since 1979, to US$97 million, but public sector liabilities increased by US$46 million. The near eradication of the capital account deficit, together with a US$2.4 billion current account deficit, brought the 1983 balance of payments deficit down by 59 percent to US$2.8 billion. * * * The Argentina desk in the Brazil/River Plate Division of the United States Department of Commerce in Washington, D.C., is a most valuable source for information on the economy of Argentina. The Department of Commerce maintains comprehensive files and reference sources on the sectoral performance of the economy. The New Argentina: Planning for Profits in the 1980s, published by Business International, is an excellent review of the economy from the early 1970s through 1982. The Foreign Agricultural Service and the Economic Research Service of the United States Department of Agriculture are valuable sources for obtaining information on trends for agricultural commodities. The Mineral Industry of Argentina, published by the Bureau of Mines division of the United States Department of the Interior, provides a detailed description of trends in the production of minerals as well as that of petroleum and natural gas. Argentina since Martinez de Hoz by Rudiger Dornbusch provides a timely description of the complex and numerous economic policies that were pursued by the government over the 1981-83 period. Good Argentine publications on the economy include Ambito Financiera, Business Trends, Review of the River Plate, and Anuario de la Economia Argentina/Annual Report of the Argentine Economy. Other solid general reviews are found in Business Latin America, published by the United Nations Economic Commission for Latin America and the Caribbean, and the Quarterly Economic Review of Argentina. (For further information and complete citations, see Bibliography.) [See Industry: Top: Fish-packing plant, La Paloma. Courtesy WORLD BANK PHOTOS/James Pickerell Bottom: Cattle ranching in Cordoba Province. Courtesy Inter-American Development Bank] [See Agriculture: Top:Grain silos in province of Entre Rios Bottom: Wheat harvest in Buenos Aires Province. Photos courtesy Inter-American Development Bank.] [See Infrastructure: Top: Fray Bentos Bridge linking Uruguay and Argentina across Rio Uruguay. Bottom: Salto Grande hydroelectric dam. Photos courtesy Inter-American Development Bank.] [See Natural Gas: Top: Gas pipeline being laid across Strait of Magellan. Bottom: Liquefied gas storage plant in province of Cordoba. Photos courtesy Inter-American Development Bank.]