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Argentina’s Long Economic Boom Coming to an End PDF Print E-mail
Written by Almudena Calatrava Associated Press   
Thursday, 24 May 2012 05:23

BUENOS AIRES — Argentina’s nine-year economic expansion is slowing sharply, according to analysts, who predict growth of 2.5 percent to 3 percent this year, half the 5.1 percent projected by the government’s 2012 budget and far below last year's 8.9 percent rise.

Some economists are even predicting recession before year’s end, saying recently imposed currency and trade restrictions, high inflation, price controls and capital flight are making it tougher to protect Argentina from the global slowdown.

“The tail wind has ended and there are storm clouds gathering. Argentina is more exposed,” said Ramiro Castineira, an economist with the Econometrica consultancy. He estimates 2.5 percent growth this year and worries the government’s economic interventions have left it too weak to respond to global pressures.

Argentina’s GDP averaged annual growth of 7.1 percent from 2003 to 2011 as President Cristina Fernandez and her late husband and predecessor, Nestor Kirchner, guided the country out of an economic abyss created by its world record loan default and currency devaluation in 2002.

Key to the comeback was Kirchner’s refusal to pay back international lenders in full. The move made Argentina a pariah among many investors, but enabled the government to spend billions on rebuilding the domestic economy.

The government has poured money into industrial subsidies, public works projects, generous welfare payments and other popular stimulus programs collectively known as the Kirchners’ model for growing a more inclusive society.

The year-after-year growth has been a point of pride for Fernandez, who insists the U.S. and Europe should learn from Argentina’s example rather than impose austerity measures that have so far failed to turn around failing economies.

Now, however, even Fernandez is acknowledging that the good times are running out, although she blames the problems on the global crisis, not her own policies.

“We’ve never fallen from the world; we have the problem that the world is falling on top of us,” the president said last week as she announced a new round of government-backed credits to Argentine businesses worth $1.8 billion.

“Today we have to focus on investment; that’s the key to surviving what’s coming," she said, warning that business leaders who want her government’s support will be expected to make long-term bets on Argentina.

A wide range of factors is involved in the slowdown. Agricultural production dropped sharply due to low rains this past growing season. Industrial production also dropped despite high internal demand because trade protections make it more difficult to get parts for everything from smartphones to refrigerators to automobiles. Brazil, meanwhile, has been devaluing its currency as its economy slows, making Argentine exports to its main trading partner less competitive.

Construction is usually a main economic driver, and Argentines habitually turn to real estate as a way to shelter their wealth against inflation. But new projects have slowed sharply as sales plunged 15 percent this year, due in large part to currency controls imposed by the government to stem capital flight.

Nearly all Argentine real estate transactions are done in dollars, which are now scarce as people try to dump their pesos and move their wealth out of the country.

For three months now, Maria del Carmen Fernandez hasn’t been able to sell a dead relative’s two-bedroom apartment in Buenos Aires.

“Nobody even comes to see it,” the attorney complained. “It’s a property that would have sold rapidly before this, without problems. Now I’m facing bills that my budget doesn’t have room for.”

Jorge Safar, sales chief at one of the city’s OPPEL real estate franchises, agreed the market has changed. “We’re hopeful that something will clear up the doubts generated by the currency controls, but the political news hasn’t been ideal.”

The smart money is rapidly flowing out of Argentina, said former economy minister Roberto Lavagna, who presided over the first years of the current expansion.

“If $23 billion that should have been invested in Argentina fled the country (in 2011), it was for a reason,” he told reporters.

Castineira said Argentina no longer has the macroeconomic strength to withstand a global crisis like that of 2008, when it had positive balances in trade and revenues and a more competitive exchange rate to encourage exports.

Last Updated on Thursday, 24 May 2012 07:32