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ARGENTINA
Argentina's
economy is 55.1 per cent free, according to our 2008 assessment, which
makes it the world's 108th freest economy. Its overall score is
essentially unchanged from last year. Argentina is ranked 23rd out of 29
countries in the Americas, and its overall score is below the regional
average.
Compared to the typical
country, Argentina has only one economically favorable institution:
relatively small government in terms of expenditures. Most advanced
economies are cutting their corporate tax rates, but Argentina's top
corporate and income tax rates are 35 per cent. Yet tax revenue as a
percentage of GDP is low, as is expenditure, as a result of tax avoidance
and evasion.
Property rights, labor
freedom, and freedom from corruption are low, but financial freedom is
especially problematic. The foreign debt crisis remains unresolved, and
local capital markets are not healthy. Political interference with an
inefficient judiciary hinders foreign investment, and popular and official
obstructions of due process make international courts preferable to
Argentine courts.
Background
The government of
President NÈstor Kirchner, whose term ended in December 2007, intervened
heavily in the economy and in 2006 continued the trend by imposing price
controls in many sectors as a means of slowing inflation. Mineral
resources are abundant, and agriculture has always been important, but the
principal industries are food processing and beverages, chemicals,
petrochemicals, and automotive manufacturing. Tourism is growing. Economic
growth in the past few years is largely attributable to high commodity
prices and the predictable recovery process that follows a
mega-devaluation and severe economic crisis. A debt moratorium and
government borrowing from Venezuela have eased the government's fiscal
pressures. Credit markets are not likely to return to normal until all
unresolved international debts are paid.
Business freedom - 63.2
per cent
The overall freedom to
start, operate, and close a business is relatively well protected by
Argentina's national regulatory environment, but inconsistency and lack of
transparency persist. Starting a business takes an average of 31 days,
compared to the world average of 43 days. Obtaining a business license
requires more that the global average of 19 procedures and 234 days.
Regulations are often applied inconsistently.
Trade freedom - 69.6 per
cent
Argentina's weighted
average tariff rate was 5.2 per cent in 2005. Extensive non-tariff
barriers designed to constrain trade, protect domestic industries, and
maintain price controls for some goods include import and export controls,
tariff escalation, import and export taxes, burdensome regulations,
restrictive sanitary rules, subsidies, and issues involving the
enforcement and protection of intellectual property rights. While the
customs process has been improved, many delays continue. An additional 20
percentage points is deducted from Argentina's trade freedom score to
account for non-tariff barriers.
Fiscal freedom - 70.5
per cent
Argentina has high tax
rates. Both the top income tax rate and the top corporate tax rate are 35
per cent. Other taxes include a value-added tax (VAT) and a wealth tax. In
the most recent year, overall tax revenue as a percentage of GDP was 22.4
per cent.
Freedom from Government
- 80.9 per cent
Total government
expenditures, including consumption and transfer payments, are moderate.
In the most recent year, government spending equaled 25.2 per cent of GDP.
The state's role in the economy has grown in recent years, and structural
budgetary weakness persists.
Monetary freedom - 65
per cent
Inflation is relatively
high, averaging 10 per cent between 2004 and 2006. Relatively unstable
prices explain most of the monetary freedom score. The government
regulates prices on numerous goods and services, including electricity,
water, retail-level gas distribution, urban transport, and local telephone
services. It also establishes price agreements with producers and sellers.
An additional 15 percentage points is deducted from Argentina's monetary
freedom score to adjust for measures that distort prices.
Investment freedom - 50
per cent
Foreign and domestic
investors have equal rights to establish and own businesses, and most
local companies may be wholly owned by foreign investors. Foreign
investment is prohibited in a few sectors, including shipbuilding,
fishing, border-area real estate, and nuclear power generation, and is
restricted in media and Internet companies. Foreign firms have been
extensively involved in Argentina's large-scale privatisation efforts. The
most significant deterrent is legal uncertainty concerning creditor,
contract, and property rights. The flow of capital is restricted, and
repatriation is subject to some controls.
Financial freedom - 40
per cent
There were 89 registered
financial entities as of February 2006, including several foreign banks.
The largest bank is state-owned and serves as the sole financial
institution in parts of the country. The financial system is recovering
from the devastating 2001ñ2002 debt default and banking crisis. The
banking sector returned to profitability in 2006, mortgages and personal
loans are increasing, and non-performing bank loans are down, although the
government has not fully compensated banks for the conversion of
dollar-denominated instruments to pesos. Argentina remains unable to gain
full access to international capital markets because of its $21.8 billion
of outstanding debt. Ever since the 2001 crisis, financial services have
been subject to government regulation and supervision. The stock market is
active, although market capitalisation is dominated by a few firms.
Property rights - 30 per
cent
The executive branch
influences Argentina's judiciary, and independent surveys indicate that
public confidence remains weak. Courts are notoriously slow, inefficient,
secretive, and corrupt. Many foreign investors resort to international
arbitration. An important violation of property rights is the "piquete,"
by which protestors take over private business, causing extensive losses
with no effective punishment by the police or the government. Software
piracy is increasing.
Freedom from corruption
- 29 per cent
Corruption is perceived
as widespread. Argentina ranks 93rd out of 163 countries in Transparency
International's Corruption Perceptions Index for 2006. Foreign investors
complain frequently about both government and private-sector corruption.
Labour freedom - 52.9
per cent
Argentina's labor market
operates under restrictive employment regulations that hinder employment
creation and productivity growth. The non-salary cost of employing a
worker is high, and dismissing a redundant employee can be costly. Despite
government efforts to reform labor regulations, barriers to increasing
market flexibility still include severance costs, pension payments,
mandatory contributions to a union-run health plan, and mandatory
holidays.
— Courtesy: The
Heritage Foundation
Quick Facts
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Population 38.7
million
*
GDP (PPP) $553.3 billion
9.2% growth 3.7%
5-yr. comp. ann. growth
$14,279 per capita
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Unemployment:
11.6%
*
Inflation (CPI)
9.6%
*
FDI (net inflow)
$3.5 billion
*
Off. Dev. Assist.
$84.2 million
(1.8% from the U.S.)
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External Debt:
$114.3 billion
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Exports
$46.3 billion
Primarily edible oils, fuels
and energy, cereals, feed, motor vehicles
*
Imports
$34.9 billion
Primarily machinery and
equipment, motor vehicles, chemicals, metal manufactures, plastics
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