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ARGENTINA’S TRADE POLICY

ARGENTINA’S TRADE POLICY. Martín Redrado Secretary of International Trade ARGENTINE REPUBLIC. In the 90s, Argentina started along a road of ambitious reforms: openness, privatization, State reform, deregulation.

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ARGENTINA’S TRADE POLICY

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  1. ARGENTINA’S TRADE POLICY Martín Redrado Secretary of International Trade ARGENTINE REPUBLIC

  2. In the 90s, Argentina started along a road of ambitious reforms: openness, privatization, State reform, deregulation. However, 10 years after the beginning of that process, the results are poor: a 4-year-long recession, 20% unemployment and 45% of the population living below the poverty line. Regional Risks: the pendulum reaction Thinking that everything that was done was a mistake and beginning a counter-reform (closing the economy, increasing State ownership, market regulations) Quite the contrary, some unfinished reforms should be completed (Public Sector reform) and new reforms should be encouraged, tax reforms and social expenditures, among others

  3. Internal: Lack of systemic competitiveness: structural deficit in the current account Permanent fiscal deficit: increase in the public debt External: Competitive devaluations in emerging markets (Asia, Latin America) Reversion of capital flows to developing countries CAUSES OF THE CRISIS

  4. INTERNAL CAUSES: EVOLUTION OF PUBLIC DEBT 160,000 140,000 120,000 100,000 80,000 60,000 1991 1993 1995 1997 1999 2001 Source: Ministry of Economy

  5. EXTERNAL CAUSES FINANCIAL FLOWS TO DEVELOPING COUNTRIES Source: Institute of International Finance

  6. Recession with a procyclic tax system led to fiscal insolvency There was no room for the application of a countercyclic fiscal policy The constant rise in country risk exacerbated the financial asphyxia Markets considered the fiscal deficit as unsustainable Any financial engineering (bail-out I and II, mega-swap) proved inadequate There was consensus on the existance of an inescapable exchange rate trap Economic policy fluctuated between facilitating a deflationary adjustment and an expansionary fiscal policy Partial Fiscal incentives plans collided with the “zero deficit policy” IN EARLY 2001 THE TERMINAL STAGE OF THE CRISIS STARTED:

  7. This scenario triggered the trauma that led to: - Devaluation - Default - Pesification and the freeze on deposits “corralito” As the result of the crisis, we now have: Institutions that have successfully overcome the political crisis A new exchange regime under way A real exchange rate closer to the break even point A context of uncertainty that will slowly fade away.

  8. What is the challenge? 1) To travel the best path, which is not necessarily the easiest or most popular one (populism) 2) To avoid the worst of Argentine mistakes: the economic pendulum What does this mean? - To correct and improve, without destroying all that has been done - If economic reforms have had defects, they must be improved

  9. WHAT IS THE WAY OUT? • FISCAL SOLVENCY AND AN EXPORT-ORIENTED MODEL • Systemic Competitiveness + Openness  • DEVELOPMENT • Competitiveness is the axis of Argentina´s New Economic Program • Openness is the guiding principle of Argentina´s New Trade Policy • Openness and Competitiveness enhance each other and must be simultaneous 

  10. SYSTEMIC COMPETITIVENESS • Requires a New Generation of Reforms • State Reform • Making Public Social Expenditure more efficient. • Tax Reform • New Fiscal Regime between the Federal Government and the Provinces

  11. FOCUSING SOCIAL EXPENDITURE Distribution of Students in the State Education System Primary School 4% 7% Wealthier quintile 13% 52% Poorer quintile 24% Poorer 20% Quintile II Quintile III Quintile IV Wealthier 20% Universities Poorer quintile 6% Wealthier quintile 15% 29% 20% 30% Poorer 20% Quintile II Quintile III Quintile IV Wealthier 20%

  12. THE PROBLEM IS NOT RESOURCES... BUT EFFICIENCY Variation in Public Social Spending (in percentages) 40 35 30 25 (%) 20 15 10 5 0 Total Education Health Variation% 2000/93 Variation% 2000/96

  13. Revenue Municipat Provincial 7% 17% Federal gov´t 76% Expenditure minicipal gov´t Fed. gov´t 11% 46% Provinces 43% MISMATCH BETWEEN REVENUE AND EXPENDITURE

  14. 90 18.6 80 70 60 17.1 12.2 22.3 50 13.0 16.6 18.4 40 15.2 19.2 12.6 12.3 15.6 30 13.3 10.1 10.6 18.5 4.1 14.8 2.1 20 12.5 13.9 14.0 10.7 10 13.4 0 Jujuy Salta Chaco Chubut La Rioja Córdoba San Luis Misiones Formosa Neuquén Mendoza Santa Fe Tucumán San Juan Corrientes La Pampa Río Negro Entre Ríos Catamarca Santa Cruz T. del Fuego S. del Estero Cdad. Bs.As. Buenos Aires Temporary government work plans (per 10,000 inhabitants) The figures next to the line s are the unemployment rates in each jurisdiction (%) REGIONAL DISTRIBUTION OF TRABAJAR EMPLOYMENT PROGRAMS

  15. 2000 1500 in pesos 1000 500 0 Salta Jujuy Chaco Chubut La Rioja Córdoba Formosa Misiones Santa Fe Neuquén San Luis Tucumán Mendoza La Pampa San Juan Río Negro Entre Ríos Corrientes Catamarca Santa Cruz T. del Fuego S. del Estero Cdad. Bs.As. Buenos Aires TRANSFERS TO PROVINCES PER INHABITANT (includes revenue sharing and other items)

  16. SOCIAL INDICATORS AND REGIONAL ALLOCATION OF FEDERAL EXPENDITURE (population-weighted averages) Federal Average Unemployed Poverty Infant Expenditure Region Income (% PEA) (% NBI) Mortality (%) Per capita (pesos) (pesos)* Central 261.3 17.5 13.3 20.8 566.8 Cuyo 232.8 11.5 14.2 17.7 882.9 NW 183.8 17.1 25.6 20.9 751.9 NE 162.8 11.3 26.4 20 387.9 Patagonia 297.9 11.3 13.8 17.4 763.1 * Pesos as of 1999

  17. AN AGRESSIVE AND ONGOING TRADE POLICY: • Openness is the guiding principle of Argentina´s new Trade Policy • THE PILLARS: • - Multipolar Negotiation Strategy • - Development of markets

  18. A new Managing Model Private Sector Permanent Argentinean Politics in the International Field PUBLIC SECTOR Academic Sector

  19. Multipolar Strategy Integration Mercosur Platform • Hemispheric Side • European Side • Multilateral Side Multilateral • Argentina is not a single issue country as a single producer country. • Agriculture+ Industrial Goods + Services • Opening should be reciprocate • False dichotomy USAorEU, Mercosur orFTAA • It is MERCOSURandFTAAandEU and USA

  20. GENERAL BALANCE MODEL SIMULATED SCENARIOS • FTAA • MERCOSUR + EU • FTAA + (MERCOSUR + EU) • 4 + 1 (free trade area between MERCOSUR and the US) • Free world trade (framework)

  21. 8 7.2 5.6 6 4.3 3.5 4 percentage 2.6 2 0 ALCA + (MERCOSUR +EU) 4 + 1 FTAA MERCOSUR + EU Free World Trade AGGREGATE RESULTSARGENTINA GDP GROWTH Full variant* Source: CEI * Growing yields to scale, trade-related externalities and capital accumulation in the medium term

  22. AGGREGATE RESULTSGROWTH OF ARGENTINE EXPORTS Full Variant 30 28.5 27.2 25 20 15.7 14.2 15 percentage 8.9 10 5 0 4 + 1 FTAA MERCOSUR FTAA + Free + EU (MERCOSUR World + EU) Trade Source: CEI

  23. Multipolar Negotiation Strategy Country per country, product per product • United States:Bilateral Trade and Investment Council: Steel, Citric, Cooked Meat, General System of Preferences • Brazil:: Automotive agreement - Removal of Phitosanitary barriers - Medicine. • Chile: Automotive agreement - Deepening of the General Agreement of Preferences • South Africa: New businesses, Opening of markets, Food Sector, Automotive Sector. • México:Bilateral Trade and Investment Council - Automotive Agreement - Beginning conversations for Free Trade Area . • FTAA: Due date to end negotiations 31/12/2004 - Approval on time of methods and modes, acces to markets, agriculture, services, inversions, government procurement • EU: Reopening meat market + Aditional Hilton Quota - To accelerate negotations and finish as soon as possible (Madrid statement)

  24. Multipolar Strategy Country per country, product per product First results: U$S 2.200 million of new markets Country Product U$S million 300 Cars Brazil Cars Mexico 310 Cars Chile 270 Meat Europe 300 Meat (aditional Hilton quota) Europe 65 Cooked Meat United States 60 Food, Timber, Clothing United States 570 Steel United States 150* Medicine Brazil 50 Food (Phitosanitary barriers) Brazil 50 Flours, oils Chile 90 This is not a new market, instead negotations prevented from its disappearance

  25. MARKET DEVELOPMENT POLICY • Our priority is to help launch the private sector to world markets • Through market intelligence and democratization of market information • By turning every government office into a window to offer Argentine products (goods, tourism and services) • With an active agenda of trade mission to unexplored markets (i.e. South Africa) • Communicating our export supply offer to the world through a new official website • Identify any potential demand for Argentine goods and services

  26. CONCLUSIONS: - The typical “Argentine pendulum” should be avoided - A sustainable balance should be sought - Once macro-financial stability has been restored, Argentina´s economy has considerable growth potential - FISCAL SOLVENCYand the EXPORT-ORIENTED MODEL (systemic competitiveness) are the pillars for a sustainable development, the only way to honour our commitments.

  27. ARGENTINA’S TRADE POLICY Martín Redrado Secretary of International Trade ARGENTINE REPUBLIC

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