Wayzata World Factbook 1996

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U.S. DEPARTMENT OF STATE ARGENTINA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICES BUREAU OF ECONOMIC AND BUSINESS AFFAIRS ARGENTINA Key Economic Indicators (Billions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/ Income, Production and Employment: GDP (at current prices) 2/ 229 257 279 Real GDP Growth (pct.) 8.7 6.0 6.5 GDP by Sector: (pct./GDP) Agriculture 7.8 7.3 7.0 Manufacturing 27.0 26.6 27.5 Mining 2.3 2.3 2.3 Services 55.4 55.9 56.0 GDP Per Capita (USD) 6,932 7,644 8,206 Labor Force (000s) 13,126 13,126 13,978 Unemployment Rate (pct.) 6.9 9.3 10.8 Money and Prices: Money Supply (M1) Growth (pct.) 3/ 48.9 31.0 10.0 Commercial Interest Rates on 180 Day Deposits 3/ 8.0 7.8 8.9(Aug) Savings Rate (pct. of GDP) 15.2 15.9 13.5 Investment Rate (pct. of GDP) 16.7 17.7 20.0 Wholesale Inflation 3/ 3.3 0.1 3.9 CPI (pct. change) 3/ 17.5 7.4 3.7 Exchange Rate (USD/peso) 4/ Official .9910 .9990 1.0 Parallel .9910 .9990 1.0 Balance of Payments and Trade: Total Exports (FOB) 5/ 12.2 13.1 14.7 Exports to U.S. (FOB) 1.4 1.3 1.5 Total Imports (CIF) 14.9 16.8 20.2 Imports from U.S. (FAS) 6/ 3.0 3.8 4.8 Aid from U.S. (USD/000s) 1.2 1.8 1.7 External Public Debt 7/ 65.5 62.8 70.1 Debt Service Payments 8/ 4.2 4.2 3.3 Gold and Foreign Exch. Reserves 12.5 15.0 15.5 Trade Balance -2.6 -3.7 -5.5 Trade Balance with U.S. 6/ -1.8 -2.5 -3.3 1/ Figures for 1994 are U.S. Embassy estimates. 2/ Nominal GDP is virtually the same in dollars or pesos after 1991 when the Convertibility Plan took effect, linking the peso and the dollar at the rate of one to one. 3/ End of period. 4/ Average for the period. 5/ Based on official Argentine Government data. 6/ Based on U.S. Department of Commerce data. 7/ Foreign currency debt. 8/ Includes net debt service paid by public sector to international financial institutions and on Government of Argentina Foreign Currency Bonds. 1. General Policy Framework President Carlos Menem's far-reaching reform program, which began in earnest in 1991, has revitalized Argentina's economy. From 1991-1993 real GDP growth averaged eight percent annually, and the government has forecast growth of nearly seven percent in 1994. By mid-1993 the inflation rate fell to virtually zero--a major accomplishment given Argentina's bouts with hyperinflation only a few years ago. Meanwhile, a stable exchange rate and the opening of the economy to international competition, including large reductions in tariffs and other trade barriers and elimination of all but one export tax, have resulted in a boom in imports, particularly from the United States. During the first five months of 1994 Argentina's deficit with the United States was $1.4 billion, 56 percent of Argentina's overall trade deficit during that timeframe. The expanding deficit has raised eyebrows, but the government has countered this by citing the high concentration (30 percent) of vitally needed capital goods in the import bill. The public sector budget has been in the black for the past few years--a result of more efficient tax collection, increased revenue from import tariffs (resulting from the import surge) and large infusions of revenue from the sale of state industries. The government has also eased the tax burden on businesses by eliminating charges on bank debt, freight, shipping, and foreign currency transactions. At the same time, the burden on the consumer has grown, via increases in the value added tax (VAT) and personal income tax rates. However, continued heavy expenditures have threatened to generate a deficit (less than one percent of GDP) in 1994, prompting the government to crack down on tax evaders and to turn to foreign borrowing. The Central Bank of Argentina controls the money supply through the buying and selling of dollars. Under the Convertibility Law of 1991, the exchange rate of the Argentine peso is fixed to the dollar at par value. Through the first nine months of 1993, the Central Bank bought $2.2 billion, selling an equal amount of pesos. 2. Exchange Rate Policy Argentina has no exchange controls; customers may freely buy and sell currency from banks and brokers at market prices. The Convertibility Law, however, requires the Central Bank to sell dollars at a fixed rate of one peso to one dollar. The Bank buys dollars at a rate of .998 pesos per dollar. The fixed exchange rate, which some observers believe is overvalued, and the release of pent-up demand stemming from the overall economic recovery, have made imports increasingly competitive for local buyers. Accordingly, the value of U.S. exports to Argentina nearly quadrupled from 1990 to 1993, with further growth in 1994. 3. Structural Policies The Menem Administration's reform program has made significant progress in transforming Argentina from a closed, highly regulated economy to one based on market forces and exposed to international competition. The government's role in the economy has diminished markedly through the privatization of most state firms, including the oil firm YPF. Meanwhile, the authorities have eliminated price controls on all but a few goods in the marketplace. Nevertheless, the expanded trade deficit has occasionally compelled the government to implement ad hoc protectionist measures. For example, in 1993 the authorities temporarily placed higher duties on various textile imports which allegedly were being sold in Argentina below cost. These measures remain in effect until January 31, 1995 with a possible one-time extension of six months. Argentina, Brazil, Paraguay and Uruguay formed a customs union (MERCOSUR) on January 1, 1995 with a common external tariff (CET) covering 85 percent of traded goods. (Capital goods, informatics and telecommunications will be excepted from the CET until the turn of century). Argentina strove to maintain minimal tariffs during MERCOSUR negotiations in order to facilitate renovation of its industrial plant, which requires continued imports of capital equipment and other inputs. The CET will range from zero to 20 percent; many non-MERCOSUR products entering Argentina will face higher tariffs. The Argentine government has indicated it will compensate by lowering or eliminating the statistical tax. Argentina ratified the Uruguay Round Agreements and became a founding member of the World Trade Organization (WTO) on January 1, 1995. 4. Debt Management Policies The government reduced Argentina's public debt by $10.4 billion in 1993 through privatizations, decline in net disbursements, reduction in capital (Brady Plan), capitalization of interest and adjustment of the value of government assets. From 1989 to 1993 Argentina's debt service fell from 101 percent to under 50 percent of exports of goods and non-factor services. Total public sector foreign currency external debt came to $62.9 billion at the end of 1993. The IMF, World Bank, and InterAmerican Development Bank (IDB) have been major sources of funds to Argentina. In September 1994 the government terminated an IMF Extended Fund Facility (EEF) arrangement, initiated in 1992, preferring to forego Fund conditionality in favor of commercial borrowing. Both the World Bank and IDB obligated over $1 billion annually in 1993-1994. 5. Significant Barriers to U.S. Exports One of the key free market reforms of the Menem Administration has been to open the Argentine economy to foreign producers. The government abolished the import licensing system in 1989 and since 1990 has slashed the average tariff from nearly 29 percent to less than 10 percent, although many imports must pay a higher surcharge (the "statistics tax"). Tariffs are as low as zero on capital goods and 0.5 percent on raw materials. American exports have capitalized on this and risen dramatically over the past few years. Barriers to U.S. Exports: Despite the generally favorable environment for imports, the authorities occasionally erect protectionist barriers. In September 1993, responding to what it considered widespread "dumping" of apparel, particularly from the far east, the government imposed temporary import surcharges on an array of clothing, rugs and textiles. Restrictions apply to imports of a broad range of used and manufactured equipment as well. In October 1994, following congressional passage of a law designed to promote the local film industry, the government enacted new taxes on video sales and rentals, which could curtail demand for U.S.-made films. (However, President Menem vetoed other sections of the bill, including authority for the National Film Institute to regulate the release of foreign films and establishment of a six month minimum timeframe between opening of a film in the theater and its video release). On the other hand, in September 1994 the government eliminated tariffs and duties on imports of computer software, much of which is supplied by American firms. Argentina also protects the automobile assembly industry through a combination of quotas and heavy tariffs. Nevertheless, the number of foreign-manufactured vehicles on the roads is increasing through heavy demand that easily outstrips local production. The government claims it will dismantle the protection scheme by the turn of the century. Service Barriers: The government has progressively eliminated restrictions on foreign-owned banks. In January 1994 the authorities formally abolished the distinction between foreign and domestic banks. They allowed foreign banks to open branches and began issuing new licenses. However, lending and other operational limits for foreign bank branches are based on local, rather than global capital. Government bodies and state agencies must still direct their business to public banks, but this stipulation's importance is declining, given the ongoing privatization program. U.S. banks are well represented in Argentina and are some of the more dynamic players in the financial market. Furthermore, the privatization of pension funds has attracted some American firms. Investment Barriers: There are few barriers to foreign investment. Firms need not obtain permission to invest in Argentina. Foreign investors may wholly own a local company, and investment in shares on the local stock exchange requires no government approval. A U.S.-Argentina bilateral investment treaty came into force on October 20, 1994. Under the treaty U. S. investors enjoy national treatment in all sectors except shipbuilding, fishing, insurance and nuclear power generation. An amendment to the treaty removed mining, except uranium production, from the list of exceptions. Government Procurement Practices: "Buy Argentina" practices have been virtually abolished. Argentine sources will normally be chosen only when all other factors (price, quality, etc.) are equal. Customs Procedures: Customs procedures are generally extensive and time consuming, thus raising the costs for importers, although installation of an automated system has eased the burden somewhat. 6. Export Subsidies Policies Argentina adheres to the GATT Subsidies Code and also has a bilateral agreement with the United States to eliminate remaining subsidies for industrial exports and to ports located in the Patagonia region. Nevertheless, the government retains minimal supports, such as reimbursement of indirect tax payments to exporters. 7. Protection of U.S. Intellectual Property Argentina officially adheres to most treaties and international agreements on intellectual property, including the Paris Convention for the Protection of Industrial Property (Lisbon Text and non-substantive portions of the Stockholm Text), the Brussels and Paris Texts of the Berne Convention, the Universal Copyright Convention, the Geneva Phonogram Convention, the Treaty of Rome and the Treaty on the International Registration of Audiovisual Works. In addition, Argentina is a member of the World Intellectual Property Organization (WIPO) and a signatory to the Uruguay Round TRIPS text. However, USTR maintained Argentina on its "priority watch list" in 1994 because of the lack of patent protection for pharmaceuticals. Patents: Argentina's patent law, enacted in 1864, is the weakest component of the country's IPR regime. The law specifically excludes pharmaceutical "compositions" from patent protection, which have cost U.S. drug firms hundreds of millions of dollars in sales lost to pirates and has damaged Argentina's ability to attract certain high-tech industries in both production and research and development. The law also contains stringent working requirements and allows a maximum patent term of only 15 years. The Menem Administration submitted a draft of a new patent law to Congress in 1991. The new law would improve patent protection and extend it to pharmaceuticals, but as of October 1994, the bill was still not passed by either house of the Argentine congress. Copyrights: Argentina's copyright law, enacted in 1993, is adequate by international standards. Recent decrees provided protection to computer software and extended the term of protection for motion pictures from 30 to 50 years after the death of the copyright holder. As in many countries, however, video piracy has become a serious problem. Efforts are underway to combat this, including arrests, seizure or pirated material and introduction of security stickers for cassettes. Trademarks: Trademark laws and regulations in Argentina are generally good. The key problem is a slow registration process, which the government has striven to improve. Trade Secrets: Argentina has no trade secrets law per se, but the concept is recognized and encompassed by laws on contract, labor and property. Penalties exist under these statutes for unauthorized revelation of trade secrets. Semiconductor Chip Layout Design: Argentina has no law dealing specifically with the protection of layout designs and semiconductors. This technology conceivably could be covered by existing legislation on patents or copyrights, but this has not been verified in practice. Nevertheless, Argentina has signed the WIPO Treaty on Integrated Circuits. 8. Worker Rights a. Right of Association The Argentine labor movement is undergoing a difficult transition as the government privatizes inefficient state-owned enterprises. These changes have affected the composition of the labor movement, but have not altered the worker's right to form trade unions. Most unions belong to the large, national General Labor Confederation (CGT), which supports, with reservations, the government's economic reforms. However, a militant faction within the CGT, the Movement of Argentine Workers, and a separate organization, the Congress of Argentine Workers, led by some government and teachers' unions, are critical of the government's economic reform policies. Unions have the right to strike and members who participate in strikes are protected by law. In 1994 major strikes occurred without government interference against the privatized greater Buenos Aires electric power utility and the aluminum smelting plant in the southern province of Chubut. However, the government declared illegal a proposed general strike by trade union opponents of the government's economic policies, on the grounds that the constitutional right to strike is intended to protect workers' economic interests but not to be used as a political weapon. Argentine unions are members of international labor associations and secretariats and participate actively in their programs. b. The Right to Organize and Bargain Collectively Anti-union practices are prohibited by law and respected in practice. Argentine labor, the government and the private sector reaffirmed these rights in a framework agreement signed in July aimed at reforming labor-management relations in the context of economic restructuring and increasing global competitiveness. The trend towards bargaining on a company level in contrast to negotiating at the national level on a sectoral basis continues, but the adjustment is difficult for both sides. For this reason, the agreement proposes to create a national mediation service to promote more effective collective bargaining. The Committee of Experts on the Application of Conventions and Recommendations of the International Labor Organization (ILO) took note of a teacher's union complaint regarding restrictions on collective bargaining in certain specified sectors and asked the government to inform the ILO of measures it may take or has taken to encourage voluntary negotiations without impediments. The framework agreement also covers health and safety issues, employment creation and training, work-related injuries, grievance procedures, and the distribution of social benefits. It is expected to lead to the reform of a significant body of the labor code, which many observers agree needs urgent revision. The framework agreement aims, in part, to lower labor costs and give employers greater flexibility in hiring, firing, and redistributing the workforce. Workers may not be fired for participating in legal union activities. Those who prove they have been discriminated against have the right to be reinstated. There are no officially designated export processing zones. c. Prohibition of Forced or Compulsory Labor Forced labor is not known to be practiced in Argentina. d. Minimum Age for the Employment of Children Employment of children under 14, except within the family, is prohibited by law. Minors aged 14 to 18 may work in a limited number of job categories, but not more than six hours a day or 35 hours a week. Notwithstanding these regulations, a significant number of children between 10 and 14 years of age, estimated at 200 thousand in a 1993 report by the Ministry of Labor, UNICEF and the ILO, are illegally employed, primarily as street vendors or household workers. e. Acceptable Conditions of Work The national monthly minimum wage is $200. Federal labor law mandates acceptable working conditions in the areas of health, safety and hours. The maximum workday is eight hours, and workweek 48 hours. The framework agreement is designed to produce legislation to modernize the accident compensation process and occupational health and safety norms. In responding to a complaint from the Argentine Congress of Workers that work-related illnesses were not covered under the existing workmen's compensation system, the ILO's committee of experts urged the government to provide information to the Congress of Argentine Workers regarding the measures it plans to take to fulfill its obligations under Convention 42, Workmen's Compensation (occupational diseases) which Argentina ratified in 1950. Occupational health and safety standards in Argentina are comparable to those in most industrialized countries, but federal and provincial governments lack sufficient resources to enforce them fully. The most common victims of inhumane working conditions generally are illegal immigrants with little opportunity or knowledge to seek legal redress. f. Rights in Sectors with U.S. Investment Argentine law does not distinguish between worker rights in nationally-owned enterprises and those in sectors with U.S. investment. The rights enjoyed by Argentine employees of U.S.-owned firms in Argentina equal or surpass Argentine legal requirements. Extent of U.S. Investment in Selected Industries.--U.S. Direct Investment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category Amount Petroleum 566 Total Manufacturing 1,993 Food & Kindred Products 667 Chemicals and Allied Products 443 Metals, Primary & Fabricated (1) Machinery, except Electrical (1) Electric & Electronic Equipment 56 Transportation Equipment 23 Other Manufacturing 386 Wholesale Trade 135 Banking 552 Finance/Insurance/Real Estate 578 Services 77 Other Industries 455 TOTAL ALL INDUSTRIES 4,355 Source: U.S. Department of Commerce, Bureau of Economic Analysis (###)