Argentina country brief

Australia-Argentina relations

Australia and Argentina have a mutually beneficial relationship based on many shared interests. We are both large Southern Hemisphere nations with relatively small populations and strong resource bases.

Australia and Argentina maintain resident embassies in each other's capitals.

Australia's principal engagement with Argentina is through the Cairns Group, the G20, the UN, the Commission for the Conservation of Antarctic Marine Living Resources (CCAMLR), the Antarctic Treaty and the International Whaling Commission (IWC). We share common interests in international peacekeeping, the prevention of WMD proliferation, disarmament, Antarctica, international environment policy, trade liberalisation and economic cooperation policies.

Australia and Argentina play an active role in the G20 forum in addressing the global financial crisis and in identifying reforms to the global financial system. Argentina's role as an interlocutor on the WTO Doha Round negotiations and in the Cairns Group is important to Australia. As major wine-producing nations, Australia and Argentina work together through the World Wine Trade Group to advance favourable international trade conditions in relation to wine.

Australia also participates in the CER-Mercosur Dialogue, bringing together Australia, New Zealand and Mercosur member countries, including Argentina and Brazil. The dialogue was established in 1996 as a mechanism to strengthen cooperation on global trade policy issues and to promote inter-regional trade and investment. Australia was represented by former Foreign Minister Rudd at the December 2010 Mercosur Ministerial Leaders' meeting in Iguaçu, Brazil, and by former Parliamentary Secretary Marles at the December 2011 Mercosur Ministerial and Leaders' meeting in Montevideo, Uruguay.

Australia and Argentina are both members of the Forum for East Asia-Latin America Cooperation (FEALAC), which aims to increase and improve mutual understanding, political dialogue and cooperation among member states of East Asia and Latin America.

Political overview

System of government

Argentina is a presidential democracy, with universal suffrage and compulsory voting. Under the current constitution (last reformed in 1994), the President is the head of state and government and the Congress is bicameral.

Argentina is a federation of 23 provinces, plus Buenos Aires City, the self-governed capital. The system of government (at both the federal and provincial levels) is based on the separation of powers into the Executive branch, the Legislative branch and the Judiciary. The President and Vice-President are chosen by direct popular vote for a four-year presidential term, and may run for one consecutive re-election. The President appoints the ministers, not necessarily from within parliament.

Background

The Spanish established a permanent colony on the site of Buenos Aires in 1580 following sporadic settlement overland from Peru. Argentina declared independence from Spain in 1816.

Despite a prosperous start to the 20th Century, political and economic turmoil resulted in a military coup in 1943, which led to the installation of Juan Domingo Peron. Elected President in 1946, Peron undertook radical industrial and labour reforms. Despite winning re-election in 1953, he was exiled by the military in 1955. This was followed by a period of political instability and diminished economic growth, paving the way for Peron's return to the Presidency in 1973. Peron died in 1974 and was succeeded by his third wife, Maria Estela Isabel Martinez de Peron, but she was ousted in another military coup in 1976. The ensuing period of repression under the military junta, commonly referred to as 'El Proceso' or the 'Dirty War', resulted in approximately 9,000 political murders and disappearances.

Argentina returned to civilian government in 1983 following the period of military rule. Since that time, the country's democratic institutions have been consolidated. This has not,however, been matched by similarly enduring financial and economic stability. In 2001, a profound economic crisis provoked serious civil unrest and resulted in the resignation of then President De la Rúa in December. After a period of transition under a caretaker administration, presidential elections were held in 2003 in which Néstor Kirchner came to power. With high public approval ratings, Kirchner's government focused on restructuring Argentina's foreign debt and promoting economic growth.

In 2007, President Kirchner announced that he would not seek re-election and that his wife, Cristina Fernández de Kirchner, would take his place on the ballot in the presidential elections that year. Fernández was comfortably voted in as Argentina's first elected female president and took office in December 2007. President Fernández is supported by a large bloc of the Peronist Party (PJ), which has dominated the Argentine political scene since 1946. Former President Kirchner successfully sought to expand the PJ's power base beyond the traditional party structures by canvassing outside support, in particular from the centre left. After Kirchner's sudden death from a heart attack in October 2010, public sympathy for the widowed President and ongoing strong consumer-led growth pushed her approval ratings — which had fallen early on in her presidency — to record high levels. Assisted by opposition disunity, President Fernández easily secured re-election in presidential elections held in October 2011, winning 54% of the popular vote — a margin of nearly 40% over the second-placed contender.

Recent Developments

The Fernández Government has used its record high popularity and majority in Congress to pass a number of controversial pieces of legislation. Some of these government initiatives have come under criticism, including the 2012 federal budget bill which further centralised power away from Congress and towards the executive. An expansion of import controls and media regulation has also drawn criticism from some circles. The Fernández Government controversially announced the re-nationalisation of Spanish-owned Repsol's share inoil company YPF in April 2012, which was met with widespread international criticism and concerns over sovereign risk for international investment in Argentina. Recent tensions have also arisen between the government and key unions over subsidy cuts, increasing the possibility of having union-backed strikes across the country.

Economic overview

For latest economic data refer to Argentina Fact Sheet [PDF 35 KB].

Background

Argentina has a fundamentally market-oriented economy based on an abundance of natural resources, a highly literate population and an export-oriented agricultural sector. Although Argentina is an industrialised country, its exports continue to be dominated by agricultural products. In the last decade, soybeans have become the country's main commodity export. Exports of industrial goods have, however, also grown strongly in recent years.

After decades of economic stagnation, economic reforms in the 1990s opened the market to foreign competition. Privatisation and economic deregulation saw foreign investment soar and GDP grow, with large domestic conglomerates and multinationals dominating the industrial base and utilities. For a decade, economic policy was based on the Convertibility Law of 1991, which sought to end hyperinflation and attract investment by establishing a currency board system that maintained parity between the Argentine peso and the US dollar. However, the law, together with a lack of fiscal discipline, ultimately reduced Argentina's flexibility to deal with external shocks and exacerbated problems such as unemployment. Argentine exports became uncompetitive, exacerbating chronic fiscal deficits and swelling public debt.

In December 2000, the De la Rúa Government resorted to a US$39 billion IMF bail-out to address concerns that the country would default on its debt. This package afforded Argentina only a short respite. Throughout 2001 subsequent government initiatives and fiscal changes failed to cap public spending.

In October 2001, the government was forced to restructure public debt (US$90b) through a voluntary bond swap once again to avoid default. This still failed to stem capital flight from the local financial system, obliging the government to place restrictions on cash withdrawals and transfers abroad. These measures eventually led to a default to private creditors of US$98 billion, political and social conflict, the collapse of the financial system and the fall of the government in December 2001. A transitional government, led by President Duhalde, applied emergency measures to devalue the peso and set a floating exchange-rate regime. After a long negotiation, Duhalde's Government obtained a transitional IMF aid package that prevented Argentina from defaulting on its debt commitments to the IMF.

After coming to power in May 2003, President Kirchner's government made progress in stabilising inflation and maintaining the primary surplus, together with a strong trade surplus. The government introduced policies that put the economy back on a firm footing and laid the foundation for a decade of strong growth, falling unemployment and poverty reduction. However, significant progress on structural reform, including restructuring the banking system, implementing tax reform, and establishing a new fiscal relationship between the central government and provinces was yet to be achieved.

Tension between Argentina and the IMF — particularly due to the unresolved issue of the debt renegotiation — led to the postponement of the stand-by agreement in August 2004. Negotiations with the IMF resumed following a successful debt swap in February 2005 and the US$9.5 billion owed to the IMF was repaid in January 2006.

Argentina successfully renegotiated its large debt with the majority of private creditors in 2005 and 2010 — although a small percentage of creditors refused to settle. In order to support a managed float, with the objective of maintaining a low peso to stimulate exports and import replacement, Argentina recommenced issuing some debt to foreign creditors in 2006, with Venezuela becoming a major customer.

Economic and trade policy directions

President Fernández has adhered broadly to the economic policies pursued by her husband, including anti-inflation measures such as domestic price accords, export taxes and utility tariff freezes, and strong growth in public expenditure. The recent introduction of measures aimed at slowing the flow of manufactured imports have met with criticism inside Argentina as being protectionist, and caused tensions within Mercosur and with major trading partners.

In March 2008, the government introduced a sliding scale export tax scheme for grains and oilseeds. In response, the leading farmers' associations in Argentina organised nationwide protests and roadblocks against the new measures, halting operations in the grains, beef and dairy sectors, with the objective of having the new tax scheme removed or substantially adjusted. The government's proposed export tax measures for grains and oilseeds were narrowly rejected in the Senate in July 2008. However, this failed to resolve the conflict with farmers, who continue to seek a reduction of all export taxes on agricultural products.

The impact of the global financial instability, in particular weak demand and lower prices for Argentina's commodity exports, dampened economic growth in 2008 (+6.8%) and 2009 (+0.7%). In order to mitigate the effects of the crisis, the government announced a number of stimulatory measures, including increasing spending on public works, providing subsidised credit lines and extending a targeted taxation moratorium.

In late 2008, President Fernández secured congressional approval for the nationalisation of private pension funds. In early 2010, Fernández issued a decree to transfer US$6.5 billion in Central Bank reserves to the Treasury, in order to guarantee debt payments. This and other measures (such as the renationalisation of flag air carrier Aerolíneas Argentinas in September 2008, the introduction of strict foreign exchange controls in October 2011, the approval of legislation to limit the foreign ownership of land in December 2011, and the renationalisation of oil company YPF) appear to presage a wider role for the state in the economy as the government grapples with multiple economic challenges.

Argentina's most important trade agreement is Mercosur. Together with Brazil, Paraguay and Uruguay, Argentina formed the Southern Cone Common Market known as 'Mercosur' in 1991. Mercosur is an imperfect customs union, with a common external tariff applied on most products. Mercosur represents a potential market of almost 240 million people with a combined GDP estimated at up to US$3 trillion.

Argentina's exports to the United States were US$3.66 billion in 2010, while imports from the United States were US$6.13 billion in 2010. Exports to China totalled US$5.8 billion in 2010, up significantly from US$3.67 billion in 2009. Imports from China also increased markedly from US$4.82 billion in 2009, up to US$7.65 billion in 2010.

Economic outlook

Argentina's GDP (PPP) in 2012 was US$746 billion. Argentina's government continues to stimulate economic growth, albeit at a slower pace given its deteriorating public finances and persistent price pressures. In December 2010 the government finalised the exchange of US$20billion in outstanding debt not included in the 2005 restructuring and is now in the process of resolving the issue of outstanding debt with the Paris Club group of creditors.

GDP growth (8.9%) was strong in 2011 but slowed considerably (2.6%) in 2012, due to weak export demand from Brazil and China. While there is a debate about the real rate of inflation, with concerns expressed by some commentators that official figures underestimate inflation significantly, it is clear that inflationary pressures will continue to exist as a result of growing demand, a loose monetary policy, sustained supply constraints and high annual wage rises.

A key issue is the maintenance of a fiscal surplus — important for Argentina's future economic health — and how this is achieved. There is some domestic criticism of the reliance on export taxes on primary products (which now account for 18 per cent of revenue) and bank taxes to maintain that surplus. Due to new spending cut initiatives, including the elimination of subsidies in several sectors and efforts to keep public wage increases in check, the Economist Intelligence Unit expects a moderate improvement of the primary balance in 2012 leading to an overall budget deficit of one per cent of GDP.

The issue of energy security is a key long-term economic and policy challenge. Oil and gas production has stagnated in the face of artificially low domestic consumer prices. Similarly, electricity demand has increased due to strong economic growth, but generation capacity has been flat for several years, exacerbated by the practical freeze on tariffs since the 2001 devaluation. The government has announced several measures on both the demand and supply sides, including the removal of subsidies to allow for a gradual correction of industry and consumer incentives.

Bilateral relationship

Ongoing senior government and officials' visits have contributed to a deepening of Australia's relationship with Argentina. The then Minister for Trade, the Hon Mr Simon Crean MP, visited Argentina from 15-18 April 2010 for meetings with senior government members. The visit was successful in promoting the bilateral trade and investment relationship, as well as our cooperation in multilateral forums such as the WTO and G20. In October 2010 a Congressional delegation from Argentina visited Australia and met with key government officials, academics and representatives from the business sector. Senior Officials discussions, led by Deputy Secretary Heather Smith, were held in October 2010 in Buenos Aires.

In 2007 the Argentine company INVAP, together with the Australian firms John Holland and Evans Deakin, built and commissioned a 20MW replacement nuclear reactor at Lucas Heights in Sydney. The project is a good example of the potential for increased business links between Australia and Argentina.

Argentina and Australia have signed an investment protection agreement, which provides additional security to Australian investors by protecting against the possibility of expropriation of Australian investments and providing for an international dispute settlement mechanism. A double taxation agreement entered into force in 2000. An agreement on cooperation in the peaceful uses of nuclear energy entered into force in January 2005. In November 2003, Australia signed a bilateral Memorandum of Understanding (MOU) on scientific and technological cooperation with Argentina. Australia and Argentina also have bilateral MOUs on air services, education and training and cooperation in the development of rail infrastructure in Argentina, and in November 2011 signed an MOU on Work and Holiday visas.

Approximately 11,000 Argentine born persons live in Australia, many of whom migrated to Australia in the 1970s, during a period of economic and political turmoil in Argentina. Australia's Argentine community also includes a network of second and third generation Argentine Australians.

Bilateral economic and trade relationship

Trade with Argentina is modest, with the balance in trade generally favouring Argentina since the onset of its economic crisis in 2001. Two-way merchandise trade exceeded the half-billion dollar mark for the first time in 2008, and reached A$930 million in 2012. Australian exports to Argentina totalled A$333 million in 2012, and included coal, medicaments and civil engineering equipment. Australian imports from Argentina include animal feed, leather, soft vegetable fats and oils and motor vehicles.

Australian investment in Argentina is estimated at around A$935 million (2011). Sectors of interest include mining, agribusiness, entertainment, port management, freight equipment and workers' compensation insurance.

Export opportunities

Export and, in particular, investment opportunities for Australia can be found in mining and most areas of primary production and agribusiness sectors as well as the revitalisation of Argentine industry and of the communications, transport and public utilities sectors. Other sectors with promise are environmental management, wine, construction and building materials and high-tech machinery. Australian expertise in distance education, vocational training, tele-medicine, English as a second language and postgraduate studies could also find markets in Argentina. With appropriate marketing, tourism could become another potential growth area.

For more information on export opportunities in Argentina, see the Austrade site for Argentina, or email info@austrade.gov.au.

Updated May 2013