Argentina WT/TPR/S/47
Page 1
I. ECONOMIC ENVIRONMENT
(1) INTRODUCTION
1. During the 1990s, Argentina has continued the economic reform and restructuring process
initiated in 1989 and deepened in 1991 with the adoption of the Convertibility Plan.1  The reforms
have achieved notable success in the macroeconomy;  GDP growth averaged 5.3% over the period
1990-1997 despite a sharp slowdown in 1995 following the Mexican financial crisis;  GDP  per capita
has doubled;  and price inflation, previously a serious problem, has been reduced to levels comparable
to or below OECD averages under the monetary discipline of the currency-board system andassociated macroeconomic measures.  This greater economic stability, combined with domestic
structural reforms and the increasing integration of MERCOSUR, have encouraged foreign
investment, stimulating changes in the structure of production and trade.  The adjustment process has
not, however, been without economic and social costs:  recorded unemployment and
under-employment have risen sharply and poverty has increased, although there appears to have beensome improvement since 1996.  Official projections imply a slight deceleration of the economy
in 1998 with recovery, mainly supply-driven, by 2000;  however, these estimates depend heavily on
the impact of the Asian financial crisis on Argentina's trade and the pace of growth in the
MERCOSUR economies, mainly Brazil.
(2) R
ECENT ECONOMIC DEVELOPMENTS
(i) Growth, incomes and employment
2. Following a period of robust economic growth  in 1991-94, with average annual GDP growth
of 8.9%, the Argentine economy contracted sharply, by 4.6%, in 1995 (Table I.1), largely due to the
impact of the 1994 Mexican financial crisis (Box I.1).2  Before the recession, growth had been mainly
driven by investment, fuelled by inflows of foreign capital, as well as by demand for motor vehicles,
construction and other services, notably financial and commercial services.  Since 1996, the economy
has recovered as a result of growing domestic and foreign demand, as well as higher world prices forcommodity exports (prices for grains and dairy products reached near-record levels in mid-1996).
Growth recovered from 4.3% in 1996 to over 8% in 1997, despite declining terms of trade in that
year;  the recovery was strongest in energy, construction, finance, and manufacturing, especially
textiles and motor vehicles.  Recent projections indicate a deceleration of real GDP growth in 1998 to
5%, a possible outcome of the expected slowdown in  the growth of world trade caused by the Asian
financial crisis.  However, a supply-led recovery is projected by the year 2000.
3
3. Reflecting market-opening measures, the ratio of Argentina's trade in goods and non-factor
services to GDP increased from 20% in 1991 to about 32% in 1996 (Chart I.1).  The authorities
attribute these relatively low levels to a high degree of self-sufficiency, mainly in food, energy and
                                                     
1 As described in GATT (1992), the Convertibility Plan involved five areas of policy initiatives or
regime shifts (domestic currency convertibility, trade liber alization, deregulation, privatization, and reform of
the financial system) which improved the supply conditions of the economy.
2 World Bank (1996a);  EIU (1997a), p. 18;  IMF Pr ess Release No. 98/1, 4 February 1998;  IMF Press
Information Notice (PIN) No. 98/9, 23 February 1998.  Domestic consumption represents 70%-80% of theGDP.
3 IMF Press Release No. 98/1, 4 February 1998.WT/TPR/S/47 Trade Policies Review
Page 2
natural resources;  Argentina's size and geographical location;  and a production pattern which is a
legacy of past import-substitution industrialization (ISI) strategies.4
Table I.1
Economic developments, 1990-97
1990 1991 1992 1993 1994 1995 1996 1997
Average annual growth rate, %
Real GDP -1.3 10.5 10.3 6.3 8.5 -4.6 4.3 8.2
Consumption -1.1 14.3 13.3 5.7 6.9 -6.1 5.3 7.7
Gross domestic investment -15.2 31.5 33.5 16 21.8 -16.3 8.3 27.1
Exports of goods and services 16.8 -5.1 2.1 2.4 15.9 22.7 6.5 7.7
Imports of goods and services -0.7 75.6 66.5 13.4 22.5 -11.6 16.8 27.2
Inflation (end of period CPI)  1,344.4 84 17.5 7.4 3.9 1.6 0.1 0.3
Unemployment rate (%) 8.6 6.9 6.9 9.9 10.7 18.4 17.1 13.7a
Memorandum:
   Population (million)  32.6  33.0  33.4  33.9  34.3  34.8  35.2 ..
   GDP/capita (US$ current prices)  4,342.6  5,743.1  6,851.9  7,612.7  8,214.6  8,041.8  8,445.8 ..
Non-financial public sector finances
   Overall balance ( resultado global ) (US$ billion)b.. .. 1.4 2.7 -0.3 -1.3 -5.3 ..
   Overall balance (% of GDP) .. .. 0.6 1.1 -0.1 -0.5 -1.8 ..
.. Not available.
a As of October 1997.
b Overall balance represents the difference between total revenue (i.e. current revenue plus capital) and total expenditure
(i.e. current expenditure plus capital expenditure).
Note: Average annual growth is calculated using 1986 constant prices.
Source: MEOSP (1997), Informe Económico  No. 21  - Primer Trimestre de  1997;  MEOSP (1994), Informe Económico Año  1994;
International Monetary Fund, IFS, various issues;  and World Bank, World Development Indicators;  MEOSP (1998 ),  Informe
de Avance del Nivel de Actividad , March.
4. Since 1990 the share of services in GDP has increased from 62.8% to 65.4% (1996), while the
shares of agriculture, livestock and manufacturing have declined slightly (Table I.2).  On the other
hand, the share of employment in agriculture has almost doubled in recent years.  Economic activityremains unevenly distributed, with less than one fifth of the territory (the Federal District of Buenos
Aires and the Provinces of Córdoba and Santa Fe) providing 80% of industrial and 92% of
agricultural output.  Following public sector reforms in recent years, employment by the federal
administration fell by about 58% between 1990 and 1996, to 284,000 (Box I.2).
5. GDP per capita has doubled since 1990, reaching an estimated US$8,446 in 1996, after a
decline in 1995 (Table I.1).  The overall level of human development in Argentina remains the highest
in Latin America, with high literacy rates and enrolment in primary and secondary education.  A
falling birth-rate and increasing life expectancy (currently 73 years) is leading to an ageing
population, prompting a need for pension reform.  Health care is shared between the public and the
private sectors and semi-public mandatory health trust funds linked to places of employment;  health
insurance schemes cover 80% of the population while the funds' services cover 65%.
                                                     
4 Study by the Secretariat of International Economic Relations of the Ministry of External Relations,
International Trade and Worship cited in La Nación Line, 18 June 1997.Argentina WT/TPR/S/47
Page 3
Box I.1:  Facing exogenous crises with a currency board
Since the previous Trade  Policy Review, Argentina has had to cope with two major exogenous crises induced
by currency devaluations by major trading nations.
The crisis of confidence provoked by the Mexican financial crisis at the end of 1994 caused a sharp, one-year
recession.  Domestic demand and fixed investment contracted;  production declined;  unemployment increased
sharply;  and there were shortfalls in tax revenues and st rains on the financial system.  This first severe test o f
the Convertibility Plan highlighted the extent of the economy's reliance on volatile capital flows, the weakness
of the financial system and the difficulties in holding the nominal exchange rate during periods of crisis.  That
the Plan survived was thanks to strict  macroeconomic  discipline, which maintain ed the credibility of the
programme.  Furthermore, a devaluation under crisis conditions in a highly dollarized economy would
probably have been highly counterproductive, deepening the crisis it was intended to correct.
The fast recovery from the Mexican crisis was largely due to a forceful government response, mainly in the
fiscal and financial areas.  The impact of the shock was moderated by strong trade performance, linked to theintroduction of the Real Plan in Brazil and bilateral trade arrangements with that country.  Pressure toreverse previous liberalization was resisted.  The crisis made a significant restructuring in the financial sector
necessary, as well as an improvement of competitiven ess in other sectors by cutting costs and improving
productivity.
Initial concerns about the impact of the Asian crisis  of 1997/98 were based on th e facts that Argentina's
external debt was among the highest in the region and that short-term external debt was roughly comparable
to international reserves.  Argentina was also seen as vulnerable to any short-term portfolio shift that might be
triggered by higher U.S. interest ra tes.  Despite concern over the possibility of a speculative attack on the
peso, by December 1997 the markets were displaying co nfidence in the operation of the quasi-currency board
system in Argentina because of the backing of the monetary base with international reserves.
By early 1998 the Asian crisis was starting to have some direct and indirect trade effects on Argentina:  in the
first quarter of 1998 exports to ASEAN markets dropped by 41% (mainly agricultural items) while imports
grew by 22%, (mainly consumer and capital goods), reversing the previous year's trade surplus with the
region.  The most affected  manufacturing sectors were:  motor vehicles, where orders from Brazil have fallen;
man-made fibres, where domestic production was cut both in Argentina and Brazil as a result of increasedimports from South-East Asia;  other textiles, where pr ices quoted by Asian suppliers fell by 35% over the last
months of 1997;  footwear, where Argentine imports from Asia have increased;  and, to a lesser extent, oil and
agricultural items, where Argentine maize sales to Asia have started to drop.
So far, Argentina has weathered the latest  turbulence in world capital markets well and there have not been
any major immediate consequences in the economy.  The Government response has so far been to emphasizethe solidity of Argentina's banking and financial system.  A second response to the crisis has come atMERCOSUR level with the ac ross-the-board increase of the CET by 3 percentage points in 1998 (Chapters II
and III); which was also prompted, inter alia, by the deterioration of Brazil's current account and budget
deficit.  By December 1997, the authorities were minimizi ng the threat because of the low share of trade with
Asia.  In addition, confidence has been expressed in the efficacy of WTO-compatible contingency measuresagainst imports.Argentina WT/TPR/S/47
Page 5
Box I.2:  Privatization, deregulation and public sector reforms
A large and inefficient public sector was widely seen as one major reason for Argentina's disappointing
economic performance in the post-war period.  However, attempts at reform were limited and subject to strong
congressional opposition. By 1989 federal public enterp rises were generating large operating deficits as a
result of overstaffing, procurement from overprotected domestic industries, and the operation of a number o f
uneconomic activities.  Inadequate investment led to sever e shortages, obsolete tech nology and poor service.
Argentina's aggressive and ambitious privatization programme was aimed at easing the stance of the public
sector in the short term by generating new cash flows, debt reduction and lower spending, and, in the medium-to long-term, at obliging the firms to become more compe titive and increasing the volume and efficiency o
f
new investment.  The process was assisted by several  World Bank adjustment loans  (totalling US$1.5 billion)
as well as a US$23 million technical assistance loan (Public Enterprise Reform Execution Loan, PEREL); the
first loan (Public Enterprise Reform and Adjustment Loan I, PERAL I), proposed, inter alia, repealinglegislation that required public enterprises to favour domestic suppliers.
Within three years (1991-94) about 90% of State enterprises were privatized for the equivalent of more than
US$20 billion, most of which was used for debt reduc tion; by 1996, most public  utilities (telecommunications,
airlines, power generation and distribution, gas transportation and distribution, and passenger and cargo
railways) and all productive facilities (including oil and gas ext raction, coal mining , petrochemical plants,
and steel mills) had been transferred to the private sect or.  The National Mortgage Bank (Banco Hipotecario
Nacional), the Argentine National Bank (Banco de la Na ción Argentina), the post office, the airports network
and nuclear power stations are to follow in 1998.  Privatization of banks, electricity generation anddistribution, and water and sewerage sy stems at provincial level was speed ed up in 1995 but has been uneven
so far; the privatization of remaining provincial banks appears important for the strengthening of the financial
system as well as to improve allo cative efficiency and fiscal discipline.
Argentina's substantial and exceptional results in restru cturing and privatizing were mainly due to the strong
government commitment and rapid action, short-ci rcuiting any opposition.  Although the immediate
beneficiaries were taxpayers and investors, gains to consumers should become mo re apparent as competition
takes hold.  As a complement to privatization, the deregulation of the economy (e.g. in ports, public utilities,transport, oil and gas) through the abolition of price controls and the closing down of regulatory and
marketing bodies and boards, has led to cost reductions in production, shipping and transportation as well asimproved availability of several public utilities (gas, water, electricity, telecommunications).
The reform of the federal bureaucracy also began in 1990.  Based on a ministerial reorganization and
improvements in the civil service sy stem, this exercise enabled the Gover nment to increase average salaries
and partially restore salary differentials.  Federal empl oyment decreased from 671,000 to 284,000; out of the
387,000 job cuts, 103,000 were layoffs and 284,000 were transfers of teachers and health workers to theprovinces.
6. Despite the creation of 884,500 jobs since 1991, efforts to reduce labour costs, and further
liberalization of the labour market, in recent years unemployment and under-employment have
become serious concerns.  Between 1992 and 1995, recorded unemployment increased from 6.9% to
18.4%, firstly as a consequence of structural reforms and secondly due to the sharp recession that
followed the 1994 Mexican crisis.  Underemploym ent (defined as workers employed for less than
35 hours) rose from 8.9% to 13.6% in the same period.5  Following years of steady decline,
since 1995 poverty indices have risen as a result of growing unemployment and the limited reach of
the social safety net;  in 1996, the percentage of families living below the poverty line was estimated
                                                     
5 Private observers' estimates were more than double (Study by the Argentine Centre for
Macroeconomic Studies (CEMA) cited in Latin American Regional Reports - Southern Cone,
27 December 1996).  Data from Ministry of Economy, National Accounts Office.WT/TPR/S/47 Trade Policies Review
Page 6
to have risen to 20% from 14% in 1994 (Box I.3).  Since 1996, there has been some decrease in
unemployment, to an estimated 13.7% in October 1997, mainly caused by a sharp increase in new
urban jobs, including temporary (fixed-term and "trial") posts6;  the rate of underemployment has
stabilized.  Consequently, the share of families below the poverty line also fell slightly, to 18.8% in
May 1997.
Box I.3:  Policy challenges and plans
In recent years Argentina has made substantial progress in  structural reforms  such as re-defining the role o f
the State, privatization, pension reform, etc.  The principal policy challenges facing the country in the next few
years cover areas such as:  taxation, he alth, education, the labour market, poverty alleviation, and the judicial
system.
Labour market reforms are important for promoting longer-term economic growth, a reduction in
unemployment and continued external competitiveness.  However, despite new legislation to increase labourflexibility for small and medium-sized enterprises, rigid ities persist.  The authorities are committed to the early
passage of a reform package to enhance labour market  flexibility and improve wages;  this seeks to achieve a
significant reduction in dismissal co sts and progressive elimination of th e "ultra-actividad" clause (where
employment contracts remain legally binding after their expiry if there is no agreement between unions and
employers to renegotiate).
In relation to poverty alleviation, the Government is to pursue efforts to restructure social programmes to
improve the targeting of vulnerable groups.  In addition to programmes providing health care, food, assistanceand schooling, low-cost housing is to be provided for at least 50,000 families a year and basic infrastructure is
to be made available for the 1,000 poorest municipalitie s in the country.  Initiatives  in health care are to
include a revision of the regulatory framework for private health care providers and completion of therestructuring of the health insurance system for retirees and of health organizations run by unions.
Reforms of the judicial system are aimed at improving its efficiency, especially in areas of macroeconomic
relevance such as tax evasion and public ethics.  Judicial procedures are to be modified so as to speed up the
resolution of tax cases and increase legal security in  credit markets.  Public ethics have been subject to
increased debate in Argentina, and a decrease in corruption and fraud cases has followed the privatization o
f
most State enterprises.
(ii) Prices
7. Following the introduction of the Convertibility Law in 1991, together with efforts to reduce
federal expenditures and raise tax revenues, and the elimination of indexation, price inflation fell fromover 1,300% in 1990 to an estimated 0.1% in 1996, the lowest rate recorded in 58 years and among
the lowest in the world (Table I.1).  This has been a major accomplishment, given Argentina's history
of bursts of hyperinflation.  Inflation rose slightly to 0.3% in 1997 and is expected to be
approximately 1% in 1998.
(iii) Public finances
8. There have been marked improvements in Argentina's public finances since the previous
Review, despite a setback following the Mexican financial crisis.  While privatization andrestructuring of the public sector form the basis of the programme (Box I.3), there have also been
important tax reforms, spending cuts and a restructuring of liabilities.
                                                     
6 The authorities estimate that since 1996 about 600,000 new jobs have been created each year
(MEOSP (1998a)).Argentina WT/TPR/S/47
Page 7
9. Following the initiation of reform in 1991, the public accounts experienced a period of
modest surpluses (Table I.1).  This was the result of more efficient tax collection, increased tariff
revenue resulting from the import surge, and large infusions of revenue from privatization.  However,as privatization receipts fell off, deficits reappeared, increasing substantially in the wake of the
Mexican financial crisis, as a consequence of growth in public spending, certain structural reform
measures, and a drop in revenue as consumer spending fell.  The overall balance of the non-financial
public sector moved to a deficit of 0.1% of GDP in 1994, rising to 1.8% in 1996.  However, following
improvements in the fiscal stance, this ratio dropped to 1.3% in 1997 
7, and further reductions are
expected in 1998 under a comprehensive tax reform aimed at:  further improving the efficiency and
equity of the tax system;  broadening the bases of income tax and VAT, for example, by covering
imports and exports of services and suppressing exemptions;  and modifying excise taxes.  Under the
programme, agreed in the context of the extended arrangement with the IMF (below), the overall
public sector deficit is to be reduced to under 0.5% of GDP by the year 2000, with further reforms intaxation, fiscal relations with provincial governments, and the social security system.
10. Under fiscal pressure, costly incentives have been largely eliminated.  There has also been
substantial reform of the tax system and administration.  However, in response to movements in the
fiscal situation there have been a number of abrupt changes – increases and decreases – in certain
tariff rates, and in the level of the statistical tax (Chapter III), giving the impression of a degree ofinstability in the level of protection.
11. Among the measures to raise revenue collection and streamline the tax system were the
introduction of a uniform VAT, with a broad base;  subsequent increases in the rate of VAT;
increased rates of excise tax on fuels (particularly diesel) and new diesel-powered motor vehicles,
income tax for high-income individuals and corporations, and social security taxes for the
self-employed;  the removal of 21 minor and inefficient taxes (e.g. the gas-oil and federal stamp taxes,
charges on bank debt, freight, shipping, and foreign currency transactions, and certain export taxes);the implementation ahead of schedule of the MERCOSUR Common External Tariff on certain capital
goods;  and a 1996 tax moratorium expected to gene rate a flow of US$4 billion of revenues over the
following 30 to 35 months.  Efforts to reduce public expenditure were focused on suppression, under
the Convertibility Law, of the tax adjustment for inflation purposes and the elimination or reduction
of certain tax incentives such as drawbacks for exports, incentives linked to sale of domesticallyproduced capital goods, and the industrial specialization regime.  The efficiency of tax administration
was increased by establishing a verification system for the largest taxpayers and introducing
institutional changes concerning tax collection (Chapter II).  Further action was taken by passing a
penalty law against tax non-compliance, increasing penalties for tax evasion, and launching a
campaign against corruption.
(iv) Exchange rate developments and the money supply
12. Since April 1991, the fixed exchange rate of one peso to one United States dollar, established
under and guaranteed by the Convertibility Law, has been maintained;  it may be modified only by
law.  Access to foreign exchange is unrestricted and no exchange controls are operated.
13. The Central Bank of Argentina (BCRA) controls the money supply by buying and selling
United States dollars at the fixed rate.  Under the Convertibility Law, Argentina's monetary base may
                                                     
7 According to the IMF, the overall public sector  deficit has since been progressively reduced, from
3.4% of GDP in 1995 to 1.9% in 1997 (IMF estimates contained in IMF Press Information Notice (PIN)No. 98/9, 23 February 1998).WT/TPR/S/47 Trade Policies Review
Page 8
not exceed its international reserves (with some limited flexibility), thereby effectively converting the
Central Bank into a currency board.8  Following the Mexican financial crisis of 1994/95, the Central
Bank used its flexibility to reduce  the foreign-exchange backing of the monetary base from close to
100% to a minimum of 80%;  however, the authorities have indicated that at present this ratio exceeds
100%, a sign of confidence in the system.
14. The fixed exchange rate, and the release of pent-up demand stemming from the overall
economic recovery have made imports increasingly competitive.  Certainly, at the outset of the
Convertibility Plan, the divergence between domestic and the U.S. inflation rates contributed to a
rapid real appreciation of the peso (Chart I.2).  However, between 1992 and 1994 the appreciation was
partly compensated by measures such as market deregulation, removal of distortive taxes and
reduction of social security contributions, designed to reduce domestic production costs, the so-called
"Argentine cost" ( costo argentino ).  Moreover, since 1994, the rate of inflation has fallen rapidly
towards OECD rates, and in 1996-97 was lower than in the United States.  Exports within the regionhave become more competitive because of the real appreciation of the Brazilian currency in the same
period.
9  Up to late 1996, competitiveness also benefited from the depreciation of the U.S. dollar
against European currencies and the yen, but this has been reversed in the last 18 months.
15. Under MERCOSUR, Argentina's trade and overa ll economic prospects have become closely
tied to macroeconomic stab ility and sustainable economic growth in Brazil.  Given Argentina's fixed
exchange rate regime against the U.S. dollar, should Brazil's currency experience real depreciation,
Argentina's exports may suffer and imports further increase.  The elimination of imperfections in the
financial and labour markets and export diversification could reduce such risks.
(v) Balance of payments
16. Since 1992, Argentina has experienced a series of current account deficits, financed largely
by growing external long-term borrowing, foreign di rect investment inflows and privatization receipts
(Table I.3).  Up to 1994, the current account imbalance was driven by a growing merchandise tradedeficit and steadily rising net investment outflows on interest and profits.  The peak in the current
account deficit in 1994 stemmed from a surge in imports, linked, inter alia , to Brazilian depreciation
prior to the Real Plan, and increased interest payments resulting from rising U.S. interest rates.  On
the other hand, since 1992 interest earnings have more than doubled, also because of high interest
rates.  The move from deficit to surplus in merchandise trade in 1995 and 1996 was linked toArgentina's real depreciation vis-à-vis  Brazil, in particular, as well as import compression in 1995
resulting from the contraction in demand following the Mexican financial crisis.  In 1997, a trade
deficit reappeared as a result of import growth;  in response to IMF concerns, the authorities explained
that such growth was mainly due to imports of capital goods, which are expected to generate future
exports.
                                                     
8 Some flexibility derives from the discretion the Central Bank has in the use of variable bank reserve
requirements and excess international reserves (World Bank, 1996a).
9 The Argentina-Brazil Automotive Agreement has also helped automotive exports to Brazil, but this
regime is to be terminated by the year 2000 (Chapter IV).WT/TPR/S/47 Trade Policies Review
Page 10
Table I.3
Balance-of-payments, 1990-97
(US$ million)
1990a1991a1992b1993b1994b1995b1996b1997b
Current account balance 6,431 1,047 -5,462 -7,672 -10,117 -2,768 -3,787 -10,119
Merchandise trade balance 8,275 3,703 -1,450 -2,426 -4,238 2,238 1,622 -3,195
    Exports (f.o.b.) 12,354 11,978 12,235 13,117 15,839 20,964 23,811 25,223
    Imports (f.o.b) 4,079 8,275 13,685 15,543 20,077 18,726 22,189 28,418
Non-factor services -284 -815 -2,257 -2,730 -2,941 -2,222 -2,495 -3,069
    Exports 2,681 2,762 2,454 2,454 2,599 2,860 3,226 3,271
    Imports 2,965 3,577 4,711 5,184 5,540 5,082 5,721 6,340
Investment income -2,114 -2,070 -2,416 -2,927 -3,258 -3,216 -3,248 -4,205
    Interest balance 3,075 2,745 -1,289 -1,081 -1,136 -1,054 -1,326 -1,770
        Interest earnings 5,189 4,815 2,099 2,135 3,073 4,348 4,587 5,332
        Interest payments 444 564 3,388 3,216 4,209 5,402 5,913 7,102
    Profits and dividends -2,714 833 -1,127 -1,846 -2,122 -2,162 -1,922 -2,435
Transfers (net) .. .. 661 411 320 432 334 350
Capital and financial account balance .. .. 8,567 12,152 10,678 2,699 7,569 13,181
Banking sector .. .. 826 -1,527 1,893 4,360 -519 -1,794
    Central Bank (BCRA) .. .. -177 -2,818 307 1,929 849 -800
    Other financial entities .. .. 1,003 1,291 1,586 2,431 -1,368 -994
Non-financial public sector .. .. 1,285 7,121 4,097 5,945 8,731 7,331
    National government .. .. 1,853 6,473 4,471 6,435 8,583 6,495
    Local government .. .. 31 889 189 374 612 1,231
    Public enterprises and other .. .. -599 -241 -563 -864 -464 -395
Non-financial private sector .. .. 2,766 4,559 4,454 4,923 5,415 9,035
Other Capitalc.. .. 3,690 1,999 234 -12,529 -6,058 -1,391
Changes in international reservesd3,717 1,880 -3,105 -4,480 -561 69 -3,782 -3,062
Memorandum:
    Current account balance/GDP (%) 9.33 0.58 -2.41 -2.98 -3.59 -0.99 -1.27 ..
.. Not available.
a Data for these years based on MEOSP (1994, Table A.5.6 ( Versión "Argentina en crecimiento" )).
b Preliminary estimates.c Includes errors and omissions.
d Negative = increase.
Source: Data provided by the authorities of Argentina;  and International Monetary Fund, IFS, February 1998.
(vi) External debt
20. Between 1991 and 1997 Argentina's external debt rose by more than 86% in value to
US$109.4 billion (Table I.4), increasing pressure on fiscal accounts and turning external finance into a
key condition of economic growth.  Nevertheless, with rapid GDP growth, the external public
debt/GDP ratio has only risen slightly in recent years, growing from 23.4% in 1993 to 26.3% in 1998.
Argentina has had no difficulty in obtaining need ed external financing so far, although it remains
vulnerable to changes in external market conditions.11
21. The restructuring of external debt in 1992 enabled banking institutions to regain access to
international capital markets, allowing them to provide longer-term funding.  In 1997, the
non-financial public sector was responsible for about 69% of external debt, a much lower share than
in 1991, mainly as a result of the privatization programme.  Reflecting the same shifts, foreignborrowing by the private non-financial and financial sectors has also increased substantially in recent
years.
12  While the share of lending by the international financial institutions has remained steady,
                                                     
11 IMF Press Information Notice No. 98/9, 23 February 1998.
12 In 1996 the biggest private sector debtors were the banks, oil industry, telecoms, gas sector and
power companies (Latin American Weekly Report, 11 March 1997).Argentina WT/TPR/S/47
Page 11
recourse to financial tools such as the issue of public bonds and titles has increased dramatically;
such bonds and titles represented 45.3% of Argentina's external debt in 1997.
Table I.4
External debt structure, 1991-97
(US$ million and per cent)
1991 1992 1993 1994 1995 1996 1997
External debt, total (EDT) 58,588 59,258 67,938 79,069 89,321 99,071 109,359
Debt by categories:
A.   Public non-financial sector, and Central Bank total 52,739 50,677 53,622 61,274 67,002 73,612 75,021
 Public bonds and titles 1,100 3,020 31,596 36,881 37,968 46,180 49,530
 Refinanced debt (Plan Financiero 1992) 31,341 29,375 0 0 0 0 0
 International organizationsa7,962 7,104 10,501 11,322 15,088 15,710 16,121
 Official creditors 9,042 9,207 9,765 10,917 11,609 10,040 7,810
 Foreign commercial banks and other suppliers 3,294 1,971 1,760 2,154 2,327 1,672 1,560
B.   Private non-financial sector totalb775 2,061 5,435 6,996 8,692 9,803 13,840
 Public bonds and titles 434 1,611 4,817 5,986 7,420 7,881 11,879
 International organizationsa341 450 618 1,010 1,272 1,922 1,911
C.   Financial sector (excluding Central Bank) total 5,074 6,520 8,881 10,799 13,627 15,656 20,498
 Bonds and titles 109 780 1,991 2,812 2,516 3,975 5,006
 Credit lines 3,037 4,104 4,312 5,225 7,249 6,948 7,374
 International organizationsa299 301 295 327 331 501 459
 Deposits 184 323 1,030 1,706 1,728 1,603 2,822
 Other obligations 1,445 1,012 1,253 729 1,803 2,629 4,837
Memorandum:
   EDT/XGS (%) 397.5 403.4 436.3 428.8 374.9 366.4 383.8
   External public debt / GDP (%) - IMF .. .. 23.4 24.7 24.4 25.9 26.3
   RES/EDT (%) 12.6 19.4 22.5 20.2 17.8 19.9 ...
.. Not available.
a These include the IMF, the World Bank and the Inter-American Development Bank.
b Data on direct financial and commercial debt is not available and thus not included.
Source: Data provided by the authorities of Argentina;  Memmorandum items:  external public debt/GDP ratios from IMF Press
Information Notice No. 98/9, 23 February 1998;  and Reserves from MEOSP (1997),  Informe Económico No. 21 – Primer
Trimestre de 1997 .
(3) DEVELOPMENTS IN MERCHANDISE TRADE
22. Following multilateral and MERCOSUR trade liberalization efforts as well as the fixing of
the nominal exchange rate, Argentina experienced a growing merchandise trade deficit in theperiod 1992-94, but as a result of industrial productivity improvements, the implementation of the
Real Plan in Brazil, and import compression follow ing the Mexican crisis, there was a surplus in 1995
(Table I.3).  Argentina, which has traditionally had a substantial merchandise trade surplus with other
Latin American countries, has also developed a sizeable surplus with MERCOSUR partners.  Export
growth, led by energy products, manufactures (mainly transport equipment, stimulated by theautomotive trade arrangement with Brazil, Chapter IV) and natural-resource-intensive goods, may be
affected by reduced demand forecast for the Brazilian market in 1998;  export competitiveness has
been assisted by reforms which, inter alia , have helped to reduce energy and transport costs.WT/TPR/S/47 Trade Policies Review
Page 12
(i) Composition of trade
23. Since 1992 Argentina's merchandise trade structure has changed slightly.  Exports are now
less dominated by agriculture-related items, as a result of growth in mining products, petroleum,semi-manufactures and automotive products (Chart I.3).  In the same period, imports have been
concentrated in capital and intermediate goods;  such investment-related imports are expected to
increase the competitiveness of both manufactured exports and domestic output vis-à-vis  competing
imports.
(ii) Direction of trade
24. While the overall value of Argentina's regional trade has increased, this has been entirely
export-led (Chart I.4).  Between 1992 and 1996, the share of Latin America in Argentina's exports
grew from 31% to 48% of the total:  the share of MERCOSUR partners (mainly Brazil) increased
from 19 to 33%.  Imports from Latin America, howev er, showed no such increase, rather falling from
about 34% to 31%, with MERCOSUR partners declin ing relatively less rapidly, from 25% in 1992 to
23% in 1995, rising to 24.4% in 1996.
25. MERCOSUR has become an increasingly important  export market for Argentina's petroleum
and motor vehicles, as well as a supplier of text iles, clothing, footwear and machinery (Chart I.5).
Brazil, in particular, has become the largest single market for Argentine exports as a result of the
implementation of the MERCOSUR customs uni on as well as its own unilateral trade
liberalization, including the suppression of domestic subsidies for wheat production, and the demand
boom created by the Real Plan;  between 1992 and 1996 its share of Argentina's total exports more
than doubled to almost 28% (Chart I.6).  While th e U.S. dollar value of trade with the EU and the
United States has continued to grow, the rate of growth is less than that with MERCOSUR so that
their share of exports has fallen slightly.  The EU, Brazil and the United States remain the major
sources of Argentine imports;  the share of imports from east and south Asia has declined by 11.2%.