The Republic of Argentina is located in South America, approximately between latitudes 23°S (Tropic of Capricorn) and 55°S (Cape Horn). The Andes separates the country from Chile in the west, and it borders Bolivia and Paraguay in the north and Brazil, Uruguay, and the South Atlantic Ocean to the east.
Argentina's population and culture were heavily shaped by immigrants from all over Europe, but particularly from Italy and Spain, which provided the largest percentage of newcomers from 1860 to 1930. The Republic of Argentina is made up of 23 provinces plus the Autonomous City of Buenos Aires, its capital. The official language of Argentina is Spanish, and the currency is the peso (ARS). Argentina benefits from rich natural resources, a highly literate population, an export-oriented agricultural sector, and a diversified industrial base.
After the 2002 economic and social crisis, convertibility and the pegged exchange rate were abandoned and replaced with a controlled floating rate system.
During the 12 years from 2003 to 2015, the government was in the hands of Nestor Kirchner and his wife Cristina Fernandez (four years the former and eight years the latter), whose administrations left the economy with many macroeconomic imbalances.
In the presidential election held in 2015, the political coalition composed of the Republican Proposal (PRO), the Radical Civic Union (UCR), and the Civic Coalition (CC-ARI), led by Mauricio Macri, won the election in a second round (ballotage). Having minority in both chambers in the parliament, the government set out to remove the macroeconomic imbalances gradually.
Throughout 2016 and 2017, the gradual adjustments started allowing the economic activity to grow again in 2017. In this context, the ruling party won the legislative election held on 22 October, but still did not get control of the Congress.
Certain changes in the international context that took place in 2018 (i.e. interest rates rising in the United States, appreciation of the dollar, and reversion of the capital from emerging countries), plus other internal factors (i.e. strong loss of the soy and corn harvest due to a drought followed by a flood that impacted the generation of foreign currency, the enforcement of taxation on financial income, and growing doubts on the sustainability of LEBAC stock issued by the Central Bank of Argentina [BCRA]), affected the gradual strategy and resulted in a trust crisis.
The consequences of such crisis were a practical closure of international financing markets for the government and a strong devaluation of the peso, 114% in December 2018 vs. December 2017.
Under this scenario, the government reached an agreement with the International Monetary Fund (IMF) to obtain the necessary funds to cover the debt payment needs for 2018 and 2019. At the same time, it deepened the fiscal adjustment, targeting zero primary deficit for 2019. Meanwhile, in October 2018, the Central Bank implemented a new monetary policy to stabilise the exchange rate and, in the midterm, reduce inflation.
While the Central Bank was quite successful in stabilising the exchange rate, inflation stood up to 48.4% in November 2018 compared to the same period in 2017, mostly because of the pass through of the devaluation of the currency. As a result, the economic activity slowed down and the economy went into recession in the third quarter of 2018. The most affected sectors were the agricultural sector (weather factors mentioned above), manufacturing sector, and wholesale, retail, and repairs sector.
Due to the improved competitiveness, exports have started to recover, while, on the other hand, economic activity contraction led to imports reduction at a higher speed in the second semester of 2018. Trade balance for 2018 ended negative but at a lower level than the negative balances obtained in the previous year.
2019 will be a challenging year. While the international context will continue to be volatile, Argentina needs to continue the path of reducing inflation and return to economic growth. Favourable conditions in the agricultural and energy markets, and also in the Brazilian economy, will help in this direction, although the expectation is that different economy sectors would not benefit equally.
PwC Argentina has a staff of approximately 3,000 professionals, made up of accountants, lawyers, graduates in economics, and international trade management. PwC provides a multidisciplinary and coordinated approach to create integrated solutions tailored to the client’s needs.