Argentina

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 expected inflow of foreign currency, the enforcement of taxation on financial income, and growing doubts on the sustainability of the stock of bonds 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.

In 2019, the crisis deepened. Activity continued to fall, inflation on the rise (accelerated sharply after August when there was a strong devaluation post primary elections), further reducing consumption while investment collapsed.

Due to the improved price competitiveness that started the previous year with the devaluation, exports continued growing, while, on the other hand, economic activity contraction led to a reduction of imports at a high speed throughout 2019. The trade balance ended positive 15.9 billions United States dollars (USD), the highest since 2009.

The presidential elections in October 2019 ratified the results of the primaries. The opposition party, with Alberto Fernandez running for President and former President Cristina Fernandez as Vice-President, won the elections with 48% of the total votes, against the governing party (lead by Mauricio Macri), which obtained 40% of the total votes.

2020 was an unexpected year. The irruption of the COVID-19 pandemic brought with it new challenges for the Argentine economy to add to those already existing. On 20 March 2020, a social, preventive, and mandatory isolation period was decreed, halting most of the economic activity, while the essential sectors continued operating in a limited way. This shock situation further exacerbated the economic recession that had been developing since the beginning of 2018 (or, from a longer-term perspective, the cycle of stagnation that began in 2011).

At the local level, the government announced a series of measures to mitigate the impact of the lockdown policy, which led to a fiscal deficit of around 7%. In the absence of private financing, the BCRA issued pesos to cover the treasury's requirements. Meanwhile, inflation went through a downward process as a result of the low activity level and the large number of prices that were frozen by government measures.

August 2020 was key to the renegotiation of the governmental debt, when, after steps forwards and backwards, the government announced a formal agreement with private foreign creditors, and the country managed to avoid a new default, clearing debt maturities for the next three years.

Although the contagion curves in Argentina have been showing gradual decreases at the end of 2020, the country is not immune to the possibility of a rebound. If that were to happen before the arrival of the vaccine, the incipient recovery of the activity taking place after the minimum levels reached could cease.

2021 will be a challenging year for Argentina, as the country will have to solve its situation with multilateral creditors, mainly the IMF, and correct the large macroeconomic imbalances that still persist.

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.