Argentina Business Forecast Report Q1 2011

Date: January 22, 2011
Pages: 47
US$ 1,195.00
Report type: Strategic Report
Delivery: E-mail Delivery (PDF), Download

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Includes 3 FREE quarterly updates

Emerging From Kirchner’s Shadow A rgentina’s economy is firing on cylinders as we head into 2011, with strong demand from China and Brazil, coupled with ongoing fiscal stimulus, helping to drive robust economic growth. However, with the government still running a distortive economic policy mix and the death of former President Néstor Kirchner throwing the 2011 presidential and parliamentary elections wide open, our cautious medium-term stance towards the economy remains firmly in place. In the Q111 Argentina Business Forecast Report we analyse the key challenges facing the Argentine economy as it moves into election year, and argue there is little chance of major policy shifts ahead of the election remains unlikely.

The death of former President Néstor Kirchner has brought to an end the career of the dominant force in Argentine politics for much of the last decade. While the ramifications of his death are likely to dominate the political landscape until the upcoming presidential and parliamentary elections in October 2011, we believe that the prospects for significant policy shifts in the short term are slim. That said, should the opposition be able to come together and identify one – or two – potential presidential candidates for next year’s election over the coming months, we believe it will be in a strong position as the vote draws nearer.

For now, Argentina’s economy appears to be one of Latin America’s success stories, with the real GDP growth of 8.0% in 2010 set to be followed by 4.1% in 2011. While undoubtedly an impressive recovery, we believe that the headline figures disguise the massive imbalances which continue to plague the Argentine economy – namely inaccurate reporting of data, loose fiscal policy, persistent government intervention and tight control of the currency – reinforcing our view that current growth rates are unsustainable beyond the relatively short term.

The announcement by Argentine finance minister Amado Boudou that the country is to invite the IMF to provide technical assistance to improve its inflation data marks potentially the most significant shift in economic policy since former President Néstor Kirchner replaced senior figures at the national statistics agency, IN DEC , in 2007. Coming hot on the heels of the reopening of talks with the Paris Club group of outstanding creditors, the move represents the latest in a series of market-friendly government decisions in recent weeks, and raises the prospect that the country’s often-criticised official data may be revamped. Nevertheless, we will be looking for more concrete signs that the government is committed to producing more accurate inflation data before altering our generally cautious medium-term stance on the Argentine economy.
Executive Summary
Emerging From Kirchner’s Shadow


SWOT Analysis
BMI Political Risk Ratings
Domestic Politics


We expect the death of former President Nestor Kirchner to have little impact on policy ahead of presidential elections set for October 2011, with President Cristina Fernandez committed to seeing through her husband’s political agenda.
  Table: Political Overview
Long-Term Politics
Tackling Key Issues Unavoidable
While Argentina’s long-term political outlook remains stable, we identify a number of key challenges facing policymakers over the coming years.


SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Rapid Growth Now, But Trouble Awaits
With surging exports and the onset of pre-election fiscal stimulus pushing real GDP growth to 11.8% year-on-year in Q210, we are revising up our 2010 and 2011 growth forecasts to 8.0% and 4.1% respectively, up from 4.3% and 2.3% previously.
  Table: Economic Activity
Balance Of Payments
Export Competitiveness Unsustainable
The Argentine government’s policy of weakening the peso has boosted export competitiveness, most notably relative to Brazil, the leading destination for the country’s exports.
  Table: Current Account
Monetary Policy I
Inflation Risk For Investment
Argentina’s runaway inflation continues to hurt economic development, weighing on credit growth and hampering much-needed investment.
  Table: Monetary Policy
Monetary Policy II
IMF Help No Inflation Panacea
The decision to invite the IMF to help design a new nationwide inflation index represents a huge opportunity for Argentina to restore investor confidence in the sovereign.
External Debt
Paris Club Debt: No Resolution Yet
Despite rumours that a deal for Argentina to repay the US $7bn of debt outstanding to the Paris Club is in the offing, we hold to our view that an agreement remains some way off.
  Table: Debt indicators
Argentina Q1 2011
Investment Climate
Risks Overshadow Massive Potential
Argentina’s relatively large population and strong consumption culture bode well for investment across a range of consumer-oriented sectors over the medium term.
  Table: Am ericas Autos Business Environment Ratings


The Argentine Economy To 2020
The Future Is Bright Beyond The Kirchners
The government’s defeat in the June 2009 mid-term elections, together with recent opinion polls, suggests to us that a new, more business-friendly leader could take office after the elections in 2011.
  Table: Long-Term Macroeconomic Forecasts


SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
  Table: BMI Business And Operation Risk Ratings
  Table: BMI Legal Framework Rating
  Table: Labour Force Quality
Market Orientation
  Table: Latin America, annual FDI IN FLOWS
Operational Risk
  Table: Trade And Investment Ratings


  Table: Generic Drug Sales Indicators 2006-2014
  Table: OTC Medicine Sales Indicators 2006-2014
  Table: Prescription Drug Sales Indicators 2006-2014
  Table: Argentina’s Auto Sector – Production, 2009-2015


Global Outlook
Continued Divergence Between Developed And Emerging World
  Table: Global Assumptions
  Table: Global & Regional Real GDP Growth % CHG Y-O-Y
  Table: BMI Versus Bloomberg Consensus . 46
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