Academic journal article Current Politics and Economics of South and Central America

Argentina's Post-Crisis Economic Reform: Challenges for U.S. Policy *

Academic journal article Current Politics and Economics of South and Central America

Argentina's Post-Crisis Economic Reform: Challenges for U.S. Policy *

Article excerpt

At the close of 2001, Argentina plunged into a devastating financial crisis. Deep recession, high unemployment, and social upheaval brought to power a new government, and with it a new direction in economic policy away from market-oriented policies toward greater government control of the economy. A new emphasis on "social equity" placed additional strain on the budget, but economic recovery, strong foreign demand for Argentine commodities, an expansive monetary policy, and debt repudiation brought six straight years of fiscal surplus. By 2012, however, the creeping deterioration of Argentina's economic fortunes was undeniable. Slowing economic growth, rising inflation, and a tightening budget constraint raised doubts about the country's fiscal capacity to meet the now well-entrenched "populist" expectations. At risk is the Argentine economic model itself, as well as the political and social balance it has supported over the past decade.

Supporting an expansive domestic policy agenda has led to a highly distorted economy that in turn has required repeated intervention in the external accounts to maintain a fragile balance. Debt repudiation, expropriation, capital and currency controls, trade protectionism, and refusal to abide by judgments made by international organizations are part of the policy mix that has also created tension with foreign governments, international financial institutions, and private sector interests. In the United States, the federal courts and the Obama Administration have taken action against many of Argentina's foreign economic policies. Previous Congresses have introduced legislation and resolutions denouncing Argentina's practices, and Congress may consider whether to formally respond to Argentina's foreign economic policy as well. This report provides a framework for understanding Argentina's economic policies, issues raised for U.S. stakeholders, and implications for the future of U.S.-Argentine economic relations.


U.S.-Argentine economic relations have long history of mutually beneficial engagement. Still, Argentina is only the United States' 29th-largest export market and 54th in imports, and accounts for less than 0.05% of total U.S. trade. The United States is Argentina's fourth-largest export market and number three in imports, accounting for roughly 8% of Argentine trade, but falling well behind Brazil and China. U.S. foreign direct investment (FDI) in Argentina is third-highest in South America behind Brazil and Chile, and reflects the many U.S. firms operating for decades in all sectors of the Argentine economy.

Nonetheless, U.S.-Argentina economic relations have been strained at times, in part because of Argentina's struggle to maintain macroeconomic stability, and also because of specific policy choices that have made the business environment difficult to navigate. For these reasons, elaborated in this report, bilateral trade has remained small and U.S. investment has stalled over the past decade. For example, from 1993 to 2000, when Argentina had stabilized its economy from the hyperinflation of the late 1980s, the U.S. investment position rose by nearly 300%, from $4.4 billion to $17.5 billion. In response to the 2001 financial crisis and subsequent policy changes, FDI fell precipitously to $9.2 billion in 2004. Although it has since recovered, FDI stood at $13.3 billion in 2011, a 25% decline from 2000 levels.1 These trends reflect many problems that have developed for U.S. stakeholders over the economic policies Argentina has adopted since 2001. The problems have become increasingly difficult in recent years because of deteriorating economic conditions that have led the Argentine government to tighten controls over many facets of the economy.

To a great extent, Argentina's approach to domestic governance and international economic relations, including the friction it has caused with the United States and other stakeholders, can be understood in the context of its response to the financial turmoil that followed in the aftermath of the 2001-2002 economic collapse. …

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