Can Argentina’s Success Last?

BUENOS AIRES – Argentina is a curious country. During the past eight years, the economy put up exceptional indicators: GDP grew almost 70% (nearly as dynamic as China) and formal employment increased more than 30%. The country’s unprecedentedly solid fiscal results are accompanied by foreign-trade surpluses that are the envy of even the world’s most fiscally solvent countries.

All of this represents an utterly unexpected recovery from the vast public and private external indebtedness of just a decade ago. Indeed, Argentina’s sharp rebound has generated a huge accumulation of foreign reserves for the country.

Also surprising is the increase in Argentina’s domestic savings rate, which has enabled self-financing of investment – which has doubled – and, paradoxically, capital outflows. Robust economic growth, driven by high international commodity prices, has underpinned record-high tax revenues and, after eight years of generally very prosperous trade, the country’s corporate sector is in better health than ever before.

Most economists predict a healthy 5% annual growth rate in 2011, together with positive fiscal and external results. Moreover, the international situation for Argentina is highly favorable, with excellent terms of trade guaranteeing strong performance for producers of raw materials. Brazil, with its burgeoning economy and strong currency, is Argentina’s best partner, particularly for the automotive sector.