O E C D E c o n o OECD Economic Surveys m ic S u r v e ARGENTINA y s MARCH 2019 A R G E N T IN A M a r c h 2 0 1 9 OECD Economic Surveys: Argentina 2019 This document, as well as any data and any map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. Please cite this publication as: OECD (2019), OECD Economic Surveys: Argentina 2019, OECD Publishing, Paris. https://doi.org/10.1787/0c7f002c-en ISBN 978-92-64-72057-2 (print) ISBN 978-92-64-17276-0 (pdf) OECD Economic Surveys ISSN 0376-6438 (print) ISSN 1609-7513 (online) The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. 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TABLE OF CONTENTS │ 3 Table of contents Executive summary ............................................................................................................................... 9 Key policy insights ............................................................................................................................... 15 Despite recent reforms, significant vulnerabilities have built up ....................................................... 17 A deep recession set in after a sudden reversal of capital flows ........................................................ 20 A recovery is expected to start as of 2019 ......................................................................................... 26 Medium-term priorities for strengthening inclusive and sustainable growth .................................... 32 References .......................................................................................................................................... 64 Thematic chapter ................................................................................................................................. 69 Chapter 1. Fostering the integration into the world economy......................................................... 71 Argentina has not shared in the benefits of international trade .......................................................... 73 Import protection is high in international comparison ....................................................................... 77 Lowering trade barriers can create jobs and boost growth ................................................................ 82 Trade policy options for fostering stronger integration into the global economy .............................. 96 Easing the transition: Policies to support the structural transformation .......................................... 103 References ........................................................................................................................................ 121 Annex 1.A. ....................................................................................................................................... 129 Annex 1.A1. Analysis of industry level effects of trade protection ................................................. 129 Annex 1.A2. The firm level analysis ............................................................................................... 131 Annex 1.A3. The consumption side analysis ................................................................................... 133 Annex 1.A4. The FDI regressions ................................................................................................... 133 Annex 1.A5. The OECD METRO model ........................................................................................ 134 Tables Table 1. Macroeconomic indicators ...................................................................................................... 28 Table 2. The structure of exports and imports ....................................................................................... 28 Table 3. Potential major vulnerabilities ................................................................................................. 32 Table 4. Expected gains from past and new structural reform are substantial ...................................... 37 Table 5. The Composition of public revenues and expenditures........................................................... 39 Table 6. Financial assessment of fiscal recommendations .................................................................... 46 Table 7. Past OECD recommendations on macroeconomic policies .................................................... 47 Table 8. Past OECD recommendations on inclusive growth ................................................................ 54 Table 1.1. The structure of exports and imports .................................................................................... 76 Table 1.2. Unilateral tariff decreases would boost production in agricultural and some manufacturing industries ............................................................................................................... 91 Table 1.3. Pharmaceuticals and medical devices from Argentina have difficulties to enter the US market due to certification issues ................................................................................................ 101 OECD ECONOMIC SURVEYS: ARGENTINA 2019 © OECD 2019 4 │ TABLE OF CONTENTS Table 1.4. Some food products from Argentina have difficulties to enter the EU markets due to non-compliance with EU product standards ................................................................................ 101 Table 1.5. Retraining needs are mostly limited to task-specific skills ................................................ 108 Figures Figure 1. Argentina has lost ground relative to other economies .......................................................... 15 Figure 2. Fiscal policy adjusted only gradually ..................................................................................... 18 Figure 3. High interest rates attracted portfolio inflows ........................................................................ 18 Figure 4. Capital inflows implied real appreciation and short-term vulnerabilities .............................. 19 Figure 5. Fiscal and external imbalances have widened ....................................................................... 19 Figure 6. Inflation has spiked as targets have moved ............................................................................ 20 Figure 7. Short-term indicators have deteriorated ................................................................................. 21 Figure 8. Fiscal consolidation has been frontloaded ............................................................................. 23 Figure 9. Gross public debt is stabilising under several scenarios ........................................................ 24 Figure 10. Currency reserves are low in international comparison ....................................................... 26 Figure 11. Labour market conditions have deteriorated ........................................................................ 27 Figure 12. Exchange rate depreciation and core inflation are visibly correlated .................................. 29 Figure 13. External debt has risen ......................................................................................................... 30 Figure 14. Main trading partners ........................................................................................................... 31 Figure 15. Financial market indicators .................................................................................................. 32 Figure 16. Growth has been volatile ...................................................................................................... 33 Figure 17. Inequalities exist in several dimensions ............................................................................... 34 Figure 18. Poverty has declined and is lower than in other emerging economies ................................. 35 Figure 19. Well-being indicators ........................................................................................................... 36 Figure 20. Public payroll expenditures are high .................................................................................... 40 Figure 21. Social expenditures are rising while subsidies have declined .............................................. 41 Figure 22. Transfers and taxes alleviate inequalities ............................................................................. 42 Figure 23. Few people pay personal income tax ................................................................................... 44 Figure 24. VAT revenues could be higher with stronger compliance and less use of reduced rates .... 45 Figure 25. Learning outcomes reflect quality shortcomings and inequalities ....................................... 48 Figure 26. Education expenditures are high .......................................................................................... 49 Figure 27. Educational attainments compare well in secondary, but not in tertiary .............................. 49 Figure 28. Few students follow technical courses and careers .............................................................. 50 Figure 29. Labour market training policies could be expanded ............................................................ 51 Figure 30. Labour market regulations are relatively rigid ..................................................................... 53 Figure 31. Perceived levels of corruption remain high ......................................................................... 55 Figure 32. There is room to reduce the restrictiveness of product market regulations.......................... 56 Figure 33. Product market regulations could allow more room for competition .................................. 57 Figure 34. Tariff barriers are high ......................................................................................................... 58 Figure 35. The financial sector is less developed than in other countries ............................................. 59 Figure 36. Gross domestic saving is low ............................................................................................... 60 Figure 37. Greenhouse gas emissions are declining, except for energy ................................................ 60 Figure 38. Native forest cover loss has slowed down but remains substantial ...................................... 61 Figure 39. Green growth indicators ....................................................................................................... 63 Figure 1.1. Exposure to trade is low ...................................................................................................... 72 Figure 1.2. Export performance has declined ........................................................................................ 73 Figure 1.3. Argentina’s’ integration into global value chains is low..................................................... 74 Figure 1.4. Argentina has remained on the sidelines of global value chains ......................................... 75 Figure 1.5. Export diversification has fallen ......................................................................................... 76 OECD ECONOMIC SURVEYS: ARGENTINA 2019 © OECD 2019 TABLE OF CONTENTS │ 5 Figure 1.6. Argentina’s main trading partners ....................................................................................... 77 Figure 1.7. Tariff protection is high, especially for capital goods and intermediate inputs .................. 78 Figure 1.8. Many industries are protected through high import tariffs ................................................. 79 Figure 1.9. Non-automatic import licenses are required in many industries ......................................... 80 Figure 1.10. Domestic producers play a dominant role in many tradable sectors ................................. 80 Figure 1.11. Prices are high in international comparison ...................................................................... 81 Figure 1.12. Potential consumer benefits from lower trade barriers are progressive ............................ 82 Figure 1.13. Firms use few imported intermediate inputs ..................................................................... 84 Figure 1.14. Reducing input tariffs boosts economic activity and exports ........................................... 85 Figure 1.15. The use of imported inputs varies across sectors .............................................................. 86 Figure 1.16. Decreasing output tariffs boosts productivity, but can reduce employment in a few sectors ............................................................................................................................................ 87 Figure 1.17. Productivity is low in sectors with high trade protection .................................................. 88 Figure 1.18. Protected sectors have dispersed productivity and low allocative efficiency ................... 89 Figure 1.19. Argentina has high potential in many products ................................................................. 92 Figure 1.20. Argentina attracts little foreign direct investment ............................................................. 93 Figure 1.21. Stock of foreign direct investment by sector in 2017 (in Million USD) ........................... 95 Figure 1.22. Argentina’s services exports face high barriers in its main current and potential export markets .......................................................................................................................................... 97 Figure 1.23. The real devaluation has increased competitiveness ......................................................... 98 Figure 1.24. Argentina’s products face issues with product standard regulations in its main export markets ........................................................................................................................................ 100 Figure 1.25. Trade facilitation can be improved ................................................................................. 102 Figure 1.26. Spending on active labour market policies is below the OECD average ........................ 106 Figure 1.27. Firms face difficulties finding the skills they need ......................................................... 109 Figure 1.28. Few students follow technical courses and careers ......................................................... 110 Figure 1.29. There is room to reduce the restrictiveness of product market regulations..................... 112 Figure 1.30. Product market regulations could allow more room for competition ............................. 113 Figure 1.31. Local competition is low ................................................................................................. 114 Figure 1.32. There are few young firms in Argentina ......................................................................... 115 Figure 1.33. Public R&D investments by objective, 2015 .................................................................. 117 Figure 1.34. Business innovation is low .............................................................................................. 118 Boxes Box 1. A glance at Argentina’s economic history ................................................................................. 16 Box 2. Argentina’s IMF programme ..................................................................................................... 22 Box 3. Recent and ongoing reform initiatives ....................................................................................... 38 Box 1.1. A brief description of the industry-level analysis ................................................................... 84 Box 1.2. A brief description of the firm-level analysis ......................................................................... 88 Box 1.3. Product standards and their enforcement might pose significant barriers to Argentina’s exports to advanced economies ................................................................................................... 100 Box 1.4. Successful examples of policies to complement the structural transformation .................... 104 Box 1.5. Re-skilling trade-displaced workers ..................................................................................... 107 Box 1.6. Recommendations to foster integration into the world economy ......................................... 120 OECD ECONOMIC SURVEYS: ARGENTINA 2019 © OECD 2019 This Survey was prepared in the Economics Department of the OECD by Jens Arnold and Robert Grundke under the supervision of Piritta Sorsa. Statistical research assistance was provided by Anne Legendre and editorial assistance by Carolina González. 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OECD ECONOMIC SURVEYS: ARGENTINA 2019 © OECD 2019 8 │ BASIC STATISTICS Basic Statistics of Argentina, 2017 (Numbers in parentheses refer to the OECD average)* LAND, PEOPLE AND ELECTORAL CYCLE Population (million) 44.0 Population density per km² 16.2 (35.8) Under 15 (%) 24.9 (17 .9) Life expectancy (years, 2016) 76.6 (80.6) Over 65 (%) 11.2 (16.8) Men 72.8 (77.8) Women 80.3 (83.2) Latest 5-year average growth (%) 1. 1 (0. 6) Latest general election October 2017 ECONOMY Gross domestic product (GDP) Value added shares (%) In current prices (billion USD) 639 .2 Primary sector 9. 9 (2. 4) In current prices (billion ARS) 10 555.8 Industry including construction 22.4 (26.9) Latest 5-year average real growth (%) 0.7 (2. 1) Services 67.7 (70.7) Per capita (000 USD PPP) 20.9 (43.7) GENERAL GOVERNMENT Per cent of GDP Expenditure 41.8 (41.3) Gross financial debt 57.6 (110.9) Revenue 34.8 (39.1) EXTERNAL ACCOUNTS Exchange rate (ARS per USD, 2017) 16.5 Main exports (% of total merchandise exports) Exchange rate (ARS per USD, March 2019) 40.0 Food and live animals 44 .2 PPP exchange rate (USA = 1; 2017) 11.5 Machinery and transport equipment 13.2 In per cent of GDP Chemicals and related products, n.e.s. 9.4 Exports of goods and services 11 .2 (55 .7) Main imports (% of total merchandise imports) Imports of goods and services 13.8 (51.3) Machinery and transport equipment 50 .0 Current account balance -4.9 (0.4) Chemicals and related products, n.e.s. 15.9 Net international investment position 3.5 Manufactured goods 10.8 LABOUR MARKE T, SKILLS AND INNOVATION Unemployment rate, Labour Force Survey (age Employment rate for 15-64 year-olds (%) 60.8 (67.7) 15 and over) (%) 7.2 (5.8) Men 70.6 (75.4) Youth (age 15-24, %) 19.3 (11.9) Tertiary educational attainment 25-64 year-olds Women 49.2 (60.1) (%) 21.4 (36.9) Gross domestic expenditure on R&D (% of Participation rate for 15-64 year-olds (%) 65.5 (72.0) GDP, 2016) 0.5 (2.3) ENVIRONMENT CO2 emissions from fuel combustion per capita Total primary energy supply per capita (toe)b 2.0 (4.1) (tonnes, 2016) 4.3 (9.0) Exposure to air pollution (more than 10 μg/m³ Renewables (%)b 7.7 (10.2) of PM2.5, % of population, 2015) 44.2 (75.2) SOCIETY Median disposable household income (000 Income inequality (Gini coefficient)c 0.424 (0.314) USD PPP)c 7.0 (22.9) Relative poverty rate (%)c 19.4 (11.8) Education outcomes (PISA score, 2012) Public and private spending (% of GDP) Reading 39 6 (49 6) Health care 4. 8 (8. 8) Mathematics 388 (494) Pensions (Public)d 8.7 (8.2) Science 406 (501) Education (primary, secondary, post sec. non tertiary, 2014) 4.4 (3.5) Share of women in parliament (%) 38.9 (29.2) * Where the OECD aggregate is not provided in the source database, a simple OECD average of latest available data is calculated where data exist for at least 29 member countries. a. 2016 data for the OECD. b. 2016 data for Argentina. c. 2015 data for the OECD. For Argentina, based on household data EPH for the fourth quarter of 2017. d. 2013 for OECD Source: Calculations based on data extracted from the databases of the following organisations: OECD, International Energy Agency, World Bank, International Monetary Fund and Inter-Parliamentary Union OECD ECONOMIC SURVEYS: ARGENTINA 2019 © OECD 2019