Economic studies
Argentina

Argentina

Population 45.8 million
GDP per capita 10,617 US$
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Country risk assessment
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Synthesis

major macro economic indicators

  2020 2021 2022 (e) 2023 (p)
GDP growth (%) -9.9 10.3 5.5 -0.5
Inflation (yearly average, %) 42.0 48.4 70.6 97.0
Budget balance (% GDP) -8.5 -4.5 -4.0 -3.6
Current account balance (% GDP) 0.8 1.5 -0.5 -0.5
Public debt (% GDP) 102.8 80.9 76.0 77.0

(e): Estimate (f): Forecast

STRENGTHS

  • Large economy and domestic market
  • Major agricultural player (notably soya, wheat and corn)
  • Large shale oil & gas and gold reserves
  • Education level higher than the regional average
  • GDP per capita above the region’s average

WEAKNESSES

  • Weak fiscal accounts and dependence on IMF financing
  • Capital controls and import restrictions due to the lack of confidence in public policies and the low level of foreign exchange reserves
  • Dependence on agricultural commodity prices and weather conditions
  • Sticky and skyrocketing inflation despite price regulation
  • Net energy importer as its refining capacity and natural gas output are insufficient
  • High domestic political and social tensions

RISK ASSESSMENT

Activity tipped to enter recession

Argentina’s economy is expected to enter recession in 2023. Household consumption (65% of GDP) is likely to shrink, dragged down by skyrocketing inflation, a deteriorating job market and assuming an absence of new relevant income support measures. In fact, no improvement is in sight to damp inflating consumer prices, amid elevated macroeconomic imbalances (including the large gap between the official and parallel exchange rates) and strong import restrictions resulting in shortages of consumer and goods and manufacturing inputs. Meanwhile, gross fixed investments (17% of GDP) should also contract, squeezed by tighter financing costs and investor caution towards the fragile economic outlook and the forthcoming general elections. Moreover, public investments should remain subdued due to fiscal tightening. Last, exports (18% of GDP) are also expected to contract amid cooling global activity (including in their main markets Brazil and the euro area) and dry weather conditions that will curb the 2022-2023 crop yields (wheat, soybean and possibly corn). Durably historically elevated agriculture commodity prices should not offset the potential lower exported volume.

 

External shortfall to subsist and marginal fiscal consolidation

The current account should remain in deficit during 2023. The trade balance surplus (3.8% of GDP in 2021) is expected to narrow, hampered by a curb in exports, as the country faces its worst drought in 60 years, which is impacting  agricultural export volumes. In the absence of tighter import controls, this situation should prevail over the forecast drop in imports amid softer domestic demand, which is also likely to prompt a lower energy trade deficit. Of note on that score is that the government expects the first phase of the Néstor Kirchner gas pipeline to be concluded by June 2023. The pipeline will connect the Vaca Muerta region in Northern Patagonia - well known for its major deposits of shale oil and shale gas - to the province of Buenos Aires. The project is of utmost importance to curb reliance on energy imports (and thereby save dollars) and would represent an upside risk to the trade balance  if it is operational prior to the winter season (June to August). Meanwhile, the services deficit (0.7% of GDP) and income deficit (2.0% of GDP) should ease somewhat, respectively on back of lower freight costs and weaker repatriated foreign investment income. On the financing side, FDI will remain low due to economic and political uncertainty. In addition, although foreign currency reserves stood at USD 44.6 billion in December 2022, net reserves (excluding the central bank’s foreign borrowing from the BIS, China and dollar reserve requirements) were estimated at only USD 7.7 billion, thus giving import coverage of little over one month. Under these conditions, and to meet the challenging hard currency accumulation target established by the IMF of USD 5 billion in 2022 and USD 4.8 billion in 2023, the central bank has since March 2022 gradually tightened the rules for accessing the official exchange rate market for import payments. It is worth noting that while the Argentinian peso keeps a crawling peg with the USD, the gap between the official and the parallel exchange market stood at roughly 100% in early February 2023. At September 2022, the public sector total external debt was equivalent to 53.3% of GDP. In addition, in 2023, Argentina’s consolidated public sector faces external debt servicing costs (amortisation + interest) estimated at USD 28.9 billion or 4.8% of the 2022 estimated GDP (including USD 20.6 billion to the IMF) versus USD 16 billion in disbursements from the IMF.

On the fiscal front, Argentina will have a tough time meeting the terms of the consolidation agreement entered into with the IMF for 2023, namely to curb the primary deficit to 1.9% of GDP (excluding interest on debt) from an estimated 2.4% in 2022. Regarding public revenues, the expected slowdown  in activity will erode tax revenue. Furthermore, from the spending standpoint, the government will need to improve the effectiveness and the targeting of social assistance and subsidies, while also maintaining critical infrastructure projects such as gas pipeline investments. The financing of the fiscal deficit relies mostly on domestic issuance, while the IMF agreement requires monetisation to slice 0.6% off GDP in 2023 (from 0.7% registered in 2022). One point worth noting is that general elections are due to take place in October 2023, which could heighten government caution and jeopardise its strategy to narrow the fiscal deficit. The principal creditors of Argentina’s gross public debt (64% domestic vs. 36% external) are local public sector agencies (46% of the total) followed by the private sector (local and non-residents taking 35% of the total) and, last, multilateral and bilateral organisations (19%). Local currency debt represents 33% of total public debt, with most of it being indexed to the US dollar or inflation.

 

Argentina heads to the polls in October 2023

The economic consequences of the Covid-19 pandemic, plus the war in Ukraine, have taken a toll on the popularity of President Alberto Fernández, head  of the Peronist Frente de Todos (FDT) coalition. Faced with the economic and social side effects of the crises, divergences have widened between the moderate government stance and the more hardline, populist faction led by Vice-President Cristina Kirchner (including the latter´s disagreement with the conditions attached to the USD 44.5 billion Extended Fund Facility granted by the IMF in March 2022). Regarding foreign policy, the recent rise to power in Brazil by leftist President Luiz Inácio Lula da Silva should strengthen ties between the two countries, while also restoring the focus on the Mercosur trade agreement. In January 2023, the two countries signed a Memorandum of Understanding to begin a feasibility study on creating a common virtual currency to facilitate trade between the two countries. At the same time, Argentina flagged its intention to secure financing from Brazilian state development bank BNDES for the second stage of the Néstor Kirchner natural gas pipeline. Importantly, Argentina will go to the polls on 22 October 2023, when the population will vote for President (with a possible runoff on 19 November, 2023) and members of the Lower House and the Senate. It is not clear, yet, if President Alberto Fernández will bid for a fresh term or if another Peronist leader will run for leader of the incumbent coalition. While Vice-President Cristina Kirchner has not yet indicated if she intends to join the race, the current Minister of Economy Sergio Massa could be a possible candidate. Nonetheless, amid the current major economic challenges facing the country, the centre-right Juntos por el Cambio (JxC) opposition coalition has done well in initial polls. The leading candidates from the latter coalition are the current Buenos Aires mayor Horacio Rodríguez Larreta and one of JxC’s main leaders, Patricia Bullrich. Independent legislator Javier Milei, who espouses libertarian economic views, is also seen as a presidential hopeful.

 

Last updated: April 2023

Payment

The most common payment instruments in local commercial transactions are:

  • cash (for low-value retail transactions);
  • bank transfers;
  • cheques (ordinary cheques, deferred payment cheques or other types).

In case of default, these cheques represent an executable legal document that facilitates a fast track legal proceeding.
For international commercial transactions, the most common payment instrument is Bank transfer via SWIFT. Since December 2019, the new government has implemented restrictions on foreign exchange and fund transfers from Argentina. Payments to related companies abroad are not allowed.

 

Debt Collection

Amicable phase

Out-of-court settlement negotiations are focused on the payment of the principal, plus any contractual default interest that may be added. Argentine regulations provide alternative dispute resolution methods, such as mediation, which is mandatory prior to commencement of any judicial process. At this stage, it is advised to obtain a notarised acknowledgement of debt signed by the debtor, or notarized payment plan agreement signed by both parties. Under amicable negotiation, fees payable only apply to recoveries obtained.

 

Legal proceedings

Argentina is a federal republic with 24 independent judicial systems and national judicial system. The highest court in the country is the National Supreme Court.

Regarding debtors abroad, Argentine courts only have jurisdiction when debtors have assets in Argentina (in which case insolvency proceedings will only involve such assets) or when their principal place of business is in Argentina.

The Argentine Civil and Commercial Code classifies proceedings into two types: ordinary proceedings (juicio ordinario) and executory or fast track proceedings (juicio ejecutivo). Ordinary proceedings usually last between one and four years. If applicable, an appeal may be filed for the Court of Appeals to hear the case.

Executory processes are simplified and prompt proceedings that mainly consist of claimants’ request for the execution of debtors’ assets to obtain payment of a debt. They apply when creditor has documents known as enforceable instruments (titulos ejecutivos), such as public instruments, private instruments signed by the concerned party (debtor or guarantor) and legally acknowledged, bills of exchange, checks or credit invoices. Contrary to ordinary proceedings, it is not necessary to provide proof of the debt. The judgment is delivered between approximately six months and two years.

Costs include a court tax (3% of the amount in dispute to be paid by claimants upon commencing proceedings), and lawyers’ fees. The prevailing party is entitled to recover its costs, including attorneys’ fees (subject to court approval).

All documents (original or notarised copies) submitted to the court must be (i) apostilled (for member countries of the 1961 Hague convention, which includes Argentina), and (ii) authenticated by the Argentine consulate in the issuing country. All non-Spanish documents must be translated by a certified translator registered in Argentina.

Enforcement of a Legal Decision

For local judgments, final decisions are initially considered enforceable. However, if a decision has been appealed, it can be partially enforceable in relation to the part of the judgment that is final. In principle, any of the debtor’s assets can be seized (including but not limited to property, trademarks, and accounts receivable from third parties and shares).

Insolvency Proceedings

There are three insolvency proceedings:

 

Out-of court reorganization

Acuerdo preventivo extrajudicial (APE) is a proceeding in which the debtor and a majority of unsecured creditors enter into a restructuring agreement. This

agreement must be submitted by the debtor to an Argentine court for it to become enforceable. In practice, out-of-court agreements provide a series of conditions that must be complied with, including a minimum threshold of consenting creditors.

 

Reorganization

Concurso preventivo is a reorganisation proceeding that can be initiated voluntarily by an individual or entity, who must submit proof of their inability to pay their debts. Debtors must file a petition to the court requesting relief under bankruptcy law. The court will appoint a trustee. All creditors must file evidence of their proof of claim with the trustee (verificación de créditos). Debtors must submit a proposal for reorganization and must obtain creditors’ approval during an “exclusive period” of 90 days, with the possibility of an extension. If the proposal is approved by the majority, the judge reviews the terms of the plan prior to approving it. Upon homologation by the court, the reorganization plan becomes effective to all unsecured creditors (even those who have not agreed to it). A special payment offer can only be proposed and approved for secured creditors. If the proposal is not approved by the required majority (51%), debtor bankruptcy may follow. The process generally takes between one and two years, depending on the volume and nature of debt being renegotiated and the size of the debtor.

 

Bankruptcy

Quiebra is initiated when a reorganization proceeding fails, either voluntarily (by the debtor) or involuntarily (by the debtor’s creditors’ request). The petitioner must show that the company is insolvent or that it has entered into a “suspension of payments” status. In case of an involuntary bankruptcy, after the petition has been filed with the relevant court and all necessary evidence is presented, the court will summon the debtor to provide an explanation of the reasons why payments of the obligations in favour of the petitioning creditor have not been made and to prove that the debtor is solvent. If the debtor is unable to do so, the court will declare the debtor bankrupt. Unlike reorganization, bankrupt debtors lose control of the administration of their assets. A trustee is appointed in order to preserve and administer the debtor’s property. As a result, all payments to creditors and debtor must be made through court. All claims and proceedings against the debtor are automatically stayed as from the date of the order that determines debtor’s bankruptcy. All creditors must submit their proof of claims for payment. Once the assets available and the amounts owned to each creditor are determined, the trustee liquidates the assets and proceeds with the distribution of repayment to creditors.

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