Argentina is a federal constitutional republic with twenty-three provinces and an autonomous city (i.e. Buenos Aires). While the provinces are administratively divided into departments and municipalities, Buenos Aires is administered through a number of “communes”. Provinces in Argentina enjoy a high amount of autonomy (e.g. they organize their own local governments, and they own and operate their own natural resources) with the only parameter being that they must act as “representative” entities and not go against the national constitution.
Argentina’s general public spending has increased substantially during the last decade, almost doubling to about 45 percent of the GDP in 2014-2015. Currency devaluation, high public debt and no plans in the pipeline to curb public spending have created some uncertainty in terms of economic sustainability. Healthcare expenditure accounts for 8.6 percent of the GDP. Life expectancy is relatively high at 77 years of age, when compared to other South American countries. Infant mortality is quite high at 11 deaths per 1000 population and the chronic diseases are on the rise.
In spite of the forecasted acceleration in the global economy, for Argentina, the economic growth is expected to slow down in 2015 and make a slight recuperation to growth in 2016. This economic slow-down can be attributed to a variety of factors including a steep decline in private consumption, a decline in export activity and a negative growth in investments.
Argentina’s exports mainly go to Brazil, the E.U., China, Chile and the U.S., so the economy partially depends on the economic climate of these countries. The economy in Argentina is mainly driven by its strong agriculture, natural resources (i.e. mining, oil and petroleum), manufacturing and services industries. When raw materials are taken into account along with processed goods, agriculture is the strongest industry in Argentina in terms of exports.
Unemployment is at about 7 percent and rising due to recent economic uncertainty. Inflation which has traditionally been a weak area for Argentina, continues to be quite high at 10.1 percent.
The latest data shows that Argentina’s economy expanded by 2 percent in 2014 and that it will continue to expand at a rate of 2.2 percent in 2015.
Unemployment is at about 7 percent and rising. The increase in unemployment can be attributed to the increasing economic uncertainty which results in companies dismissing workers and being conservative about hiring new ones.
Inflation in Argentina is high and continues to expand due to the continuously disorganized macroeconomic policies. The related dynamics have resulted in a drain on foreign exchange reserves and a gap between official and market exchange rates. Recent measures have been taken to curb inflation growth, such as: pricing, exchange and trade controls as well as the adjustment of exchange rates and increased interest rates. These measures are expected to slow-down inflation rates for 2015.
In Argentina the financial year is the same as the calendar year. The budgetary deficit in Argentina was quite high in 2014 at -5.31 percent of the GDP, however recent measures to curb spending are expected to take effect in 2015 and decrease the deficit to about -4.16 percent of the GDP.
Increases in domestic demand and export activities are expected to further alleviate the deficit in 2016-17. This will be a challenge for the new government.
Health Care Expenditures
Healthcare expenditures in Argentina represent around 8.5 percent of the GDP and about 69 percent of the total healthcare expenditure stems from public sources.
Argentina’s healthcare system can be divided into three parts:
- The Public Sector – funded through taxes.
- Obras Sociales – funded through compulsory payroll contributions.
- The Private Sector – funded by out of pocket payments and voluntary insurance policies.
Overview & Outlook
Argentina will be one of the many developing economies to have slow growth during the next few years. Cost pressure from within the country will be contained and government measures to reduce budget deficit are not expected to stimulate economic growth in the short term. As mentioned above, Argentina is currently struggling with below average export activity, high inflation and a generally stagnant economy which is compounded by the additional challenge of being absent from the global bond market (i.e. due to the sovereign debt default in 2002.)
The economic outlook for Argentina is impacted by 2 major factors:
1. A pick up in private consumption and investment
Recent economic uncertainty (i.e. high inflation, increased unemployment, and the budget deficit), has stifled private consumption and curbed investment. The new government will have a challenge in these areas in 2015, however forecasts show a return to GDP growth for 2016.
2. The economic outlook for their main trade partners: Brazil, the E.U., China, Chile and the U.S.
Growth rates in Brazil are not expected to meet optimistic forecasts of previous years. Export revenues will be affected by low commodity prices and agriculture is being affected by drought in many areas. Tax hikes and spending cuts are being implemented in an effort to improve the situation, but growth rates remain sensitive.
Conditions in the Euro Zone are expected to remain fair for the coming year with some mild growth expectations on the horizon.
Growth in China is expected to remain below 10 percent. This is less than expected, due to a weaker contribution from foreign demand and reduced expectations for a growth in domestic demand. The Chinese authorities are focused on a sustainable growth rate of around 7.5 percent.
Chile’s economic outlook (like that of most emerging markets) remains heavily sensitive, especially to external factors that might affect metal markets. More specifically, positive projections for the copper market in 2015 will have a significant effect on Chile’s export sector.
In the U.S., growth is expected to further pick up led by gains in consumer spending and business investment.
Argentina’s economic outlook, (like that of most emerging markets) remains heavily sensitive, both to internal factors like the high inflation rates and government spending and external factors that might affect the agricultural markets.
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