2009 Index of Economic Freedom

Quick Facts

Population:

• 39.1 million

GDP (PPP):

• $469.0 billion
• 8.5% growth
• 4.6% 5-year compound annual growth
• $11985 per capita

Unemployment:

• 14.1%

Inflation (CPI):

• 8.8%

FDI Inflow:

• $4.8 billion

Argentina's economic freedom score is 52.3, making its economy the 138th freest in the 2009 Index. Its overall score fell 1.8 points from 2008. Argentina is ranked 25th out of 29 countries in the South and Central America/Caribbean region, and its overall score is below the regional average.

Argentina scores poorly on property rights and freedom from corruption because of longstanding institutional weaknesses. Financial freedom is constrained by government influence on the financial sector. Political interference with an inefficient judiciary hinders foreign investment, and both official and informal obstructions of due process have been reported in the courts. Despite government efforts to reform labor regulations, barriers to flexibility linger in the form of non-wage costs.

Argentina scores relatively well on government size, despite public involvement in energy and transport. Tax revenue as a percentage of GDP is relatively low, but this is due primarily to tax avoidance and evasion. While most advanced economies have cut corporate tax rates in recent years, Argentina's top corporate and income tax rates remain 35 percent.

Background Back to the top

Argentina, South America’s second-largest country, has vast agricultural and mineral resources and was once one of the world’s richest countries. It has suffered since World War II from political instability, with brief periods of democratic rule interrupted by coups or political violence. Three democratically elected presidents since 1983 have left office early, and another served only as a caretaker. President Cristina Fernandez de Kirchner succeeded her husband Néstor in December 2007, retained most of his cabinet, and has maintained his heavily interventionist economic policies. A scandal at the government office charged with collecting inflation data has destroyed public trust in government statistics, and investment rates are not keeping pace with growth. Agriculture accounts for more than half of exports, and food and beverage processing, chemicals, petrochemicals, and automotive manufacturing are the most important industrial sectors. Under a weak currency regime, tourism continues to grow.

Business Freedom 62.1 Back to the top

Argentina's regulatory environment remains burdensome, inconsistent, and insufficiently transparent. Starting a business takes an average of 32 days, compared to the world average of 38. Obtaining a business license requires more that the global average of 18 procedures and 225 days.

Trade Freedom 70.0 Back to the top

Argentina's weighted average tariff rate was 5 percent in 2006. Import and export controls, tariff escalation, import and export taxes, reference pricing, burdensome regulations, restrictive sanitary rules, subsidies, and issues involving the enforcement and protection of intellectual property rights add to the cost of trade. Despite some improvements, customs delays continue. Twenty points were deducted from Argentina's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 70.3 Back to the top

Argentina has high tax rates. The top income and corporate tax rates are 35 percent. Other taxes include a value-added tax (VAT) and a wealth tax. In the most recent year, overall tax revenue as a percentage of GDP was 22.9 percent.

Government Size 75.6 Back to the top

Total government expenditures, including consumption and transfer payments, are moderate. In the most recent year, government spending equaled 28.5 percent of GDP. The state's role in the economy has grown, and structural budgetary weakness persists. Energy and transport in particular are dominated by the public sector.

Monetary Freedom60.6 Back to the top

Official government figures show inflation to be relatively high, averaging 9.4 percent between 2005 and 2007, but credible unofficial figures indicate a true annualized rate of about 25 percent in 2008. The government regulates prices of numerous goods and services, including electricity, water, retail-level gas distribution, urban transport, and local telephone services, and establishes price agreements with producers and sellers. Twenty points were deducted from Argentina's monetary freedom score to adjust for measures that distort prices.

Investment Freedom50.0 Back to the top

Foreign and domestic investors have equal rights to establish and own businesses, and most local companies may be wholly owned by foreign investors, but foreign investment is prohibited in a few sectors. Investors must keep foreign currency earnings in the country for at least 180 days. In June 2005, the government increased the minimum holding period for capital inflows and subjected some capital inflows to a 30 percent unremunerated reserve requirement, to be deposited in a local bank for 365 days. Investments may not be expropriated or nationalized except for public purpose upon prompt payment of compensation at fair market value. The most significant deterrent to investment is uncertainty concerning creditor, contract, and property rights. The flow of capital is restricted, and repatriation is subject to some controls.

Financial Freedom40.0 Back to the top

Argentina’s banking system remains significantly dominated by the state. The largest bank is state-owned and serves as the sole financial institution in parts of the country. As of March 2007, the 89 registered financial entities included several foreign banks. The financial system has recovered from the 2001–2002 debt default and banking crisis. Mortgages and personal loans are increasing, non-performing bank loans are down, and the financial sector expanded by over 20 percent in 2006. Several international banks have returned. However, the informal financial sector has also grown. Because of the government’s outstanding debt, Argentina still cannot gain full access to international capital markets. Capital controls have been phased out, and only limited minimum-stay requirements remain in place. The Buenos Aires Stock Exchange remains active, but with a small investor base, and the stock market is not a major source of financing for domestic firms. As of 2007, 100 companies listed their shares, and market capitalization was dominated by a few firms.

Property Rights20.0 Back to the top

The executive branch influences Argentina's judiciary; the courts are notoriously slow, inefficient, secretive, and corrupt; and many foreign investors resort to international arbitration. An important violation of property rights is the piquete, by which protestors take over private business with no effective punishment by the police or the government. Software piracy is increasing. Government manipulation of inflation statistics has caused domestic bondholders to lose billions in interest payments.

Freedom From Corruption29.0 Back to the top

Corruption is perceived as widespread. Argentina ranks 105th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. Foreign investors complain about both government and private-sector corruption. Money laundering, trafficking in narcotics and contraband, and tax evasion plague the financial system.

Labor Freedom45.6 Back to the top

Argentina's inflexible labor regulations continue to hinder employment creation and productivity growth. The non-salary cost of employing a worker is high, and dismissing a redundant employee can be costly.