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Quick Facts
- Population:
- GDP (PPP):
- $716.4 billion
- 8.9% growth
- 6.8% 5-year compound annual growth
- $17,516 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
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Argentina’s economic freedom score is 46.7, making its economy the 160th freest in the 2013 Index. Its overall score has decreased by 1.3 points. With lower scores on six of the 10 economic freedoms including property rights and government spending, Argentina now ranks 27th out of 29 countries in the South and Central America/Caribbean region, and its overall score is far below the regional and world averages.
The foundations of economic freedom in Argentina are increasingly fragile, severely hampered by structural and institutional problems caused by growing government intrusion into the marketplace. The judicial system has become more vulnerable to political interference, and corruption is prevalent.
The policy mix of harsh capital controls, restrictions on imports, and a series of nationalizations has severely undercut economic freedom. Regulatory pressure on the private sector has continued to rise, with populist spending measures and price controls further distorting markets. The central bank’s independence was essentially destroyed in 2012 when its charter was changed to allow the government unlimited use of the bank’s reserves to pay its debts. Efforts to reform the rigid labor market have long been stalled.
Background
Under President Cristina Fernández de Kirchner, respect for markets and the rule of law has deteriorated and corruption has boomed. Mrs. Kirchner has strengthened ties to regional strongmen such as Venezuela’s Hugo Chávez and the Castro brothers in Cuba and threatened the right of self-determination on the U.K.’s Falkland Islands. The government’s seizure of nearly $30 billion in private pension funds in 2008, failure to settle with creditors since the 2002 default, and expropriation of Spanish oil company Repsol’s YPF subsidiary in 2012 have severely damaged the country’s investment profile. The end of central bank independence has also disturbed investors. Although the economy has benefited from booming commodity prices, Mrs. Kirchner’s pursuit of expansionary fiscal and monetary policies has fueled already high inflation.
The courts are slow, inefficient, and vulnerable to corruption and executive branch influence. Patent protection is lax, and pirated copies of copyrighted products are widely available. The government manipulates official statistics. In 2011, harsh restrictions were imposed on foreign-currency transactions to protect dwindling dollar reserves. In 2012, the state expropriated the country’s largest privately owned oil company.
The top individual and corporate tax rates remain at 35 percent. Other taxes include a value-added tax (VAT), a wealth tax, and a tax on financial transactions. The overall tax burden now equals 33.5 percent of total domestic income. Government spending has risen to 40 percent of GDP. Public debt remains at around 44 percent of domestic income. The budget deficit has doubled over the past year due to pension nationalization and increased subsidies.
The business environment has deteriorated as bureaucratic interference has increasingly undermined efficiency and productivity growth. The labor market remains rigidly controlled. The government regulates prices of electricity, water, and retail-level gas distribution, pressuring companies to fix prices and wages. Official government statistics on inflation are not trustworthy.
A variety of restrictive non-tariff barriers reduce trade freedom. Hostility to foreign investment persists, and through an emergency decree to bypass Congress the state has increased its voting rights in partially government-owned companies. The financial system remains hobbled by state interference and uncertainty about the direction of economic policies. State-owned banks play a dominant role, reducing competition in the sector.