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POLITICAL ECONOMY
Argentina faces grim economic outlook
by Staff Writers
Buenos Aires (UPI) Jun 13, 2012


disclaimer: image is for illustration purposes only

Argentina faces a further economic slowdown as restrictive government economic policies dampen investors' enthusiasm for real estate projects and farmers battle for a more liberal regime.

Farmers disputing agricultural policies of President Cristina Fernandez de Kirchner have been staging protests, going on strikes and blocking exports on and off for two years. But the government's refusal to budge on agricultural taxation policies has kept farmers' representatives and officials on a collision course.

Argentina has also suffered a loss of investor confidence after Fernandez rushed through legislation to control Spanish oil giant Repsol's local unit YPF. The Argentine measure this week triggered a rating agency downgrade of Repsol, dashing Argentine government hopes of securing new investors for the seized YPF.

Repsol has struggled to get assurances from Buenos Aires that it will receive compensation for the loss of its Argentine unit. The Spanish government tried different channels to open talks on compensation. But even contacts by Spanish King Juan Carlos didn't budge Fernandez, who instigated the takeover alleging YPF failed to invest enough of its profits in Argentina.

Argentine economic performance is under pressure from several sides, including international reaction to the government's failure to settle old debts dating to Argentina's sovereign default in 2002. Amid the economic crisis that year, Argentina also defaulted on $1 billion of debt owed to the World Bank and failed to pay back many creditors in the United States.

Argentina was stripped of its preferential trade status by the Obama administration earlier this year. Similar punitive actions followed in Europe but Argentina continues to claim the sanctions are undeserved and it's well on way to economic recovery.

Critics dispute the government claim. The government's attempts to stem the outflow of foreign currency reserves took a new turn with the introduction of tougher rules barring the flight of U.S. dollar and other reserves.

Critics said the restrictions on real estate purchases in dollars will cause further damage to economic growth, given that construction represents around 15 percent of gross domestic products. Argentina's hyperinflation trends -- with interest rates on mortgages running beyond 20 percent -- have frightened many investors away.

Meanwhile, distrust of the Argentine peso continues to be reflected in a dramatic disparity between official dollar rates and those available on the black market.

More and more Argentina traders and high net worth individuals are converting peso holdings into the U.S. dollar at exorbitant rates. Informal market prices for the dollar hovered around 6 Argentine pesos, against official standard rates of 4.49 pesos to the dollar, opening new markets for dealers to profit from the disparity.

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