A CENTURY ago, when Harrods decided to set up its first
overseas emporium, it chose Buenos Aires. In 1914 Argentina stood out as the
country of the future. Its economy had grown faster than America’s over the
previous four decades. Its GDP per head was higher than Germany’s, France’s or
Italy’s. It boasted wonderfully fertile agricultural land, a sunny climate, a
new democracy (universal male suffrage was introduced in 1912), an educated
population and the world’s most erotic dance. Immigrants tangoed in from
everywhere. For the young and ambitious, the choice between Argentina and
California was a hard one.[1]
From 1980 to 1905 were the years when the GDP grew at 8%
year-over-year resulting in putting Argentina at the top of the list as a
country of the future. But unfortunately for Argentina, it could not sustain
this growth for long. Argentina remained neutral during the First World War.
Starting early 1920s the growth stated to slow down and eventually the GDB fell
by a fourth between 1929 and 1932 due to the effects from great depressions.
Modest growth resumed around the Second World War as the exports started to
grow by the late 1930s. Until the 1940s the primary contributor the growth was
Agriculture but starting the late 1940s the Manufacturing sector overtook the
Agriculture sector for the first time.
Graph comparing the GDP growth rate of US and Argentina
From the 40s to the 70s the economy grew almost five folds
and the population doubled but at the same time Argentina suffered from the
chronic inflation (averaged around 26% annually). From 1976 to 1983 the economy
started to decline under military rule and finally led to economic in-stabilization
that ended with about 400,000 companies of all sizes going in bankruptcy. The
economic policies from 1983 to 2001 have failed to reverse the situation. Attempting a remedy, Argentina pegged
Argentinian Peso to US Dollar in 1991 this resulted in limited money supply and
hence limited growth. But economic shock and failure of the system eventually
led to the collapse ($100 Billion of bond defaults) – The Argentinian Default of 2001.
Starting 2003 the Argentinian economy is back on the growth
path – growing at a steady pace of ~7% year over year and thus has been
considered an emerging economy. Board based recoveries in agriculture,,
construction, automotive, and energy sectors has promised better prospects for
Argentina in the 21st century. Fast-forward today, Argentina is in
the forefront for of an emerging market crisis mainly due to its politics,
corruption, unfavorable socio-economic policies by its current government and
more. Overall, it’s expected that in the
upcoming elections the populist sentiments in the general public will lead to
the over throwing of the current “Justicialist Party” leading to reforms of the
socio-economic policies and hence lead to bullish growth of the Argentinian
economy.
(This blog was written as part of the McCombs MBA Global Trip NEWS Round-up effort)
(This blog was written as part of the McCombs MBA Global Trip NEWS Round-up effort)
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By Jayanth Rangaraju
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