Argentina - Current economic position and prospects

riir c-npv TwmTTWffUNKjT OF-S TMTtNDjATr1XMAT BAMNt PFOR UIr7CON(TR1TCTTflN AND DnVELmOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use Repo. .tNo. 'Ala-AD CURRENT ECONOMIC POSITION AND PROSPECTS OF ARGENTINA February 28, 1973 Latin America and Caribbean II lnis repori was prepared for officlial use oruy by Uie Ba, G;u.! ...ay o: be pulse,qoe or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report.  CURRENCY EQUIVALENTS Y Oarrenvcy Unit = Argentine Peso Cem.ercial. Rate: $al.00 = US.. go US$1.00 = $a5.00 $a Mlril io,n = TTJ$200jf too $al.00 = US$0.1005 US$1.00 = $a9.95 $a 1 million = US$100,500 Each import or export transaction is negotiated partly at the commercial rate and partly at the financial rate. The proportions have been varied throughout the vear to Droduce a de facto crawling peg. The proportions in effect as of October 31, 1972, were 26 percent at the commercial rate and 74 percent at the financial rate yielding an effective exchange rate of US$1 = $a8.65.  Th.i iS a rennrt nf the eonn,m,ie mission which visited Argentina from April 17 to May 12, 1972. h,e ..ission consisted of Messrs. David Greene (Chief of Mission), Frederick Jaspersen (Deputy UChief) , Bertil Mal stedt (Inustia Econost+), Leodegar Jost (Fiscal Economist, OAS), William Kuh Ln (G eneral Econo...ist, OAS), Rxichardl T-T.eel er I\UIIiLL ku L aJ. 1A~I~I L L % JX-4) , -~L0* flLCC (Agricultural Economist - Consultant), Nicholas Carter UdLMac-L r0LCCOnOLUiC Plar.nin.g Econo.ULLLL..i s) Syamaprasad Gupta (Macroeconomic Planning Econo- mist), Richard Taylor (ConLodities Specialist) and Mrs. Carmen Martinez (Debt Specialist).   TABLE OF CONTENTS Page No. MAP COUNTRY DATA SUMMARY AND CONCLUSIONS .................................. ARGENTINE ECONOMIC GROWTH A. Historical Growth Patterns ....... .................... B. Recent Evolution of Structural Interrelationships 6 Relative Prices and Income Shares ............... 6 Savings and Investment ......................7.... Agricultural-Industrial Balance .9 _ a External Balance .............. 10 Emplovment and Wages ..... 1 C. Output Cycles and Inflation .......................... 14 D, Stabilization and its Collanse, 1967-72- 16 Incomes Policy ............... ........... 17 Fiseal and Monetarv Pnl4cy 18 Income Employment and Balance of Payments ....... 24 THE INDUSTRIAL SECTOR 26 A. Import Substitution and Growth of Industry .... ....... 26 Import Dependence . .. .. . .........3 0 B. Cyclical Fluctuations and their Effects ............... 31 C. Industrial Emplo-,me I.... . . . . . . . .. .t . 32 D. Industrial Concentration .36 E. Indiistr1a1 Finance- =-37................................... ,3 F. Industrial Promotion ................................. 38 G. Issues and Policis .-................................. , ., Export Expansion and Diversification ............ 44 Tariff Policy ... .... 46 .ploym.ent Creation ........ . ........... 46 Major Policy Recommendations .................... 47  'vALTE OF r C PnmVNJr''C (Co-rt-'d) IAa -h III. THE AGRICULTURAL SECTOR ............................. 49 A. Basic Characteristics ........................... 49 Trends in Crop Production ..... ............. 50 Trends in Livestock Production .... ......... 52 B. Producers' Responses to Changes in Relative Prices ........................... 53 C. issues and Policies ............................. 56 Reducing Cyclical Fluctuations .... ......... 56 increasing Production ........ . ............ 58 Nontraditional Inputs ...................... 59 Institutional Support .60. ... 6V Investment Requirements and Credit 60......... 5 Agricultural Land Tax ..... ................. 61 Infrastructure Requirements ................ 61 Major Policy Recommendations ............... 63 IV. ECONOMIC POLICY AND DEVELOPMENT PROSPECTS .65 A. Restabilizing the Economy ....................... 65 Monetary and Fiscal Policy ................. 65 Exchange Rate and Balance of Payments ...... 70 Incomes Policy ............. 71 B. Public Investment and its Financing ........ ...... 7, Financing Investment ..... .................. Public Investment Priorities .... ........... 76 C. Prospects for Sustained Economic Growth ......... 78 Case I Low Exports ...................... 79 Case II Medium Exports .... ............... 81 The High Export Case ......................B84 qTATTqTTCAT. APPRPNTTX  [ g % 't3~~~~~~~~~~~\-uj s,A I A Al