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2019 OECD Economic Surveys: Argentina 2019

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Over many decades, Argentina’s economy has been held back by weak policy settings and productivity has stagnated. Recent and additional reforms will help to raise prosperity for all Argentinians in the medium term. Strengthening competition by reducing barriers to market entry and foreign trade has particularly high payoffs. Tariff barriers have prevented a stronger integration into the world economy, which could raise consumer purchasing power, reduce the cost of firms’ inputs and lead companies in shielded sectors to become more productive. Currently, many jobs are trapped in activities with limited potential for productivity and wage growth. As job reallocation can result in temporary income losses, policies should ease the transition by enhancing training and social protection. Social policies are effective in reducing inequalities and poverty continued its declining trend during 2016 and 2017, until a severe economic crisis pushed the economy into a deep recession in 2018. This has shifted the immediate policy focus to restoring confidence and unwinding significant fiscal and external imbalances. Swift and decisive policy responses were necessary and their implementation will lay the grounds for a return of macroeconomic stability and a recovery from the recession, although significant risks remain.

SPECIAL FEATURE: FOSTERING INTEGRATION INTO THE WORLD ECONOMY

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Executive summary

The economy is in recession. A strategy of reducing the large fiscal deficit only gradually, the reliance on its foreign financing and high interest rates due to tight monetary policy opened up significant vulnerabilities (Figure A). In April 2018, markets reacted with a reversal of capital inflows, exacerbating a slowdown of currency inflows due to a record drought. The Argentinian peso depreciated and market sentiment deteriorated abruptly, generating severe liquidity challenges. Confidence and domestic demand declined markedly, putting an end to seven quarters of growth. As public debt is largely denominated in foreign currency, the peso depreciation raised it by about 30% of GDP, pushing it above levels observed in other emerging market economies.

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