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II. Argentine economy in 2002-2016

II. Argentine economy in 2002-2016

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Figure 5. Argentina’s selected employment and social indicators

Source: INDEC

The impact of this rapid and sustained growth can be seen in the labor market and in

household poverty rates. The chart shows the evolution of unemployment and poverty

rates during the recovery. Unemployment fell from 21.5 percent in the first half of 2002

to 9.6 percent for the first half of 2007. The employment-to-population ratio rose from

32.8 percent to 43.4 percent during the same period. And the household poverty rate

fell from 41.4 percent in the first half of 2002 to 16.3 percent in the first half of 2007.

These are very large changes in unemployment, employment, and poverty rates.

Figure 6. Argentina’s main economic indicators, 2002-2007


A number of government policies seem to have contributed to Argentina's rapid and

robust recovery. Perhaps the most important of these policies was the government's

exchange rate policy. At the beginning of 2002, the exchange rate became fully floating,

which allow the pesos to depreciate rapidly from 1 pesos/USD to 3.6 pesos/USD in

May 2002. The devaluation had caused a significant increase in inflation, which then

running at more than 25 percent annual rate. Thus, it was important for the government

to stabilize the nominal exchange rate, not only to help stabilize inflation but also the

financial system. This was done primarily through interventions in the foreign exchange

markets (selling dollars), and also by restricting the outflow of pesos from the banking

system. By the second half of 2002, the government was intervening in the opposite

direction, buying dollars to slow the appreciation of the peso.

In 2003 the government began to conduct what would become the central bank's

exchange rate policy for the rest of the recovery, that of maintaining "a stable and

competitive real exchange rate." The policy contributes to the predictability of

important prices for producers to consider in their investment decision, as well as allows

domestic producers of tradable goods and services to compete in world markets.

Figure 7. Argentina’s reserves and exchange rate

Source: World Bank

Another important policy concerns the default and renegotiation of the government's

external debt. In 2005 after a delay of more than three years, a supermajority of creditors

(about 76 percent2) accepted a debt swap that took $67.3 billion of foreign debt off the

books. This was a record 65.6 percent "haircut" and was very important to Argentina's

recovery3. On the contrary, the default appears to have been necessary for the country

to change its macroeconomic policies so as to restore economic growth. Before the

default, the government was focused on tightening its fiscal and monetary policies in

an attempt to restore credibility among its creditors, an effort that included maintaining

the convertibility system. The debt swap enabled the government to pursue a new set

of successful macroeconomic policies, for example labour market and social measures4.


Dhillon, A., Garcia-Fronti, J., Ghosal, S., & Miller, M. (2006). Debt restructuring and

economic recovery: analysing the Argentine swap. Retrieved from




Weisbrot, M., & Sandoval, L. (2007). Argentina’s economic recovery: policy choices and

implications. Retrieved from


4 International Institute for Labour Studies. (2011). Argentina - Case study of past crises. ECIILS Joint Discussion Paper Series No. 3


Period 2008-2009

The global financial crisis hit Argentina in late 2008 after the country’s economy had

been enjoying a prolonged recovery from its 2001-2002 economic crisis, however the

impacts were relatively modest and short-lived. The crisis started to have an impact on

the Argentine economy at the end of 2008 (Q4) and beginning of 2009 (Q1), as

quarterly GDP fell by 1.1 and 0.4 per cent respectively. The goods production sector

was the hardest hit, in particular subsectors related to construction and foreign trade.

Exports declined by 19 per cent reduction during the first semester of 2009 mainly

through declines in sales from the automotive sector. Growth at the end of 2009 proved

stronger (1.3 percent), thanks to the revival of growth in some of Argentina’s export

markets, notably to Brazil and China. In particular, the rebound was strong in

manufacturing and agriculture according to International Labour Office 5.

Figure 8. Argentina Quarterly GDP

Source: OECD Data


International Institute for Labour Studies. (2011). Argentina - Case study of past crises. ECIILS Joint Discussion Paper Series No. 3


Period 2010-2016 (the Argentinian 2014 default)

During the period 2010-2016, Argentine economy saw a downturn in GDP growth rate.

Notably, for the second time in 13 years, Argentina was “imminent in default” 6 in 2014

after not being able to reach an agreement with holdout investors7 which would have

allowed debt-restructured bondholders to be paid. In 2005 and 2010, Argentina tried to

make a negotiation with the holders of its 2001 defaulted debt in which they offer new

“exchange bonds” that paid about 35 cents on the dollar of the original ones. Eventually,

93 percent of the old bondholders accepted the new ones. The other 7 percent was mostly

US hedge funds (holdout investors) that bought debt cheaply after Argentina's economic

crisis and wanted to have full repayment. They took the case to the US court and won, but

Argentina appeals the verdict. The US courts have blocked interest payments, which

already deposited by the Argentinean government in New York, to debt-restructured

bondholders until agreement with the holdout investors is reached. Thus, Argentina did not

pay on due date to debt-restructured bondholders and theoretically defaulted.

Figure 9. Argentina’s GDP Growth (annual %)

Source: World Bank

2. Argentina economic outlook in 2016 and economic forecast

Argentina recorded a government debt equivalent to 54.20 percent of the country's GDP in

2016, a 0.7 percentage point rise from 2015 when it was 53.5 percent of GDP. This amount is

the 64th highest government debt to GDP according to Ieconomics.com and its projection for

2017 is 61.1 percentage.8


BBC. (2014). Argentina defaults for second time. Retrieved from



The investors, also known as "hold-outs", are US hedge funds that bought debt cheaply after

Argentina's economic crisis. They never agreed to the debt swap accepted by the majority of



Ieconomics. (2017). Argentina - Government debt to GDP. Retrieved from


Figure 10. Argentina government debt to GDP

Source: TrandingEconomics.com

Figure 11. Argentina economy data







GDP per captital (USD)






GDP (USD bn)






Economic Growth (GDP, %)






Consumption (%)






Investment (%)






Unemployment Rate






Exchange Rate (vs USD)






Inflation Rate (CPI, %)






Source: FocusEconomics

Argentina’s economic activity started to pick up in the second half in 2016, driven by strong

exports in the agriculture sector, helped by recent reforms such as the elimination of export

taxes. Private consumption was held back. 2016 witnessed a rapid fall in investment from 3.8

to -5.1 percent of GDP. Though Argentina unemployment rate fluctuated substantially in recent

years, it tended to decrease through 1996 - 2016 period ending at 8.4 percent in 2016. Despite

the fact that Argentina’s government expected the annual inflation rate to be between 35.0

percent and 36.0 percent in 2016, inflation increased significantly by 41.2% in 2016.

Figure 12. Argentina: Demand, output and prices

Source: OECD Economic Outlook 101 databases

Argentina’s economic growth is projected to rebound strongly in 2017 and 2018 as recent

reforms gain traction and exports strengthen. Investment will be a key driver of growth,

supported by stronger infrastructure investment, an improving business climate and rising

capital inflows. Exports will benefit from recent reforms, such as the removal of export taxes,

and the improving outlook in trading partners, especially Brazil. Private consumption will pick

up, driven by increases in real wages, as the labor market improves and inflation falls.

III. Proposals for Vietnam

1. Vietnam’s current debt situation

By the end of 2016, Vietnam’s public debt stood at 64.73 per cent of GDP, up from 62.2 percent

in 2015 and 50.1 per cent in 2011, while government debt and foreign debt stood at 53.6 percent

and 44.3 percent of GDP, respectively (Figure 13)9. State expenditures reached 28 percent in

2016 and was forecasted to be the same in 2017.

Figure 13. Vietnam’s external debt by years

External Debt











(% of GDP)

Source: Focus-economics

Than, X. (2017). Dư nợ cơng Việt Nam khoảng 64.73%GDP tính đến cuối năm 2016

[Vietnam’s public debt is about 64.73% by the end of 2016]. Retrieved from



Until the end of 2016, Vietnam has just issued international bonds for 3 times to mobilize

capital from the international financial market with the total value of $2.75 billion (Figure 14).

Figure 14. Vietnamese government international bonds

Issue size

($USD million)



date Coupon













Source: MoF’s Statistics

2. Vietnam’s current public debt status versus Argentina’s in 2001

In the comparison with Argentina in 2001, Vietnam’s debt scenario is still more brightening.

According to Moody’s Investors Service- a bond credit rating business- rank Vietnam B1

positive, a safety position. Vietnamese economy has still been in a high-growth period with the

average economic growth rate around 6-7 percent annually, in 2016 and 2017, its economic

growth rate are 6.2 percent and 6.7 percent-forecasting, respectively. These indicators are better

than these in Argentina. By early 2000s, its economic growth rates were negative, Argentina’s

GDP growth rate in 1999 was -4 percent. High economic growth rate enables Vietnam to repay

loans for creditors; and thus, Vietnam repaid $12billion USD to creditors by 2016.

In addition, due to the fact that Vietnamese political status is more stable than Argentina in

2000s, there is little chance that potential conflicts will provoke in Vietnam. As a positive

result, if Vietnam economy faces a financial risk the government will not be disturbed by any

opposing forces; and therefore, it will focus heavily to find out solutions for challenges.

Vietnam’s foreign debts mainly are ODA loans with preferential conditions. According to

Department of Debt Management and External Finance, 98 percent of Vietnam’s foreign loans

in recent years are in the form of ODA with preferential conditions. Interest rates average only

from 1 to 1.5 percent per annum. Moreover, there is another reason of Argentina bankrupt

announcement in 2001. It is in the 1990s, as Argentina is received positive rates from

international bond credit rating businesses like Moody’s, S&P, Fitch Ratings, its government

issued government bonds to take money from foreign investors in order to pay for internal

social welfare expenditures. When the economic downturned, the government revenue

declined dramatically, Argentina no longer has sufficient liquidity to meet its loans repaid

demand and at the end, it had to announce default. In contrast, by the end of 2016, Vietnam

has just mobilized capital from the international financial market with the total value of $2.75

billion. The figure is tiny in the comparison with its current foreign reserve about $45 billion

by 2017.

In the local financial market, at the end of 2016, the average maturity of the government bond

portfolio was 5.71 years and in 2016, the average interest rate of bonds was 6.49% per year.

Furthermore, the current Vietnamese foreign exchange rate regime is more flexible than

Argentina’s in the early 2000s when it pegged its currency, the peso, to the American dollar:

every peso in circulation had to be backed by a dollar in reserves. Today, Vietnam applies daily

reference exchange rates, which depends on fluctuations of the average inter-bank exchange

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II. Argentine economy in 2002-2016

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