The Argentine economy continues to emerge from it's crippling recession, and according to some analysts here in Buenos Aires it has recovered to the level it was at in June 2001 6 months prior to the nation's economic meltdown and currency devaluation in January 2002. Latest estimates for GDP growth this year is an impressive 8% which coupled with last years growth rate topping 8% highlights the pace of Argentina's economic recovery.
One of the main drivers behind this impressive GDP growth is the agricultural sector. Agricultural exports make up the lion's share of the $4.76 billion total export figure for the months of January and February. One of the main drivers behind this multi billion dollar industry is exceptionally high commodity prices in the world market. Soya, Argentina's biggest crop, is at a 15 year high with prices topping $10.60 a bushel in the Chicago Board of Trade. The prices of other big crops like wheat and corn are also supportive. Soya is generally used in animal feed and the booming Chinese economy has led to greater demand for meat which in turn has led to greater demand for soya. This coupled with the poorer than expected world production and tight US soya stocks has led to soaring prices of the commodity which is good news for Argentinean farmers. This year 12,600,000 hectares were planted with soya and next year the figure is expected to rise to 13,700,000 hectares.
The agricultural sector is booming and reported sales of agricultural equipment (tractors, harvesters etc.) are up over 10%. The position of the Argentine farmer has been made more competitive since the devaluation of the peso in early 2002. The cheaper peso has meant that operating costs have dropped by 66%, while the cost of some inputs (fertilizers, herbicides) have only reason 40%. This has helped give Argentinean producers a competitive advantage over other international producers.
With Argentinean producers expected to produce just over 32 million tons of soybeans this year government coffers are being swelled by the 23.5% tax on exports. The soya boom has therefore helped the government create a $1.4 billion fiscal surplus for the first quarter of 2004, an increase of 123% on the same period in 2003. This is over three times the target set for Argentina by the IMF. On the face of it this should be good news for Nestor Kirchner's government. However this soya boom could have further implications for the Kirchner administration. The huge injection of extra cash into government hands somewhat weakens the government's claims that it can afford to pay no more than 25% of its defaulted bonds on the pretext that the government can no longer afford to pay any more. Another unexpected effect of the influx of soya dollars was the sharp appreciation of the peso against the US dollar. As soya producers cashed in their dollar sales and bought Argentinean pesos, the peso climbed to a high of 2.79 against the dollar, well outside the government's preferred range of 2.9-3 pesos to the dollar. Such was the government's concern regarding the appreciating peso and the potentially harmful affect that it may have on Argentina's export based economic recovery the Central Bank intervened in the currency market buying $45 million a day in mid April to avert any further appreciation of the peso.