ECONOMIC OUTLOOK FOR ARGENTINA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001900010083-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 6
• Document Creation Date: December 19, 2016
• Document Release Date: May 22, 2006
• Sequence Number: 83
• Publication Date: December 27, 1973
• Content Type: MF

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Approved For Release 2006/09/26 :CIA-RDP85T00875R001900010083-6
 Approved
27 Decornber 1973
3-7 7S-'73
25X1,
I,fl:MORANDIUM cORi Chief ~, OCI/1'11i-I:
SUBJECT : Economic Outlook for Argontina
ribution to 1:I0 Mcnior, andum,
If you havo further quc:rtionn
please contact
CI e ,
25X1
0835-6-./
Latin America Branch, OER
Attachment:
As stated
Distribution: (E-5775)
Orig. - Addressee
1 - D/OER
1 -- D/D
1 - SA/ER
1 - St/P
1 - D/LA
OER/D/LA:
Approved F
(27 Dec 73)
 Approved ,For Release 2006/09/26 : CI'A-RDP85T00875R001900010083-6
Economic Outlook for Argentina
1. Peronist economic policies are directed at the short
run objective of economic stabilization and the long run
goals of economic development and rcui:.tribution of inco-,ic
in favor of wage earners. The rclc.an t programs are being
carried out under an economic pph ilo::o phy which emphasizes
state intervention and economic nationalism. Niorcover, they
tend to conflict. The social programs require outlays which
are inflationary and divert resources from development projects,
while the subsequent economic and political atmosphere
discourages those with the funds and skills that Argentina
lacks.
2. The Peronists did succeed in achieving some economic
stability in 1973. When they assumed power in gay, the
country was in the midst of its worst inflation in 30 ycars.
The cost of living had risen by 5GU in 1972 and was running
at an annual rate of about 757L, during the first five months
of the year. The Campora government quickly clamped a freeze
on prices and rolled back some and 3 ir,.itcd the amount of wage
increases. During the next five i-nontiis, prices rose less
than 1% and probably will end at 35'. by the, close of the year.
3. As a result of the halt of inflation, real dross
domestic product (GDP) is expected to register' a 4 Z-5,, increase.
The trade surplus is around $900 million and the balance of
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payments surplus 'some $G50 million. Central bank reserves
are thus more than doubled to nearly $1.2 billion.
4. The outlook beyond 1973, however, promises more
problems than progress. Although wage and price controls
have halted the price spiral, inflationary pressure; are
mounting. Public spending continues to outstrip revenues at
an alarming rate and the budget de icit in 1974 is expected
to exceed the 8% of GDP registered in 1973. The volume of
money in circulation has nearly doubled in the last 12 months.
Large scale social welfare programs, such as the two-year.,
$1.3 billion public housing program announced in July, will
increase the deficit and divert needed funds to relatively
unproductive endeavors. 1%hilc recent Poronist tax reforms
are expected to reduce tax evasion, government revenues arc
not likely to increase since the major thrust of legislative
efforts is the redistribution of inch-,;1c through shifts in
the tax burden.
5. The State's takeover of foreign trade in grain and
meat is likely to worsen iArgentina's economic difficulties.
This action, combined with domestic price controls, has
discouraged production of these itc-m , the source of some 80Z
of Argentina's foreign exchangc earnings. Thus, Wheat plantings
for the 1973/74 crop are down nearly 25'% and wheat u:xports
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are xpected to fall from 3.2 million tons from the 1972/73
crop to around 1 million tons. The government also has had
difficulty in assuring domestic supplies of beef -- despite
record herds -- because controlled prices have deterred
suppliers from slaughtering their cattle.
6. Meanwhile, Argentina continues to promote the
development of manufactures for export and import-substitution.
Most industries are heavily dependent on imports of
raw materials and intermediate roods, further straining
foreign exchange reserves. Argentina does not have the massive
reserves it hold in 1945, and an even more rapid deterioration
of the Argentine economy is likely than occurred durinU Po_r.on u
previous tenure. The problems of balance of payments are also
increased by Argentina's public external debt of about $3.2
billion which requires service payments in excess of $2.2
billion in 1973-75.
7. The clouded economic outlook, political uncertainty,
and domestic terrorism have advert: ely affected the investment.
climate. At stake is some $ 3 billion in foreign direct
investment, of which $1.4 billion ;.s US. Buenos Aires
recently passed foreign investment lcrjislition restricting
to 12.5% the amount of profit :which can be remitted abroad.
It also outlined discriminatory treat;,mcnt of "foreign" (51%
foreign equityi and "mixed" (20Z-50- foreign cr"iity) companies
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vis a, vis "national" cord; c.nics of lc a:3 than 20t foreign
equity. J~lrhough the law was apparently watered clown at.
Peron's behest, it still inhibits the inflow of new invc:.t-6,,ont
from abroad.
8. Other negative consicicr:,tions are indications of
renewed moves against ITT subsidiaries in Argentina and
thr "renationalization" of foreign bank holdings acquired
after 1966. The major threat' to US investment, however, is
Peron's aggressive promotion of trade with Cuba. At-, a
result of some $1.2 billion in credits granted to Castro's
government, US subsidiaries have been pressed to export
manufactured goods to Cub.: in violation of US laws. The
refusal of US firms to engage in such trade would lead to
reprisals against them and charges of US interference in
Argentina's affairs.
Approved For Release 2006109/2p : CIA-RDP85T00875R001900g10083-6.