2016 was a year of changes for the Argentine economy; the focus of economic policy was placed on certain economic variables that allowed for the correction of the most urgent macroeconomic imbalances, in an international context that changed throughout the year becoming more uncertain. Among the most remarkable achievements are the unification of the exchange rate, the return to capital markets, the normalization of the functioning of national institutions and the strengthening of relations with international organizations and governments of other countries. While these changes have tended to normalize the economy, its performance throughout 2016 has been less favorable than expected. GDP fell by 2.3% year-onyear, affected by the fall in private consumption (-1.4%) and investment (-5,1%).
The inflation rate rose 41% primarily as a result of the change in the relative price of some public services, such as electricity, gas, water and transport, and the initial increase in the nominal exchange rate, after freeing up foreign exchange controls. However, during the second half of the year the inflation rate slowed down in line with the Central Bank’s target for 2017. This institution, which has started to recover its independence, has made reducing the inflation rate a priority, which in the course of 2016 has pursued a restrictive monetary policy that involved maintaining relatively high interest rates.
The result of these high interest rates has encouraged income from foreign currency with financial objectives; while exiting the default and the return to international markets has generated an inflow of dollars for the placement of debt bonds issued by the National and Provincial Governments and companies. The nominal exchange rate thus remained steady in the first months of the year, closing 2016 at $15.82 per dollar, 38.5% above December 2015.
The government met the primary deficit target of 4.2% of GDP, revenues from the tax amnesty launched on June 29 being essential to achieving this goal. The public sector has significantly modified its pattern of financing: up to 2015 its main source was financing through the Central Bank; whereas from 2016, funding has come mainly through borrowing in the capital markets.
The main challenge facing the current administration is expenditure on subsidies, which still accounts for an important part of spending, reaching the equivalent of 3.6% of GDP in 2016.
The commercial channel of Foreign Trade has again left a positive balance in 2016, which rose to US$ 2.124 billion, after falling in 2015; where exports grew 1.7% benefited by the export duties repeal at the beginning of the year, but imports declined by 6.9%, mainly due to a drop in economic activity. Meanwhile, the balance of the services and income account was US$ 7.01 billion in deficit.
As a result, in the absence of any external shock that might alter the possibility of obtaining financing for the tax deficit and the current forecasts for the growth of public works, the economy could be expected to recover during 2017, with a rate of inflation sharply lower than that of 2016.