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Argentina Globalization Impact Analysis

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    Executive Summary

    Argentina had one of the most fast growing economies at the end of the century, but the huge amount of foreign debt interest payments and other factors made the government pegged the peso to US dollar in 1991 and limit the growth of money supply. That helped to decrease the inflation and increase the growth of GDP by almost 30% in four years. But by 1999 the economy suffered the worst decline since 1930’s and Argentina entered the worst economic crisis in its history. The GDP decreased by almost 20%, unemployment drew significantly that caused many public protests and riots in the country. By 2002 the growth of GDP slowly returned and the new government taking different measurements to get the economy back on track. The current policies, such as restrictions on import, limitation of free trade, capital control and nationalization of big firms in Argentina seriously affected economic freedom of Argentina. In the last decade the political interference in the market place economy and banking system increased significantly.

    Country Analysis

    Argentina is the second biggest country in South America. It borders with Paraguay, Uruguay, Brazil, Bolivia, and Chile. The political system in the country is presidential democracy, but it is relatively young, since Argentina returned to civilian government only in 1983. It is a federal country and it is made up of 24 provinces. It is overwhelmingly Catholic country, with almost 70% of population being Roman Catholics. Argentina is very rich in natural resources is one of the top producers of agricultural products in the world. The manufacturing sector of Argentina’s economy accounts for more than 20% of the country’s GDP and includes the production of chemicals, pharmaceuticals and auto parts. In 1999- 2002 Argentina suffered the worst economic downfall that caused significant declines in Argentine’s GDP and growth of the inflation rate. Argentina started the 20th Century as one of the top 10 richest countries in the world and finished the century with the largest default in the nation’s history. Throughout the 90’s the government in Argentina started a policy of privatisation and trade liberalisation.

    For a while the rate of Argentine Peso was almost the same as US dollar, the economy was growing and the level of inflation was significantly lower then in 80s. But in 1998 the combination of internal and external economic conditions led the country to a recession which ended in the crash of the economy in the end of the same year. “Strict controls on bank withdrawals were imposed amid widespread public protests and in early January 2002 Convertibility was abandoned and the currency was allowed to float, with an immediate steep devaluation. 2002 saw the economy shrink by 10.9%, and the social impact of the crisis was huge, leaving over 50% of Argentines below the official poverty line and well over 20% unemployed” (*). But inflation was controlled and the country managed to return to fragile growth in late 2002, led by import substitution and a rise in export prices. In 2003 banking restrictions and most currency controls were lifted and the economy returned to its normal phase. Since then it shows the stable growth and increase of income per head. If we look at the demographics of the country, Argentina’s population as of 2010 is 40,764,561 residents, which make it the third most populated country in South America.

    A disproportionate amount of people live in Buenos Aires compared to the very large size of the country. More then 15 million people live in the province of Buenos Aires. The population growth is a little bit lower the word’s average ( 1% against 1.2%) and the birth rate is 17.34 birth/1000 population. Argentina is historically the country of immigration, people from all over the world moved to Argentina for many years. Recently, since the economic crisis, the number of immigrants lowered, but the immigration-friendly policies still make a lot of people arrive to the country every year. If we look at Argentina through the lens of Hofestede’s Cultural Dimensions, we can get a deeper understanding of cultural environment and how different it is from the other countries. The Power Distance Index (PDI) for Argentina is 49, which is close to the world’s average (56), but much lower then PDI in other Latin American countries, The higher level of PDI in other countries means that individuals value social status and have higher level of acceptance of unequal power distribution. The difference between Argentina and other Latin American countries can be partly explained with high level of migration from Europe during last century.

    If we look at the level of Individualism (IDV) Argentina also have the middle position compare to the world’s average (46 and 40 accordingly). This index shows us the level of interdependence between the me mbers of society. Most of the Latin American countries have lower IDV, that means that member of the society are more integrated in groups instead of looking after themselves and their direct family members only. In the dimension of Masculinity (MAS) Argentina scored 56, which is just a little bit higher then the world’s average score of 50. Societies with higher masculinity level are more likely to have individuals that are driven by success, competition and putting the achievement at work first, while society with lower levels (feminine) are putting the quality of life first. Understanding this indicator can help us to understand that motivates individuals in specific country: the aspiration to succeed and be the best or doing what you love and living in the harmony. The last index we are going to look at is Uncertainty Avoidance (UAI). This index shows us the tolerance to ambiguity and uncertainty and to what extend the members of society feel threatened by it. The higher the level, the stronger the need for rules and order. Just like most of Latin American countries, Argentina has a higher level then the world’s average (86 versus 65).

    The low tolerance for uncertainty led to adoption and implementation of different regulations and policies in the country. This helps the society to structure life according to rules and legal systems, but does not necessarily results in individuals following those rules and laws (even with the high level of UAI there is lot of corruption and crimes in Argentina). This characteristic tells us that the society does not accept change easily and is very risk adverse. One of the conclusions that Geert Hofstede pointed out in his analysis for this index is that the large majority of predominantly Catholic countries have a low tolerance for ambiguity. Now let’s see what part did globalization played in establishing current economic and cultural environment in Argentina.

    Globalization Forces Analysis

    Globalization in Argentina reached its peak during 1990’s and the country was considered the globalization’s model of economic success. The foreign investment capital was record high and that led the country to the economic boom, but by 2001 it all came to an end when the economy collapsed and Argentina entered the worst recession in its history. There are a lot of factor that contributed to the crisis, such as corruption in the country, very high government spendings, unbalanced public fiscal budget, enormous foreign debt level, poor policies and decisions on the part of government and IMF, and uncompetitive currency level. The policy to attach Peso to US dollar was made to attract foreign capital and decrease the prices for foreign goods, as well as control the level of inflation. During that time Argentina took a lot of different steps to become one of the global players in the world economy, the government signed numerous international agreements and the country became a part of some important international organizations.

    In the beginning of 1999, Argentina’s government entered a recession that was described by deflation, very high unemployment levels, and increasing poverty all over the country. The level of unemployment increased by almost 25% and the number of citizens who’s level of life fall behind the poverty line became 50% of country’s population. By the end of 2002 this number became almost 60%. Now the economic environment in the country is very much affected by government’s interference. There are a lot of different non-traffic barriers that affect the freedom of trade in Argentina. The government still controls the amount of foreign investment in the country. They increased the voting rights in government owned companies by issuing a decree to bypass Congress. Another measurements that the state took are the new import permit regime that requires all companies to get the permission before importing anything and a law that requires authorization to purchase US dollars and all the importers to export goods of equal value.

    Foreign companies tend to find it difficult to repatriate dividends or to pay royalties overseas. Also, the state-owned banks have the superior role in the country, leaving no competition in this sector. Another step that the government took to have a greater role in the economy is nationalizing several companies including Aerolineas Argentinas and Yacimientos Petrolíferos Fiscales, Argentina’s energy company and one of the biggest firms in the country. Right now the future of globalization in Argentina is not clear and will largely depend on whether and how it handles the current global economic downturn, as well as on its ability to meet certain financial challenges.

    My first recommendation for Argentina would be to bring the middle class back before the country can be able to participate in the global economy again. I believe that real underlying reason for the distress of Argentina was not only the politics or the economy, but the irresponsibility of its elite and the fact that the country was not ready for the changes that globalization brought to it. The privatization in Argentina led to the massive enrichment of certain social levels, so when the crisis hit and the peso collapsed, people who had foreign bank accounts and savings in dollars or euros were allowed to buy real estate and other national assets at a fracture of a prices. With the crisis, the rich got significantly richer, the poor got significantly poorer and the country’s emerging middle class was wiped out. The next recommendation is to settle the external debt. Since his election in 2003, the president of Argentina has came out with a number of life-saving reforms for the Argentina’s economy. But at the same time he has taken a hard line against IMF and US demands regarding debt restructuring and increasing free trade, making the relationships with Argentina’s two major financiers even more tense.

    When people talk about the crisis of 1999-2002 in Argentina, globalization is often called to be one of the key factors that drove the economy down. But Argentina doesn’t have to be an example of everything that is wrong with globalization. It should have taught us a lesson of how properly functioning society and a strong government is the key to the developing of country’s economy. Without these, a country cannot make a place for itself in the global marketplace. With distance and boarders disappearing as information and communication technology improve, countries don’t have a choice whether they want to be a part of globalization or not. The only question is how to be prepared. And Argentina should logically be a vibrant heart of South American globalization with its has excellent products and first-rate skills.

    (*) p. South America and South Atlantic Islands. January 2013. References:

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