Argentine resurgence confounds the analysts

SPEECH PRACTICE

1. Read and translate the extract from the article below.

By Adam Thomson

Three years ago, as Argentina began to emerge from its most severe economic crisis economists said it would not last. It was still in default with creditors, no new investment was coming in and existing spare capacity in the economy would therefore disappear.

They were wrong. This month, for the 37^th consecutive month, figures showed positive growth. Last week the government confirmed that the economy expanded an impressive 10.1 per cent in the second quarter compared with the same period last year, and it grew at about 9 per cent a year for the past two years….Argentina’s central bank now predict growth of 7.3 per cent this year and 5.6 per cent for 2006.

(Analysts) …acknowledge government achievements in macroeconomic policy. But they say increased production has come mainly from the use of existing capacity and falling unemployment. Economists and business leaders say the government has not created the right conditions for investment which – at about 19 per cent of gross domestic product – is too low to sustain the current growth rate.

Low investment levels are producing the bottlenecks, helping push inflation to an average 0.9 per cent a month this year, compared with 0.5 per cent during the same period last year. The government is concerned…: poverty levels that have fallen are still at 40 per cent of the population.

One solution to combat inflation is to raise interest rates. But the government fears the negative impact on economic activity. An alternative is to allow the peso to appreciate. But that would attack President Kirchner’s “productive model” of encouraging industrial development aided by a competitive exchange rate, which makes imports artificially expensive.

For now, the government tries to get producers to keep prices stable. But Mario Blejer, a former central bank president, says such agreements may work but only in the short term. “If governments could control prices by talking with producers, inflation would not exist.”

Unless Mr Kirchner’s government solves the problem of low investment and increasing inflation, it stands little chance of addressing the social deficit it has sworn to alleviate. “Argentina’s high growth has produced much lower rates of poverty reduction. That means you have to increase the long-term potential,” Mr Blejer says. “If you grow at 4 per cent a year you are going to have a real problem improving social indicators.”

(Financial Times 22.09.2005)

2. Characterize the state of Argentina’s economy at the time the article was written.

3. Analyze the internal economic factors that prevent the government of Argentina to sustain the economic growth rate.

4. Get ready to speak on business cycle and its phases.

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