Argentina's economy: what the land exports and what the currency can keep

How the Pampas built the export economy

The farming colony founded at Esperanza in 1856 marks the start of a change that took sixty years: the base of Argentine agriculture moved from livestock to crops. Wheat, maize and flax spread across the estancia country of the Pampas, where soils were good and land was abundant. Meat and grain went to Europe in exchange for fuel and manufactured goods.

Two things made the trade possible. British capital paid for the railways that carried grain and cattle to the ports, and refrigeration, perfected after 1876, allowed fresh meat to be stored and shipped. By the late 1920s meat-packing plants, the frigoríficos, stood in Buenos Aires, La Plata, Rosario and Bahía Blanca, and others at the Patagonian ports served the sheep ranches of the south. Beef brought a string of trades with it: tinned meat, meat extract, tallow, hides and leather, with tannin from the quebracho forests of the Chaco.

The boom was steep. From 1880 to 1905 output grew seven and a half times, an average of 8% a year, and income per head rose from 35% to 80% of the United States level. Growth slowed from 1905 to 1941. Until 1945 Britain was Argentina's main trading partner.

The crises came with the booms. After the European crash of 1873 the Avellaneda government defaulted on its foreign loans. In the 1880s the expansion fed inflation and too much paper money, and in 1890 it ended in a financial crisis. A revolt with strong support inside the army was put down that July, and President Juárez Celman was still forced to step down.

Why Argentina turned inward after the Depression

The Great Depression of the 1930s cut foreign trade and damaged the whole model. The first response was to secure the old market: the Roca-Runciman Agreement of 1933 guaranteed Argentina a fixed share of the British meat market and removed British tariffs on Argentine cereals, and in return Argentina accepted trade and currency restrictions that protected British commercial interests. Many Argentines saw it as a sellout.

From the 1930s to the 1970s successive governments pursued import substitution: high tariffs sheltered Argentine manufacturers of textiles and leather goods from foreign competition, with the aim of making the country self-sufficient in industry as well as food.

It worked on its own terms and cost the farms. Investment was diverted from agriculture, and farm output fell sharply. By 1960 manufacturing contributed more to the country's wealth than agriculture did, and by the mid-1970s Argentina produced most of its own oil, steel and cars and exported some manufactured goods. The price was dependence on imported fuel and machinery, which the state met by investing in oil, gas, steel and petrochemicals and by inviting foreign companies in. Perón's governments nationalised the central bank in 1946, along with the railways. Income per head peaked in the early 1950s and then stagnated, and inflation averaged 26% a year from 1944 to 1974.

The era ended in 1976. The military government lowered import barriers, freed foreign borrowing and supported the peso against other currencies. Foreign debt rose from $8 billion to $45 billion by 1983, when interest charges alone exceeded the trade surplus; by then industrial production had fallen by 20% and real wages had lost 36% of their purchasing power.

How inflation came to define the economy

Rising public spending and large wage increases, on top of inefficient production, produced chronic inflation that climbed through the 1980s and briefly passed 1,000% a year. Governments tried controlling wages and prices; they also cut spending and tightened the money supply. The currency changes tell the story in the money itself:

The Austral Plan held briefly. Inflation was back near 388% a year by the end of 1988, and the government handed over power early in 1989. By the late 1980s the foreign debt amounted to about three quarters of national product.

Why the peso was tied to the dollar

In 1991 the economy minister Domingo Cavallo fixed the peso at one United States dollar and privatised state companies, the oil company YPF and the national airline among them. By August 1991 annual inflation was down to 1.5%, capital flowed back, and liberalisation raised output by 33% in four years.

The peg removed the ability to devalue. When the Mexican peso fell in 1995 the government answered with more austerity, and after Brazil devalued its currency in 1999 Argentine exports lost ground. The economy shrank from the third quarter of 1998, and by 2002 it was 28% smaller than in 1998. In late 2001 depositors ran on the banks, withdrawals were frozen, the government defaulted on its foreign debt and the peso was devalued. While the national money was in doubt, provinces issued quasi-currencies of their own, the Patacón of Buenos Aires province the strongest of them, and the national government issued one too, the LECOP. Unemployment reached 25%, more than half of Argentines lived below the official poverty line in 2002, and seven children in ten were poor.

Recovery came fast. Growth returned in the first half of 2003 and averaged about 9% a year for five years, and output passed its pre-crisis level by 2005. Between 2003 and 2011 expansionary policy and rising exports created more than five million jobs, and output nearly doubled at an average of 7.1% a year. Capital controls, inflation and weaker trade then cut growth to 1.3% a year from 2012 to 2014. The debt restructurings of 2005 and 2010 brought 93% of the defaulted bonds back into payment. Holdout creditors sued in the courts of the United States, and in 2014 the country was in technical default again.

Inflation came back with the growth. Official inflation was 10.6% in 2012, though Britannica notes that many observers believed the real rate to be considerably higher. The peso lost about half its value in 2018, falling from around 18 to more than 38 to the dollar; inflation reached 25%, interest rates rose to 40%, and an IMF stand-by programme followed. Inflation reached 54% in 2019 and 211.4% in 2023, and poverty passed 57% in January 2024 before falling to about 39% in the third quarter. Inflation for 2024 was 117.8%, and growth in 2025 was 4.4%.

What the Pampas grow and sell now

Farming is a small share of output and employs few people, but it earns the foreign currency. It contributed 9% of output in 2010 and a fifth of exports; processed food and feed added another third. Soy and its by-products (animal feed and vegetable oils) were a quarter of raw-material exports. The country's oilseed harvest comes to about 52 million tonnes a year, around 92% of it soybeans.

The crop map follows the geography:

Beef is the traditional export of the Pampas, and most of it is now eaten at home. Foot-and-mouth disease closed the European and United States markets for a period in the 1990s, and exports resumed under periodic bans. Export duties on soybeans and other farm goods brought the state large revenues under the Kirchner governments after 2003, and they are fought over: a new system of duties proposed in 2008 led to a farm lockout that lasted 129 days and ended with the measure's defeat in the Senate.

Where the oil and gas come from

Argentina became self-sufficient in fossil fuels and hydroelectric power in the late 20th century and exported oil. The fields lie in two belts. In the north-west the deposits are in Jujuy, Salta and Mendoza, with gas near Campo Durán. In Patagonia they run from Neuquén to the basin around Comodoro Rivadavia, which Britannica estimates holds about two thirds of onshore reserves. Before the gas fields were developed in the 1980s, Argentina imported gas from Bolivia.

The change of the last fifteen years is Vaca Muerta, a shale formation of Late Jurassic to Early Cretaceous age in the Neuquén Basin at a depth of about 2,900 metres. Repsol-YPF made a large oil discovery there in 2010, and waste from its exploitation has been deposited near Añelo, about 1,200 kilometres west of Buenos Aires, since 2011. The United States Energy Information Administration has estimated recoverable resources of 16.2 billion barrels of oil and 308 trillion cubic feet of gas. The state took control of YPF in 2012.

Mining outside oil and gas is scattered: iron ore, uranium, lead, zinc, silver, copper, manganese and tungsten are all worked. Metal ore exports rose from $200 million in 1996 to over $3 billion in 2010, and the country also produces lithium, silver, gold and boron. Several nuclear plants add to the power supply, and the Yacyretá dam on the Paraná, brought on line from 1994 to 1998, gave the country a surplus of generating capacity.

What factories and services add

Manufacturing accounts for about a fifth of output and nearly a sixth of the workforce in Britannica's figures, and much of it processes farm goods: grain mills and pasta makers along the Río de la Plata, sugar mills in Tucumán, wine bottling and olive oil in Mendoza, textiles from wool and cotton in the Pampas cities. Refineries sit on the coast near Buenos Aires and near the Mendoza fields. Steel mills at Zapla in Jujuy, San Nicolás de los Arroyos and Rosario fall short of domestic demand. The car industry revived with foreign investment in the 1990s; Argentina built 791,000 vehicles in 2013 and exported 433,000, mostly to Brazil, and vehicles earned $3.1 billion in exports to Brazil in 2021. Córdoba has an aircraft industry.

Services make up more than three fifths of output and a similar share of jobs. Finance, insurance, property and business services together account for a fifth of output and about a twelfth of employment. The fishing fleet works from Mar del Plata and Bahía Blanca, catching hake and squid above all, and about three quarters of the catch is frozen or processed for export. Wine from Mendoza sells in South America, Europe and North America, though most Argentine wine is drunk at home. Foreign tourist arrivals approached five million a year in the late 1990s, a quarter of them from Uruguay, and visitors are a steady source of foreign exchange. Federal revenue rests on income tax and value-added tax, with a wealth tax and excise duties beside them. Brazil has been Argentina's main trading partner since Mercosur was founded in the 1990s, with about a fifth of all foreign trade, followed by China, the United States, Germany and Chile. More than nine tenths of the country's 1,100 labour unions belong to the General Confederation of Labour, a Peronist organisation.