This is how you do it. Argentineans don’t need a stage, occasion or reason to break into an impromptu tango – like this fashionably attired gentleman on a Buenos Aires sidewalk.

Icy glaciers, arid deserts high in the mountains, vast grassy plains and a very long coastline, Argentina is a land of incredible natural beauty. Its name is derived from the Latin word for silver, in reference to an ancient legend about a land rich in the shiny metal, somewhere up in the Andes Mountains. Early European explorers searched in vain for this mythical land. Instead, they established their very own Provincias Unidas del Rio de la Plata, or the United Provinces of the Silver River – Argentina’s early name. They also built the fabulous city of Buenos Aires, in the image of the big cities they left behind in Europe.

Urbane people passionate about soccer, juicy beef steaks and wine, Argentineans have experienced many financial crises, hyperinflation, recessions and boom periods during the last few decades. However, the tide seems to have turned in recent years. After contracting for four consecutive years, the Argentinean economy has expanded rapidly since 2003. Unlike the many false dawns of the past, this recovery appears to be more sustainable as there is a significant improvement in political stability as well.

History

A history of booms and busts

Not many people have seen economic booms and busts as often as the Argentineans have. During the first decade of the last century, they enjoyed the seventh highest income levels in the world – ahead of even the Germans and the French. By then, Argentina had completed nearly a century as an independent sovereign state. Buenos Aires, its capital, had well over a million inhabitants and was the second largest city in the Americas after New York. Europeans flocked to the city for business and in search of work, marking an indelible stamp on the culture and demographics.

The two World Wars and the Great Depression led to a dramatic fall in export demand and foreign investments, spoiling the economic fortunes of Argentina. The post-war period was marked by political instability and military dictatorships. Juan Peron, an army officer who was first elected as president in 1946 and again in 1952 and 1973, played a major part in shaping domestic policies. Economic policies during the period increasingly became inward looking and socialist, which prevented any meaningful and sustainable recovery.

Political instability peaked in 2001 when the country had as many as five presidents in just two weeks! These swift changes in political leadership followed a period of economic collapse and bloody riots in major cities. Things improved from 2003 under President Nestor Kirchner and in 2007 his wife Christina Kirchner was elected as Argentina’s first woman president.

This gaucho is part of a distinct sub-culture developed around Argentina’s cattle ranches, much like the cowboys of the American West. Cattle farming brought prosperity to the country in the 19th century and remains an important industry even today.

Culture

Estancias and gauchos

Blessed with vast plains ideal for raising cattle, Argentina turned to livestock farming which fostered prosperity in the 19th century. A unique culture and lifestyle developed around the estancias – Spanish for ranch. The estancias, which included even small farms, were run by gauchos or cowboys, and continue to thrive today.

Gauchos were wanderers or nomads roaming the plains of South America, who later settled down to run the organized farms that came up to feed the European demand for leather and later, beef. As overseas demand for meat and leather waned after the First World War, the farms went into a decline. Political instability within the country held back the revival of the Argentinean livestock industry during the second half of the last century

Firm demand and higher prices in recent years have reinvigorated the estancias and exports have picked up, including to the U.S., which recently removed a ban on Argentinean beef imports. However, Argentina lags behind Brazil by a huge margin in meat exports. Unfavorable government policies, like the 2006 ban on beef exports to fight domestic inflation, remain the biggest challenge for the industry. The beef export ban was later replaced by a quota system which continues to restrict export volumes.

Like neighboring Brazil, Argentina is also a significant producer and exporter of farm products. Exports include soybean, vegetable oils, and cereals. Higher international food prices have contributed significantly to the recent economic growth.

From near obscurity a decade back, Argentinean wines now occupy pride of place among New World wines and are enjoyed the world over.

Mendoza – Argentina’s Napa valley

When Wine Spectator, one of the most influential voices in the wine industry, rated an Argentinean wine 95 out of a possible 100, wine aficionados were not surprised. South American wines have been in the forefront of the ‘new world wine’ wave. Among South American origins, Chile has been the major exporter, but Argentina is fast catching up.

Argentina is often called the sleeping giant in the global wine market. The country boasts of the greatest land area suitable for wine growing, most of it in the Andes mountain valleys. High-altitude growing imparts uniqueness to Argentinean grapes, like Malbec and Torrontes, an attribute which many vineries in the region have now started exploiting. Yet, though it is the fifth largest wine producer in the world, it exports only 10% of its production.

Mendoza, in west-central Argentina, is the undisputed wine capital of the country. With more than 800 vineries, the region accounts for nearly 80% of total vine production. Mendoza has vineyards at altitudes as high as 1,400 meters above sea level.

Wine exports from Argentina exceeded $400 million in 2006 and the U.S is the biggest customer. It takes many years to develop superior wines and the recent economic stability should encourage Argentinean winemakers to take a longer term view and invest more in vineyards. With demand for wine growing globally, the Argentinean wine industry holds a lot of promise.

Economy

The debt default that actually helped

Sovereign countries usually do not refuse to honor their debt obligations. Defaulting countries will be shut out of global credit markets and raising external finance will be extremely difficult in the future. Even then, Argentina did not have much of a choice but to default on its debt repayments to international creditors in 2001. The government’s finances were so bad that it could not have made the repayments even if it wanted to, as the IMF refused to provide additional loans. At $81 billion, it was the biggest ever sovereign debt default in history.

Argentina’s hydro-electric potential is vastly under-exploited and may hold the key to the country’s future energy security.

Three years later, Argentina offered to pay its creditors 30 cents to a dollar on total debt which had increased to $103 billion including interest. More than three-fourths of the investors accepted the offer, as they saw no other way out, though some investors continue to hold out in hope of a better settlement.

Though at a painful cost to its creditors, the debt restructuring helped Argentina significantly. Total external debt has declined from $167 billion to $114 billion over the last four years. Lower demand on government finances for debt servicing has helped to improve fiscal health and support economic growth in recent years.

Adjusting the clock to lower energy use

Argentineans in the western part of the country wake up to dark mornings, even at 7 AM local time. In contrast, Americans living on a similar longitude along the eastern coast, enjoy a sunny wake up to the day. This is not one of nature’s quirks, but the result of a strange government initiative. To save electricity, the Argentinean government decreed last year that clocks be set forward by an hour during the southern hemisphere summer months. That makes the local time as much as three hours ahead of EST, though geographically they should be similar!

This unusual step highlights the Argentinean government’s desperation to ease power shortages. Fast paced economic expansion and rising affluence have led to higher electricity demand, but supply has not kept pace. Price controls to manage inflation have stymied investments in electricity generation. If unresolved, energy shortages have the potential to derail economic growth. There are reports of temporary workers being laid-off, as power supplies to manufacturing units are restricted.

The ongoing economic boom has stoked demand for luxury goods and shopping malls like this one in Buenos Aires are doing brisk business.

Most of Argentina’s electricity demand is met by gas-fired thermal plants and hydroelectric plants. To increase generation, the government has allowed foreign companies to build thermal plants. The country is also building a new nuclear power plant, besides extending the operating life of an existing one. With only 20% of its hydroelectric potential exploited, it appears that much will depend on investment in new hydroelectric plants.

Argentina relies heavily on natural gas which accounts for nearly 60% of domestic energy consumption. The country has the third largest reserves of natural gas in South America, but output has stagnated because of underinvestment. To tide over the energy crisis, Argentina has steadily reduced natural gas exports to Chile and now imports from gas-rich Bolivia. Unfortunately Bolivia, which nationalized its energy sector in 2006, itself is struggling to meet its export commitments as investment in gas production has declined. Argentina is the third largest producer of crude oil in South America and a net exporter, mostly to Brazil and Chile.

Trade ties that bind

South American countries have deep economic relationships among themselves and hence their economic cycles often follow the same trends. For instance, Brazil, South America’s largest economy, accounts for 37% of Argentinean imports and 18% of exports. Neighboring country Chile is the second biggest importer of Argentinean goods.

A decade ago, trade between South American countries was even more important which led to the formation of the regional trade group Mercosur. However, increasing demand for minerals and farm products in other parts of the world has led to a decline in the importance of trade within the Mercosur group. In the case of Argentina, exports to other Mercosur countries have dropped to 20% from 35% of total exports over the last decade. Even then, total trade in absolute terms within the group is at its peak.

Efforts are being made by member countries to strengthen Mercosur, through further liberalization of trade between member countries and improving market access. More countries may be added to the group - Bolivia and Peru are already associate members - and observers feel Mercosur can develop on the lines of the European Union.

Commemorating the 400th anniversary of the founding of Buenos Aires, El Obelisco or The Obelisk was built in a mere 31 days. As the most recognizable monument in the city, the Obelisk stands tall as an icon of Argentina’s many rebirths and revivals. Argentina - vivacious, full of possibilities, and always hopeful.

Candies to online auctions

Most Americans wouldn’t suspect that the candies they crave for are probably made in Argentina. They could be, as the largest Argentinean confectionery group is a leading supplier to large American retailers and a contract manufacturer for some well-known American brands. With a history of more than 50 years, this confectioner has manufacturing plants in four countries and sells its products in more than 100 countries across the globe.

Such success stories in non-traditional businesses are rare in Argentina, where commodity businesses thrive. The upstream oil industry was dominated by a state-owned firm, which was later privatized and subsequently merged with a Spanish oil company. Argentina is a large exporter of copper and gold concentrates. Other mineral resources include lead, zinc, tin, iron ore, and manganese. American and Canadian companies have a large presence in the domestic mining industry.

With changing global trends, Argentinean businesses are also evolving. Good education standards have helped the country to emerge as a favored destination for outsourcing, largely comprised of call centers offering services in Spanish. Most global technology companies have back-office operations in Buenos Aires now. Such service businesses are estimated to have created nearly 50,000 jobs and generate annual revenues of close to $2 billion.

Yet, the enterprise which best represents present day Argentina is a young technology company. Its founder was still in business school when he volunteered to chauffeur a well-known investor, so that he can make a pitch for venture capital to start the business. His company is now the largest online auctioneer in Latin America and is listed on the NASDAQ.

Young, vibrant, adventurous and full of life – that is the image the world had of Argentina. That is the image the country is now seeking to regain, with newfound confidence.