Argentina: A Country in Crisis Prepared for: BA 380S: Managerial Economics, Macroeconomics Prepared by: J.T. Burgess, Edward Donovan, Mary Liz Guidry, Rodrigo Manzanilla, Claire Reid, Umar Suhail Date: October 5, 2012
I. Introduction 4 Company Background 4 Opportunities in Argentina 4 II. Economic History 5 The Rise and fall of argentina 5 2001 Crisis and Buildup 6 III. Current Economic Condition and Evaluation 8 Economic Slow Down 9 Capital Flight 10 Repsol/YPF 11 IV. Product Opportunity/Shale Gas 13 Risks 13 Recommendation 14
With more than a decade of experience in shale gas exploration in the Texas region, “E2: Energy Experts” provides consulting services, giving Oil and Gas companies the know-how and technology to efficiently exploit shale gas reserves in a safe environment.
Opportunities in Argentina The purpose of this paper is to present a comprehensive analysis of a project we have begun evaluating, to wit: expanding our consulting and support services in the shale gas industry to Argentina, a country that has recently discovered extensive and concentrated shale reserves.
On the surface, the desirability of the project might seem obvious: We have extensive experience in this area and have long been considering expanding into emerging markets with substantial but untapped potential for natural gas exploration. However, Argentina’s tempestuous history and uncertain future make this a special case. Once one of the most developed economies in the world, Argentina fell from that path almost eighty years ago and has never fully recovered. More recent events, including a slowdown in its economy combined with destabilizing policies of its government require detailed consideration.
This paper begins by presenting a brief history of Argentina’s economic situation, focusing on its decline from a global economic leader to a perennial “emerging” economy, which has yet to fully emerge. Next, it considers in more detail several developments in the economy over the past decade, and leading up to the present day. Finally, we consider the market opportunity we have identified in Argentina, in light of the above factors and make recommendations for moving forward.
II. Economic History The economic history of Argentina is one of the most well known paradoxes in economics. At the start of the 20th Century, it was one of the ten most developed economies in the world, but it was knocked off of this path following the great depression, and—though it has experienced various upswings and growth periods—seems never to have fully recovered. Its recent bout of economic turmoil is analyzed in greater detail below, but it is worthwhile to address some historical preconditions here.
The Rise and fall of argentina Argentina’s first settlement by Europeans came in the mid 1500’s as Spain colonized the Rio de la Plata area of South America. Over the course of its colonial period, it became clear that Argentina was rich in natural resources, including minerals, and the country began developing its agricultural industry, which remains a significant part of its economy today. Argentina wrested its independence from Spain in 1816, as the latter’s ability to maintain colonies frayed. Argentina’s economy grew considerably following the colonial period, and by the early 1900s it was considered one of the most modern and developed economies in the world. However, the global depression that swept the world in the 1930s was disastrous for Argentina’s long-term prospects. The immediate effects of the depression in Argentina appeared mild. Unlike the United States and other western countries, Argentina never saw unemployment rise above 10% and the economy had largely recovered by the mid-1930s. However, its long-term growth never returned to the levels it