Where is the Wealth of Argentina? The National Balance Sheet of an Unstable and Land Rich Economy

ARIEL COREMBERG

Boston

Conferencia; IARIW (International Association for Research in Income and Wealth) 32nd General Conference, Boston, USA, August 5-11, 2012.; 2012

IARIW

The aim of the paper is to present the methodology and estimation of the Wealth and National Balance Sheet of Argentina. the main objective of this research is to study the magnitude, dynamism, origins and allocation of the Wealth of Argentina through an exhaustive estimation of the National Balance Sheet by asset and liabilities type for institutional sectors. the main objective of this research is to study the magnitude, dynamism, origins and allocation of the Wealth of Argentina through an exhaustive estimation of the National Balance Sheet by asset and liabilities type for institutional sectors. Taking into account the unstable behavior of the Argentine economy during the period analyzed, it can be inferred that the measurement of the Wealth and the National Balance Sheet of this emergent economy is an important methodological challenge, and it can be taken as an example to analyze the current financial crisis in developed countries. Argentina, one of the main commodity exporters to BRIC countries, presents a historical record of high unstable political situations and a vulnerable economic behavior that led to capital flight, erratic relative prices, debt defaults, bank runs and wealth effects that could be consistently captured thanks to the national balance sheet estimations. In the case of tangible capital, this paper takes into account Coremberg (2004) and OECD (2008) recommendations, including an estimation of the natural capital as in WorldBank (2008), adapted to a land rich economy as Argentina considering the market value of agricultural land. As discussed in Hall (2001), Landefeld and Lawson (2001) and Hausmann and Sturzenegger (2006), the paper examines the challenge of including purchased goodwill and hidden assets in wealth, as well as the net foreign assets position at market value. Following the economic literature on Intangible assets by Hall (2001), Hulten, Corrado and Sichel (2005) and World Bank (2006), this measurement includes Human Capital estimations for Argentina (Coremberg (2010)) following Jorgenson-Fraumeni´s approach (1992), (1996). Mainly based on methodological recommendations of SNA08, IMF and OECD, this paper analyses several proposals about the treatment of non-performing loans, considering IMF balance sheet vulnerability approach and recommendations from OECD and UN EDG financial discussion groups, by Frecault (2002), Allen (2004), Bloem and Porter (2002), Harrison (2006). The measurement of Argentina?s National Balance Sheet shows the negative impact of unstable political and economic behavior during the 2002?s crisis and the present natural resource boom on the magnitude and composition of Wealth: Argentina?s current wealth is lower than the observed levels in industrialized countries, but with an important Human Capital. Argentina?s wealth performance is mostly explained by wealth effects due to the impact of changes in asset price on net worth, rather than savings flows. The low degree of financial depth reflected by the low propensity to take debt from the private sector, households and private firms was magnified by 2002 crisis. The important role of commodity prices boom on the revaluation of natural capital had on the post crisis economic resurgence, besides the bailout of corporate sector.