ARGENTINA – BRIEF SURVEY 2009

PES-IUP MBA SUMMER

INTERNATIONAL BUSINESS

The Country Note Book Project Argentina – Brief Survey

By: Chalapathy Muniyappa Prithvi Murthy Sumit Kumar Tejaswini .N.Shetty Batch 05 - MBA Indiana University of Pennsylvania Indiana, PA, USA To:Dr. Varendar Sharma Faculty – Indiana University of Pennsylvania Indiana, PA, USA

Argentina - Brief Survey

PES-IUP SUMMER 2009

Argentina officially called as Argentine Republic

1. Synopsis This report will give you a brief introduction to Argentina as a country, the natural resources and its geographical status, Argentina’s linguistic details, its people and their culture, tradition and population, Political situation and kind of government. An overview of country’s export & import businesses. This report also gives an overview of Argentina’s relationship with India. A look at GDP growth, its analysis over the past, expected future growth, market brief of Argentina.

Argentina - Brief Survey

PES-IUP SUMMER 2009

Table of Contents
Sl No 1 2 3 4 5 6 7 8 9 10 11 Contents Pg No 1-3 4-10 10-10 11-13 13-17 18-19 19-20 20-23 24-24 25-26 26-27

Introduction Economic environment of the country Population in Argentina Culture Political conditions Argentina Currency Major product categories imported in this nation International Trade policy toward importing Characteristic of Argentina Market Entry Market for Product

ARGENTINA – BRIEF SURVEY 2009 2. Introduction

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Argentina comprises of almost the entire southern half of South America, It is the second largest country in South America and also world's eighth largest country, covering an area of 2.8 million square km. Argentina possesses some of the world's tallest mountains, expansive deserts, and impressive waterfalls, with the diversity of the land ranging from wild, remote areas in southern Patagonia to the bustling metropolis of Buenos Aires in the north. Argentina borders Paraguay and Bolivia to the north, Brazil and Uruguay to the northeast, and Chile to the west and south. The total surface area of Argentina is 2,766,890 sq. km, of which 2,736,690 sq. km. is land and 30,200 is water. Argentina is about 3900 km long from north to south, and 1400 km from east to west (maximum values). It can roughly be divided into four parts: the fertile plains of the Pampas in the center of the country, the source of Argentina's agricultural wealth; the flat to rolling, oil-rich plateau of Patagonia in the southern half down to Tierra del Fuego; the subtropical flats of the Gran Chaco in the north, and the rugged Andes mountain range along the western border with Chile. The highest point above sea level in Argentina is located in Mendoza. Cerro Aconcagua, at 6,962 m (22,841 ft). It is the highest mountain in America, the Southern, and Western Hemisphere.The lowest point is Laguna del Carbon in Santa Cruz, −105 meters (−344 ft) below sea level. This is also the lowest point on the South American continent. The geographic center of the country is located in south-central La Pampa Province. Argentina's easternmost continental point is northeast of the town of Bernardo de Irigoyen, Misiones (26°15′S 53°38′W26.25°S 53.633°W / -26.25; -53.633 (Argentina's easternmost continental point)), the westernmost in the Mariano Moreno Range in Santa Cruz (49°33′S 73°35′W49.55°S 73.583°W / -49.55; -73.583 (Argentina's westernmost point)). The northernmost point is located at the confluence of the Grande de San Juan and Mojinete rivers, Jujuy (21°46′S 66°13′W21.767°S 66.217°W / -21.767; -66.217 (Argentina's northernmost point)), and the southernmost is Cape San Pio in Tierra del Fuego (55°03′S 66°31′W55.05°S 66.517°W / -55.05; -66.517 (Argentina's southernmost point)). The country has a territorial claim over a portion of Antarctica (unrecognized by any other country), where, from 1904, it has maintained a constant presence. The country is traditionally divided into several major geographically distinct regions: Pampas, ran Chaco, Mesopotami, Patagonia, Cuyo and NOA or Northwest. The distance between India and Argentina is about 15,862kms which is equal to 9856 miles.

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Natural resources Argentina is one of the world's major agricultural producers, ranking third worldwide in production of honey, soybeans and sunflower seeds and is ranked as fifth in the production of maize and eleventh in wheat. In 2007, agricultural output accounted for 9.4% of GDP and nearly one third of all exports. Soy and its byproducts, mainly animal feed and vegetable oils, are major export commodities at 24% of the total. Wheat, maize, sorghum and other cereals totaled 8%. Cattle-raising is also a major industry, though mostly for domestic consumption Beef, leather and dairy were 5% of total exports. Sheep-raising and wool are important in Patagonia, though these activities have declined by half since 1990. Though Argentina is now an industrial and service economy, agriculture still earns more than half the foreign exchange. Fruits and vegetables made up 4% of exports: apples and pears in the Río Negro valley; oranges and other citrus in the northwest and Mesopotamia; grapes and strawberries in Cuyo and berries in the far south. Cotton and tobacco are major crops in the Gran Chaco, sugarcane and chile peppers in the northwest and olives and garlic in Cuyo. Yerba Mate (Misiones), tomatoes (Salta) and peaches (Mendoza) are grown for domestic consumption. Argentina is the world's fifth-largest wine producer, and fine wine production has taken major leaps in quality. A growing export, total viticulture potential is far from having been met. Mendoza is the largest wine region, followed by San Juan. A strike by farmers, protesting an increase in export taxes for their products, began 13 March 2008 and butchers and supermarkets were among the first affected by shortages. Following a series of failed negotiations and the 16 July defeat of the export tax-hike in the Senate, the strikes and lockouts largely subsided. Argentine fisheries bring in about a million tons of catch annually and are centered on Argentine hake which makes up 50% of the catch, pollack, squid and centolla crab. Forestry has long history in every Argentine region, apart from the pampas, accounting for almost 14 million m3 of roundwood harvests; elm for cellulose, pine and eucalyptus for furniture as well as for paper products 1.5 million tons are all widely harvested. Fisheries and logging each account for 2% of exports. Petroleum fuels, oil and natural gas are 12% of Argentina's exports. The most important oil fields lie in Patagonia and Cuyo. A network of pipelines send raw product to Bahia Blanca, center of the petrochemical industry, and to the La Plata-Rosario industrial belt. Mining is a growing industry where the northwest and San Juan Province are the main regions of activity. Coal is mined in Santa Cruz Province. Metals mined include gold, silver, zinc, magnesium, sulfur, tungsten, uranium and particularly copper. These exports soared from US$ 200 million in 1996 to US$1.2 billion in 2004 and to over US$ 2 billion in 2007. Page | 2

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Climate Because of longitudinal and elevation amplitudes, Argentina is subject to a variety of climates. As a rule, the climate is predominantly temperate with extremes ranging from subtropical in the north to subpolar in the far south. The north of the country is characterized by very hot, humid summers with mild drier winters, and is subject to periodic droughts. Central Argentina has hot summers with thunderstorms (western Argentina produces some of the world's largest hails), and cool winters. The southern regions have warm summers and cold winters with heavy snowfall, especially in mountainous zones. Higher elevations at all latitudes experience cooler conditions. The hottest and coldest temperature extremes recorded in South America have occurred in Argentina. A record high temperature of 49.1 °C (120.4 °F), was recorded at Villa de Maria, Cordoba, on 2 January 1920. The lowest temperature recorded was −39 °C (−38 °F) at Valle de los Patos Superior, San Juan, on 17 July 1972. Major wind currents in Argentina include the cool Pampero Winds blowing on the flat plains of Patagonia and the Pampas; following the cold front, warm currents blow from the north in middle and late winter, creating mild conditions. The Zonda, a hot dry wind, affects west-central Argentina. Squeezed of all moisture during the 6,000-meter (20,000 ft) descent from the Andes, Zonda winds can blow for hours with gusts up to 120 km/h (75 mph), fueling wildfires and causing damage; when the Zonda blows (JuneNovember), snowstorms and blizzard (viento blanco) conditions usually affect the higher elevations. The Sudestada ("southeasterlies") could be considered similar to the Nor'easter, though snowfall is rarely involved (but is not unprecedented). Both are associated with a deep winter low pressure system. The sudestada usually moderates cold temperatures but brings very heavy rains, rough seas and coastal flooding. It is most common in late autumn and winter along the coasts of central Argentina and in the Río de la Plata estuary. The southern regions, particularly the far south, experience long periods of daylight from November to February (up to nineteen hours) and extended nights from May to August. All of Argentina uses UTC-3 time zone. The country does observe daylight saving time occasionally. Miles: 9820.86 Kilometers: 15804.71

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3. Economic environment of the country Argentina has abundant natural resources, a well-educated population, an export-oriented agricultural sector and a relatively diversified industrial base. Domestic instability and global trends, however, contributed to Argentina's decline from its noteworthy position as the world's 10th wealthiest nation per capita in 1913 to the world's 36th wealthiest in 1998. Though no consensus exists explaining this, systemic problems have included increasingly burdensome debt, uncertainty over the monetary system, excessive regulation, barriers to free trade, and a weak rule of law coupled with corruption and a bloated bureaucracy. Record foreign debt interest payments, tax evasion and capital flight resulted in a balance of payments crisis that plagued Argentina with serious stagflation from 1975 to 1990. Attempting to remedy this, economist Domingo Cavallo pegged the peso to the U.S. dollar in 1991 and limited the growth in the money supply. His team then embarked on a path of trade liberalization, deregulation and privatization. Inflation dropped and GDP grew by one third in four years; but external economic shocks and failures of the system diluted benefits, causing the economy to crumble slowly from 1995 until the collapse in 2001. That year and the next, the economy suffered its sharpest decline since 1930. By 2002, Argentina had defaulted on its debt, its GDP had shrunk, unemployment reached 25% and the peso had depreciated 70% after being devalued and floated. In 2003 expansionary policies and commodity exports triggered a rebound in GDP. This trend has been largely maintained, creating millions of jobs and encouraging internal consumption. The socio-economic situation has been steadily improving and the economy grew around 9% annually for five consecutive years between 2003 and 2007 and 7% in 2008. Inflation, however, though officially hovering around 9% since 2006, was privately estimated at 12-15% that year and over 15% in 2008, becoming a contentious issue again. The urban income poverty rate has dropped to 18% as of mid2008, a third of the peak level observed in 2002, though still above the level prior to 1976. Income distribution, having improved since 2002, is still considerably unequal. Argentina faces slowing economic growth in light of an international financial crisis. The Kirchner administration responded at the end of 2008 with a record US$32 billion public-works program for 2009-10 and a further US$4 billion in new tax cuts and subsidies. Kirchner has also nationalized private pensions, which required growing subsidies to cover, in a move designed to shed a budgetary drain as well as to finance high government spending and debt obligations.

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Industry The Yacyretá Dam hydroelectric complex is the second largest in the world Manufacturing is the nation's largest single sector in the economy with 21.5% of the GDP in 2007 and is well-integrated into Argentine agriculture, accounting for nearly two-thirds of exports in all, with half the nation's industrial exports being agricultural in nature. Leading sectors by production value are: food processing, chemicals and pharmaceuticals, motor vehicles, farming equipment & auto parts, iron, steel & aluminum, petroleum, as well as home appliances and industrial machinery. Other manufactured goods include textiles & leather, plastics & tires, forestry products, publishing, cement, glass and tobacco products. Nearly half the nation's industries are in and around Buenos Aires although Córdoba and Rosario are also home to significant industrial centers. Construction permits nationwide neared 19 million m² (200 million ft²) in 2006 and the sector is 6% of GDP. Two-thirds of this total was residential construction. Argentina produces electricity in large part through well developed natural gas and hydroelectric resources. Nuclear energy is also of high importance and the country is one of the largest producers and exporters, alongside Canada and Russia, of Cobalt-60 which is a radioactive isotope widely used in cancer therapy. Service Industries Well-known for its productive agriculture, Argentina also benefits from a well-developed service sector The service sector is the biggest contributor to total GDP, accounting for 58%. Argentina enjoys a diversified service sector, which includes well-developed social, corporate, financial and insurance, real-estate, transport and communication services, as well as vigorous commercial and tourist trades. The telecommunications sector has been growing at a fast pace with an important penetration of mobile telephony (more than 75% of the population), the Internet (with more than 16 million people online), and broadband services (4.1%). Regular telephone services (with 9.5 million lines) and mail services are robust. Tourism is increasingly important and provided 8% of economic output (over US$20 billion) in 2006. Argentines, who have long been active travelers within their own country, accounted for over 80% of this - though growing international tourism (4.2 million visited Argentina in 2006) contributed almost US$3.4 billion that year. Stagnant for over two decades, domestic travel has increased robustly in the last few years and visitors are flocking to a country seen as affordable, exceptionally diverse, and safe. Cosmopolitan Buenos Aires, Rosario and the ocean-fronts of Mar del Plata & Pinamar, Page | 5

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the Iguazu Falls, colonial Salta & Jujuy are rich in indigenous culture. The scenic foothills of Córdoba, the wineries of Mendoza, the ski slopes and lakes near Bariloche, the grottoes at San Antonio Oeste, Perito Moreno Glacier and Tierra del Fuego are among the nation's best-known tourism resources. Commercial policy
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Market Overview Import and Export Policies

Market Overview There is a distinguished bilateral commercial history that the Argentina shares, with new opportunities for future trade and investment. The United States is Argentina’s third largest trading partner (after Brazil and China), and the Argentine Government Investment Agency recently cited the U.S. as the "most active" country investor in Argentina. The U.S. maintains a trade surplus with Argentina: In 2008 the U.S. exported nearly $6 billion in goods to Argentina. The U.S. imported $5.6 billion in goods (mostly commodities) from Argentina. U.S. investment in Argentina makes a large contribution to the economy: Over 500 U.S.based companies are currently operating in Argentina, and employ over 155,000 Argentines. U.S. investment in Argentina totals over $13 billion and is concentrated in the energy, manufacturing, information technology, and financial sectors. Import Policy of Argentina The import of following used commodities are prohibited: Spare parts, Medical supplies, Automobiles, Motorcycles, Clothing, Tires, Boats, Dangerous residues (chemicals), Certain toxic substances contained in pharmaceutical products, cosmetics and toys, Certain food additives and colorants, Products containing polychlorinated biphenyl's (PCB's), Asbestos fibers of the Amphibole and Chrysotile variety and products containing these fibers are few other products that are not imported. Currently the Government of Argentina imposes quotas for the importation of peaches, white glasses for corrective spectacles, automobile parts, paper, pulp and footwear. Pharmaceuticals, chemical products, insecticides, veterinary products, medical devices, cosmetics, agricultural products, textiles and defense material require various approval prior to import from various regulatory agencies.

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All goods shipped to Argentina must have a value and description. The value is usually based on the transaction value between the shipper and the importer, what the sale value of the goods was. If no actual transaction has taken place, such as with samples or a no charge shipment, a value must still be assessed; this would be the fair market value or replacement value. Non-tangible items such as business documents, accounting documents, etc. must also be assessed a value, but this should be based on the value of the paper. All imported goods are subject to an ad valorem duty that is based on the cost of the goods, plus insurance and freight (CIF). Alcoholic beverages, tobacco, soft drinks, syrups, extracts, concentrates and consumer electronic products are subject to luxury and excise taxes. Import Taxes

0.5 percent statistics fee on the CIF value (except capital goods). This tax is not applicable for MERCOSUR member countries. Depending on the product, either 21 or 10.5 percent value added tax (VAT) on the sum of the CIF value, tariff and statistics fee. Depending on the product, either 10 or 5.5 percent advanced VAT on the sum of the CIF value and statistics fee on all goods imported for resale (goods imported by the end-user are exempt). 3 percent anticipated profits tax on all retail goods (goods imported by the enduser are exempt).

Customs Fees A $10.00 USD single fixed customs fee is assessed per transaction entered using the Sistema Informatico Maria (SIM). Merchandise imported using the Simplified Import System is exempt from this fee. Export Policy of Argentina All commodities that are prohibited from importing into Argentina are prohibited from exporting as well. Exporting from Argentina requires knowledge of the commodity, the proper documentation and export compliance. The value of the goods, destination of the shipment and if the goods are controlled, prohibited or regulated will determine the specific export requirements. Commodities exported from Argentina are subject to duties, which range from 5% to 20% (they vary per product type) Argentina has been a member state of the United Nations since October 24, 1945, and as such honors any import or export sanctions imposed against designated countries under Page | 7

ARGENTINA – BRIEF SURVEY 2009 the United Nations Act 1946.

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Exporters should be registered with the Department of Trade and Industry (DTI) or the Securities and Exchange Commission (SEC): with the city or the municipality where the business will operate, as well as with the Bureau of Internal revenue. Export documentation requirements vary on the type of goods being exported. Goods that are controlled or restricted for export may require licenses or specific certifications in addition to an air waybill and commercial invoice. Certain commodities may be subject to export controls, which may require additional documentation such as:

Export Licensing for Dual Use Goods (goods that may be used in either military or civilian application) Sanitary, phytosanitary or safety standard certification for products such as meat, seeds, fruit, vegetables and marine goods. Additional products that are controlled for export include psychotropic substances and endangered fish and wildlife species.

*Reference 1

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Unemployment rate in Argentina.

Economic environment of the country and its future. Argentina's economy is booming. The recovery gathered pace throughout last year and the GDP has expanded at an annual rate of 11%. What makes this growth remarkable is that only two years ago Argentina was in chaos. In 2001 it suffered its worst economic collapse in more than a century. After a slow start, recovery of the Argentine economy has been faster than many expected. The current economic environment has improved, as compared to past few years where they had huge amounts of debt to be repaid. There is no reason to believe that Argentina cannot repay the modest debt that they have as of now. As we see from the inflation graph, inflation has been decreasing steadily in the last few years. Also the unemployment rate is decreasing, which is a good sign for the economy as a whole. Page | 9

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The educational level of the Argentines is good and resources are abundant. Argentina should therefore be able to better integrate in the world economy and become an important player, at least in the continent. However, Argentina, as the rest of Latin America, still is largely a commodity exporter (meat, soy beans etc.). The big challenge for Argentina is to follow the example of countries like Chile or Mexico, which through intelligent industrial policy managed to move up the production chain. 4. Population in Argentina. 40,913,584 at closing of July 09 Age structure: 0-14 years: 25.6% (male 5,369,477/female 5,122,260) 15-64 years: 63.5% (male 12,961,725/female 13,029,265) 65 years and over: 10.8% (male 1,819,057/female 2,611,800) Population growth rate: 1.053% Sex ratio: at birth: 1.05 male(s)/female under 15 years: 1.05 male(s)/female 15-64 years: 1 male(s)/female 65 years and over: 0.7 male(s)/female total population: 0.97 male(s)/female Life expectancy at birth: total population: 76.56 years male: 73.32 years female: 79.97 years (2009 est.) Literacy: definition: age 15 and over can read and write total population: 97.2% male: 97.2% female: 97.2% (2001 census) Geographic distribution of population The current population in Argentina is 40,913,584 (2009). The population is distributed quite unequally amongst the states. The city of Buenos Aires and province have the highest concentration of population at 3,042,581 and 15,052,177 respectively. The least populated area is Santa Cruz at 225,920 the remaining population is distributed amongst the other 21 states. *Reference 2

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ARGENTINA – BRIEF SURVEY 2009 5. Culture

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The culture of Argentina is as varied as the country's geography and mix of ethnic groups. Modern Argentine culture has been largely influenced by European immigration although there are also some American and African influences, particularly in the fields of music and art. Buenos Aires and other cities show a mixture of architectural styles imported from Europe but in the case of older settlements, and of older preserved neighborhoods within cities, modern styles appear mixed with colonial features, relics from the Spanish-ruled past. Museums, cinemas and galleries are abundant in all the large urban centers, as well as traditional establishments such as literary bars, or bars offering live music of a variety of genres.
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Cinema and theatre Music Painting and Sculpture Sports Language Food Literature Spare time See also References

Values Argentinean Family Values, the family is the centre of Argentine life with extended families still having prominence the heads of powerful families command widespread respect, but with this comes a responsibility to care for others in terms of security, jobs, etc and to maintain personal and family honors. Honor is in all respects the be all and end all and it routinely affects day-to-day life at home, in the community and in business. Consumption patterns Argentina’s food drink report provides intelligence on the Argentina’s food and drink industry. The GDP growth in Argentina for the last 5 years has seen a rise of 8% growth due to consumer spending behaviors and the increase in prices of the commodities. However the 5 year boom is over and government’s current attempt to manage the economy by its fiscal policy has led to forecast by BMI, that predicts Argentine economy will grow only by 0.6% in 2009 and will contract to 0.9% by 2010. This is expected to have an impact on consumer buying pattern in food and drink department. Also the reduction in export has had an impact throughout the business sector, also damaging consumer’s confidence. This has obviously led to consumer spending pattern, that inturn has shown signs of slowdown in inflation. In November Argentina’s inflation rate fell to 7.9%, the lowest in 4 years.

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The Argentine president, in response to this has announced a package of $3.8 bn of low cost loans to boost customers demand and also to help exporters of the country. However, if the present economic situation does not improve, the measures taken would be of no use to prevent contracting consumer demands. The change in patterns of consumer demand not only slows the sales growth, but there will be a rise in need for lower priced goods. This might also lead to reduction in demand for alcohol, soft drinks. Therefore food consumption has increased at a decreased growth rate in 2008 expected to continue till 2013. *Reference 3 Argentina: Customs and Lifestyle Diet and Eating Argentines consume beef more than any others in the world. Argentina being a major beef producer, and therefore cost is low enough for people to eat beef on a daily basis, and many people eat Popular foods such as baked stuffed beef and empanadas, which are pies made with meat or vegetables. A preferred winter stew is locro, made of meat, corn, and potatoes. The government and health officials are encouraging people to consume beef at lesser rate for health reasons. Maté is the preferred hot tea. Italian and French foods are widely available. Traditionally the main meal is eaten at afternoon, but nowadays those working in cities have it in the evening, usually after 9 PM. Argentine eating habits and table manners have been influenced by their European origins. For example, hands should be kept above the table. Restaurant waiters can be summoned with the index finger extended. Eating on streets or in public transport is considered inappropriate. Recreation Football is the national sport which is watched and like by youth and adults as well. Other popular sports are horse racing, rugby, field hockey, tennis, polo, and basketball. The Colón Theatre, a opera house, is located in the capital, and there are many theatres, restaurants, and clubs. The tango and ballroom dance, originated in Argentina. Holidays and Celebrations Holidays in Argentina are generally spent with their family. New Year’s Day is celebrated on 1 January with fireworks. Maundy Thursday, the Thursday before Easter, celebrates Jesus Christ’s Last Supper—maundy is derived from the word “mandate”. Argentines also celebrate Good Friday (the Friday and Easter Sunday). Malvinas Day, on 2 April, remembers the failed Argentine attempt to recover the Falkland Islands from British rule. This brief war was fought in 1982. Labour Day is Page | 12

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recognized as others on 1 May. Argentina declared its independence from a Spanish colonies on 25 May 1810, but did not declare independence from Spain until 9 July 1816. These two dates are now celebrated as National Day and Independence Day respectively. Flag Day is observed on 20 June. . *Reference 4 Languages Spanish is the dominant language of Argentina. There are 40 other languages that include native and other immigrant languages; two languages are extinct and others are almost not used by anyone, spoken by elderly people whose sons or daughters do not speak the languages. The other languages that are spoken in Argentina include, Italian, German, Levantine Arabic. Few more languages of Argentina include: Aymara,Caiwá , Chiriguano , Chiripá , Chorote , Chulupi , Guaraní , Mapudungun , Wichí (Wichí Lhamtés) , Mocoví , Nivaclé , Pilagá , Quechua , Tapieté , Toba & Kaiwá . Severely endangered or nearly extinct languages; Ona, Puelche, Tehuelche & Vilela

6. Political conditions Argentina's political system is a presidential representative democratic republic, in which the President of the Argentine Nation is both head of state and head of government, complemented by a multi-party system. The current president is Cristina Fernández de Kirchner, with Julio Cobos as vice president. The Argentine Constitution of 1853 separates powers into executive, legislative, and judicial systems at the national and provincial level. Executive power resides in the President and the Cabinet. The President and Vice President are directly elected to fouryear terms and are limited to two terms. Cabinet ministers are appointed by the president. Legislative power is vested in the National Congress or Congreso de la Nación, consisting of a Senate (Senado) of seventy-two seats, and a Chamber of Deputies (Cámara de Diputados) of 257 members. Senators serve six-year terms, with one-third standing for reelection every two years. Members of the Chamber of Deputies are directly elected to four-year term via a system of proportional representation, with half of the members of the lower house being elected every two years. A third of the candidates presented by the parties must be women. Page | 13

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The judiciary is independent of the executive and the legislature. The Argentine Supreme Court of Justice has seven members who are appointed by the President in consultation with the Senate. The rest of the judges are appointed by the Council of Magistrates of the Nation, a secretariat composed of representatives of judges, lawyers, the Congress and the executive. Argentina is a member of an international block, Mercosur, which has some legislative supranational functions. Mercosur is composed of five full members: Argentina, Brazil, Paraguay, Uruguay and Venezuela. It has five associate members without full voting rights: Bolivia, Chile, Colombia, Ecuador and Peru. Upheavals Despite the recent military coup against Manuel Zelaya, Hondurans will most likely elect their next president by the end of 2009. This might end the crisis that led to the coup. But elections will not fix all of Honduras’ political ills. Honduras must also address the decline in the quality of democracy that predates the current crisis, or else it will remain dangerously susceptible to more breakdowns. On the surface, Honduras prior to this crisis appeared to have moved steadily toward strengthening democracy. From 1982 to 2008, Honduras held seven consecutive civilian elections followed by uninterrupted presidential terms. Honduras also seemed to have tamed its military by the mid-1990s, as civilian leaders had reined in military spending and the military’s political veto power. The current crisis in Honduras is a stark reminder that democracy entails more than free and fair elections and a military that answers to civilian authority—crucial as these may be. Democracies must also expand the rule of law, citizens’ access to the justice system, state guarantees of civil and political rights, and protections for political minorities. These added aspects of democracy help democracy deliver positive development outcomes and ensure citizens’ political satisfaction. In Honduras, these added aspects were faltering prior to the recent constitutional crisis. The immediate cause of the June coup was clearly the inability of democratic institutions to rein in a president who was violating the law. The military compounded the problem by expelling the president. But the longer-term problem was a decline in the quality of democracy, which was hampering the political system’s ability to protect citizens and spread prosperity. Poverty remains rampant, corruption pervasive, and crime has gotten worse. In addition, inequality in this vastly unequal society increased during several years in the last decade. And in surveys we have conducted in rural areas, people often report feeling abandoned by an incapable or absent state. Honduras’ low quality of democracy has produced disenchantment. Data compiled by the Latin American Public Opinion Project (LAPOP) in 2008 shows that less than half of Honduras’ population expressed confidence in the Congress, the judiciary, or the Presidency. Tellingly, Hondurans reported greater trust in the military than in any other national political institution. In terms of state legitimacy and citizens’ political tolerance, Honduras ranked last after Haiti.

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Political behavior has changed, as well. Honduran voters used to go to the polls, virtually without fail, to vote for one of the two dominant right-of-center parties. In recent elections, turnout dropped along with party identification. Discontent with the two dominant political parties was rising, but no clear alternative was emerging. The political system was becoming a rudderless ship. Because of these trends in attitudes and behaviors, LAPOP went as far as to dub Honduras in 2008 as a ‘democracy at-risk’, a claim that now appears prescient. This precarious pre-coup situation suggests that Honduran democracy may not be immune to future threats, even if the current crisis eases. As with humans and viruses, all democracies in developing countries are susceptible to a wide array of potential assaults: overzealous presidents, drug lords capturing the state, corrupt politicians in congress, executive-legislative deadlock, and ruling parties in disarray. But democracies with low quality institutions are least likely to survive these assaults, let alone resolve them legally. The current crisis may very well abate with the upcoming election, but Honduras, under the best short-term scenario, will still remain vulnerable to future viral attacks. Relationship with India The current status and the agenda of the Doha Round multi-lateral negotiation was discussed on the 9th and 10th of June in between the Argentine Secretary of Trade and International Economic Relations, Ambassador Alfredo Chiaradía and the Indian Commerce Secretary, Mr. Gopal Pillai in Buenos Aires. It was agreed upon by both the Secretaries about the importance of concluding the multi-lateral negotiation as soon as Possible in line with the Doha Development Mandate and to liberalize and expand trade especially in goods and services of special interest to developing country members. It was also agreed that an early conclusion of the Doha Development Round would also reinforce the multilateral trading system. The need to correct the current imbalances observed in the negotiating text, particularly in the key areas of agricultural and nonagricultural market access goods (NAMA) were given more importance in order to reach this goal. They also noted the key role played by the G-20 and the NAMA-11 groups of developing countries of which both India and Argentina are members. Both sides agreed that a substantial reduction in the overall trade distorting subsidies (OTDS) should be achieved so as to eliminate the possibility available to developed country members; especially the United States and the European Union, of increasing currently applied support levels. Also it was taken care that the green box payments are budget neutral and that no distorting subsidies are transferred to the green box. Regarding market access, both sides stated that the linear percentage of a minimum 54 percent of average tariff cut proposed for developed countries in the chairman’s text should be respected as also the granting of a significant expansion of tariff rate quotas for sensitive products, which should be transparent and explicit.

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In relation to non-agricultural goods, it was agreed neither India nor Argentina would be willing to an agreement that disregards the Doha mandate. Both sides also reiterated that a final agreement should respect special and more favorable treatment for industrial sectors of developing countries and which was clearly spelled out in the nature of additional and adequate flexibilities for their sensitive and vulnerable industrial sector. Both sides also stressed on compliance with paragraph 24 of the Hong Kong Ministerial declaration which called for a balanced outcome in market access for agriculture and NAMA. Secretaries Pillai and Chiaradía called for restoration of the balance in the negotiations, respecting the principle of less than full reciprocity. Only such a balance would make it possible for both India and Argentina to approve the modalities and enter the final stage of the Doha Development Round. They urged the developing countries to show the necessary political will towards restoring this balance and to reciprocate the important contribution that developing country members are making to the Round and the WTObased multilateral trading system. Impact of terrorism on their attitude toward India & Indian products The relationship between India and Argentina has been good in the past and will continue to be so. The Indian textile industry has been largely benefited by the global financial crisis. Argentina is eyeing investments into India’s textile industry and 34 Indian companies received orders at the recently concluded exhibition and buyer and seller meet in Buenos Aires. R Viswanathan, who is the Indian ambassador to Argentina, Uruguay and Paraguay, told FE that, “Everyone is concerned about the international financial downturn. There is lack of credit, liquidity has decreased. A textile delegation of 34 companies sponsored by all the textile promotion councils of India, which was recently in that country, received orders from the Argentine companies. Our textile exports in 2008 were $90 million dollars, but we are hoping to increase it to $300 million in the next three years.” Since the companies need innovative strategies to reduce the production costs and be more competitive, the Argentine textile industry expressed keenness to explore partnership with the Indian textile industry, said Viswanathan. According to the envoy, during the buyer-seller meet at the end of April, the businessmen from the Argentine textile industry took the opportunity to explore possibilities of imports, exports and collaborations to succeed in the argentine market, the gigantic Indian market, and also in the global markets.

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ARGENTINA – BRIEF SURVEY 2009

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India’s exports to Argentina have gone up by 28%in 2008—$492 million in 2008—from $384 million in 2007. India’s imports from Argentina in 2008 were $836 million as against $859 million in 2007, he said. Argentina is the third largest market of Latin America after Brazil and Mexico and is well integrated in Mercosur. And there is there is a good potential of cooperation between India and Argentina in the manufacturing sectors. Argentina’s industrial production includes automobiles, steel, aluminum, paper, sugar, PVC and polyethylene in which India also has strong manufacturing base and technological capabilities. Preferential Trade Agreement (PTA) with Mercosur, of which Argentina is a member, is expected to facilitate greater market access of Indian products in Argentina. Besides exports, there is good scope for Indian investment in Argentina in sectors such as petroleum, mining, manufacturing, information technology, agriculture, forestry, etc. According to FICCI officials, Indian companies are acquiring companies in Argentina and also setting up manufacturing bases there to create greater market. By looking at recent increase in exports and the interest shown by the Argentine government in Indian industries, we can say that terrorism has not had a great impact on Argentine’s attitude toward India and Indian products. *Reference 5

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ARGENTINA – BRIEF SURVEY 2009 7. Argentina Currency

PES-IUP MBA SUMMER

The currency in Argentina is the "peso" and it is subdivided in 100 cents.
• • •

Coins Bills Cash Machines or ATMs

Coins There are 1 cent, 5 cents, 10 cents, 25 cents, 50 cents and 1 peso coins. The 5, 10, 25 and 50 cent coins have two versions: silver plated and golden. Bills Paper money comes in denominations of: $2, $5, $10, $20, $50 and $100. There are two versions for the $2, $5, $10 y $20, the version with the old design is still in circulation. Cash Machines or ATM's Cash machines are used by everybody and there are plenty around the city. Every bank has cash machines linked to international networks such as a Cirrus, Plus, MasterCard, Visa, Maestro, Citibank and others. Simply look for the companies’ logos on bank windows and in cash machine booths. Money Exchange or Foreign Exchange The best option for exchanging money is a bank (banking hours are 10am to 3pm). There are also many Currency Exchange Bureaus and most hotels exchange money as well. In certain areas of the city it is common to see people on the streets offering money exchange at better rates, but even if it seems tempting, DO NOT ACCEPT, most are fakes. Some businesses and hotels accept dollar bills and usually don't have problems giving change back in pesos, but the rate is always lower than banks. Currency Fluctuations and Current exchange rate The currency fluctuation of Argentine Peso with respect to dollar in 2009, 2008, 2007 were 3.71, 4.36 and 3.13 respectively. With respect to euro in 2009, 2008, 2007 were 5.50, 4.11 and 4.34 respectively. *Reference 6

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ARGENTINA – BRIEF SURVEY 2009 Future exchange over next six months

PES-IUP MBA SUMMER

With the central bank having intervened repeatedly over the past year to prevent the peso from sharp depreciation caused by a series of international and local crises, speculation has run hot that the currency could be more actively depreciated in the second half of 2009. After the crucial mid-term election of June 28, some have argued that the political pressure to maintain a stable currency and avoid another bout of Argentine financial instability would give way to the competitive pressure to depreciate the peso more aggressively. The gentle day by day erosion is expected to see the US dollar reach 3.90 to 4 Argentine pesos in the coming six months, which has been the ongoing demand of Argentina’s exporters. *Reference 7 The Peso is set to depreciate both against Euro and Dollar over the next six months.

8. Five Major product categories imported in this nation: 1) Machinery, 2) motor vehicles, 3) petroleum and natural gas, 4) organic chemicals, 5) plastics are the major commodities of import *Reference 8 Attitude of locals towards Indian & Indian products & services There is good scope for Indian investment in Argentina in sectors such as petroleum, mining, manufacturing, information technology, agriculture, forestry, etc. Indian companies are acquiring companies in Argentina and also setting up manufacturing bases there to create greater market access of Indian products. There are Ten Indian Companies, which have established operations in Argentina. They provide employment to about 1300 Argentines. (Six of them are in IT, two in agro-chemicals, one in pharma and one in mining). The locals accept the job opportunities being created by Indian companies. Few Indians are also buying lands in Argentina for agricultural purposes. However, the fear of ‘invasion’ of cheap imports from India is real. They fear that cheap Indian goods may harm domestic Argentine producers. On the other hand, Argentines know that a country like India has many mouths to feed. Therefore, Argentines are eager to take full advantage of international trade. Page | 19

ARGENTINA – BRIEF SURVEY 2009 Negative stereotyping toward Indian products

PES-IUP MBA SUMMER

While a number of Indian pharmaceutical companies have already made their presence felt in the major global pharma markets including the highly regulated US and European markets, they are not yet recognized in Argentina, whose pharma market is estimated to be around $2 billion. This is because Argentinean health authorities do not recognize India as a manufacturing location for formulations (finished dosage). Ironically, while a few of Argentinean companies import Active Pharmaceutical Ingredients (API) (raw material used for making formulations), Indian pharma companies are still prohibited to export the finished dosage forms. Indian pharma companies including Ranbaxy Laboratories, Dr Reddy’s, Cipla, Cadila and Torrent have presence in other Latin American regions apart from the highly regulated markets including the US and Europe, but the lack of recognition of finished dosage from India by Argentinean health authorities has kept them out of that market. Only a few Indian companies are present in that market, albeit in a very small way and that too exporting only intermediates. A few years back, Argentinean health authorities categorized countries into Annexure I and Annexure II. The countries listed under Annexure II have to get their manufacturing plants inspected from ANMAT (the regulatory body under Argentina’s ministry of health); On the other hand, the countries listed under in Annexure I can register their pharmaceutical products directly without any inspection of manufacturing plants by ANMAT. The problem for Indian companies is that India does not feature in either of the annexure and it makes it impossible for the Indian companies to enter the Argentinean market with their formulations. *Reference 9 9. International Trade policy toward importing Argentina has recently become one of the most open economies in the world, with a policy that concentrates on idea of liberalized international trade. By reducing high tariff rates and eliminating most non tariff barriers, Argentina has taken a positive step toward eliminating the discriminatory bureaucratic system. This bureaucratic system earlier had helped a small number of local beneficiaries, while blocking international trade. *Reference 10 Page | 20

ARGENTINA – BRIEF SURVEY 2009

PES-IUP MBA SUMMER

All importations are entered under Informal Entry or Formal Entry except the following, which may be entered duty and tax- free: 1. Importations for the official use of foreign embassies, legations and other agencies of foreign governments. 2. Importations for the personal and family use of the members and attaches of foreign embassies 3. Miscellaneous articles that are exempt by law or process Import Duties All imported goods are subject to an ad valorem duty that is based on the cost of the goods, plus insurance and freight (CIF). Customs Valuation All goods shipped to Argentina must have a value and description. The value is usually based on the transaction value between the shipper and the importer, what the sale value of the goods was. If no actual transaction has taken place, such as with samples or a no charge shipment, a value must still be assessed; this would be the fair market value or replacement value. Non-tangible items such as business documents, accounting documents, etc. must also be assessed a value, but this should be based on the value of the paper. Excise Duties Alcoholic beverages, tobacco, soft drinks, syrups, extracts, concentrates and consumer electronic products are subject to luxury and excise taxes. Import Taxes In addition to the tariffs, imported goods are subject to additional fees and taxes such as:

0.5 percent statistics fee on the CIF value (except capital goods). This tax is not applicable for MERCOSUR member countries. Depending on the product, either 21 or 10.5 percent value added tax (VAT) on the sum of the CIF value, tariff and statistics fee. Depending on the product, either 10 or 5.5 percent advanced VAT on the sum of the CIF value and statistics fee on all goods imported for resale (goods imported by the end-user are exempt). 3 percent anticipated profits tax on all retail goods (goods imported by the enduser are exempt). Page | 21

ARGENTINA – BRIEF SURVEY 2009 Registration Requirements

PES-IUP MBA SUMMER

Companies wishing to import products into Argentina must be registered in the National Registry of Importers and Exporters. Companies wishing to import through an optional customs clearance method established by Decree 161/99 and Resolution AFIP 503/99 called the "Simplified Importation System" must provide the the companies tax payer number known as the Clave Unica de Identification Tributaria [CUIT]. Commercial shipments consigned to, or shipped from [when exporting from Argentina] private individuals must provide the Clave Unica de Identification Laboral [CUIL] number. Argentina’s import prohibitions The following commodities are prohibited into Argentina: Used products such as:
o o o o o o o • •

Spare parts Medical supplies Automobiles Motorcycles and Velocipedes Clothing Tires Boats

Dangerous residues (chemicals) Certain toxic substances contained in pharmaceutical products, cosmetics and toys Certain food additives and colorants Products containing polychlorinated biphenyl's (PCB's) Asbestos fibers of the Amphibole and Chrysotile variety (Crocidolite, Amosite, Actinolite, Antofilite and Trimolite) and products containing these fibers.

• • •

Argentina’s import restrictions Page | 22

ARGENTINA – BRIEF SURVEY 2009

PES-IUP MBA SUMMER

 Human corpses, human organs or body parts, human and animal embryos, or cremated or disinterred human remains.  Explosives  Firearms and weapons  Perishable foodstuffs and foods and beverages requiring refrigeration or other environmental control Live animals (including insects) except via the Live Animal Desk (1.800.405.9052)  Plants and plant material, including cut flowers  Lottery tickets and gambling devices wherever prohibited by local, state, provincial or national law  Collectible coins and stamps  Pornographic and/or obscene material  Hazardous waste such as used hypodermic needles or syringes or other medical waste  Dangerous goods except as permitted under the Dangerous Goods section of these terms and conditions -Packages that are wet, leaking or emit an odor of any kind. Easily importable products Textile, Motor vehicles, Cell phones, Computers and related accessories, organic chemicals, equipments & machinery, electronics, synthetic fibers, automobiles, iron & steel, plastics, dyes & paints, cotton, and pharmaceuticals, Marine Products, Edible Nuts & Fruits, Products of Milling Industry, Cocoa & Cocoa Preparations, Proceed Food Items, Photographic or Cinematographic Goods, Wood & Articles of Wood, Cork & Articles of Cork, Wood and Wood Products, Cotton, Knit & Woven Apparel, Other Textiles updates, Footwear, Aluminum Aircrafts, Toys & Games, Animal and vegetable oils and fats. *Reference 11

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ARGENTINA – BRIEF SURVEY 2009

PES-IUP MBA SUMMER

10. Other important Characteristic of Argentina The characteristic that we thought was important to analyze is the passion for sports in the country, especially Football. Every weekend Argentina responds to this multitudinous passion for football by filling up all the stands in every stadium. Soccer is the national sport beyond excellence. Song, drums, trumpets, flags and hair band make the Argentine soccer an unrepeatable show in the world. There is no doubt that the most anticipated game by Argentine people and the tourists that visit the country, is the game between Boca Juniors and River Plate (the most important teams in Argentina). That day the country comes to a stand still: tickets out of stock, bars crowded with fans and the mood of almost half of country depends of the result of the match. The English newspaper ‘The observer’ published that, according to a survey, this match was considered one of the “50 sporting events that a person should experience before dying”. Argentine teams have a different mystic than the rest of America and Europe. Passion, spirit, technique and “potrero” help Argentine soccer to gain the respect of the most important teams of the world and several argentine players are playing in different countries around the world. Talking about the National Team, Argentina won two World Cups (1978 and 1986) and obtained the gold medal in the Olympic Games in Athens 2004. In 2000, according to a pool in FIFA website, the argentine player Diego Armando Maradona was chosen as the best player in 20th century. Diego Maradona is considered as the National Icon and most Argentines believe that he was the best footballer ever, even better than the great Pele. The way this sport is experienced in the country is a great example of the character of the Argentine man and woman: passionate and proud. The jersey has to be perspired, soccer is grit, life, and heart, and this is the way it is felt in Argentina. Only eleven are on the field, but 37 million actually play. *Reference 12

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ARGENTINA – BRIEF SURVEY 2009

PES-IUP MBA SUMMER

11. Market Entry – Through an intermediary. We would enter the Argentine market through an Intermediary. Selling to departmental stores, chain stores through an intermediary, is a good option. Majority of agency and distribution agreements are flexible and can be negotiated individually. Most key Argentine importers are based in Buenos Aires, although a few of the larger organisations have branches in the provincial cities of Córdoba, Rosario and Mendoza. They generally opt for a network of distributors supported by travelling sales staff and rely on periodic visits from the provincial buyers to their Headquarters showroom in Buenos Aires. Before establishing any formal agreements, it is important that we as Indian exporters analyze the sales coverage strategy of our potential representative. It is normal, but not compulsory, to give sole rights for the whole of the country to one agent. This may initially be agreed for one year with a performance-tied option to extend for a longer period. It is strongly advised that, as exporters, we visit the market regularly. Such visits are invaluable to us to gain an appreciation of local market conditions, to oversee the work and support their local representative. Local procedures vary from product to product and at times, are complex. It is always better to take the suggestion of the Intermediary on our product about invoicing and document requirements to avoid further delays and problems. Generally, the following documents are required for freight shipments to Argentina:
• • • •

Commercial invoices, in copies of four. Original bill of lading, airway bill or parcel post receipt (depending on the means by which the goods are sent). Packing list Certificates of origin, stamped by the Argentine Consulate in London are required for many products, for example textiles, clothing and all those items subject to specific duties.

Few rules to follow after entering the market through an intermediary -Locate a distributor or representative -Have a long-term perspective -Have a personalized approach Page | 25

ARGENTINA – BRIEF SURVEY 2009 -Be attentive to service and delivery -Provide fair credit terms

PES-IUP MBA SUMMER

-Protection of trademarks and other intellectual property -Have a representative who is well versed in Spanish language -Furnish materials in Spanish Between high fashion products and mass market products, there is an opportunity for emerging markets which may be exploited by the Indian exporters. *Reference 13

12. Market for Product The product that we have chosen to export to Argentina is Fiber textiles. Following are the reasonsThe textile sector has shown significant growth since 2002. During 2004, the textile sector grew 75 percent, the highest growth recorded for any industry sector in the Argentine economy that year. This continued through 2005 & 2006 due to consumption booms, driven by increased purchasing power and rapidly growing inflows of tourists buying Argentine textile and apparel products. The total Argentinean textile market is estimated to be worth US$ 12 Billion. The clothing industry of Argentina is expected to grow at a steady rate in the coming years in view of the growing demand for high fashion garments and its exports and the dynamic local retail sector consisting of local and foreign players. Argentina’s clothing preferences have changed. They are more oriented towards designs and brand names which are important, especially to the younger generation who are influenced by the US life styles and friends. The Argentinean textile and garment industry though self sufficient to an extent still heavily depend upon import of synthetic fibers and fabrics. According to the local designer and trendy retail stores, Buenos Aires is emerging as the fashion capital of the South American region. According to the Argentine Apparel Industrial Chamber, annual production of clothing items is valued at US$2.27 billion. The sector boasts about 11,600 manufacturing and design companies and 30,100 retail stores. The economical apparel sector reaches annual sales of about US$ 5 billion per year, and this figure is expected to rise. Page | 26

ARGENTINA – BRIEF SURVEY 2009

PES-IUP MBA SUMMER

The overall Argentina market for textiles and clothing import was valued at over US$ 911.55 million during 2005. MMF (Man Made Fiber), Textiles & Cotton covered under constitutes majority of imports. Argentina is one of the fastest growing markets for Indian MMF(Man-made Fiber) textile exports. From exports of merely Rs.23.10 crores in 2003-04, Indian MMF exports have grown 147% to reach Rs. 57.08 crores in 2005-06. Currently India ranks 8th in imports of MMF textiles by Argentina. Currently, the main items of export consist of
• • •

Viscose Spun & filament Yarn Polyester Viscose Yarn Shawls/Scarves

Muffler and Polyester blended fabrics In Argentina, men wear stylish wool, blended suits especially in the winter months. For any season, dark conservative colors are most popular. Working women strive for simple elegance with conservative colors and styles. Trousers and pant suits are also becoming popular. Since Argentina’s economy is expected to continue growing in the coming years due to rising consumption, increased general purchasing power and rapidly growing inflows of tourists buying Argentine textile and apparel products, there is good scope for Indian textile companies to increase exports to this country. *Reference 14

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ARGENTINA – BRIEF SURVEY 2009

PES-IUP MBA SUMMER

Reference 1) 2) 3) 4) http://fedex.com/us/international/irc/profiles/irc_ar_profile.html?gtmcc=us#C04 http://www.europaworld.com/pub/entry/ar.ss.2 www.researchandmarkets.com/.../argentina_food_and_drink_report_2009.pdf http://au.encarta.msn.com/sidebar_1461501108/argentina_customs_and_lifestyle. html 5) http://www.financialexpress.com/news/slowdownhit-textile-sector-gets-lifelinefrom-argentina/456491/ 6) www.x-rates.com/d/ARS/USD/hist2009.html http://www.x-rates.com/d/ARS/EUR/hist2009.html 7) http://en.mercopress.com/2009/03/02/argentine-peso-slides-under-manageddevaluation. 8) http://indexmundi.com/argentina/imports_commodities.html https://www.cia.gov/library/publications/the-world-factbook 9) http://www.financialexpress.com/news/pharma-cos-knocking-on-argentinasdoor/109650/ 10) http://books.google.co.in/books? id=sVTprsgH0SEC&pg=PA89&lpg=PA89&dq=argentina %27s+international+trade+policy+toward+importing&source=bl&ots=LUXnbfz L6h&sig=Ybh5RLt2G2h7bLxWQs7Z73YPGg&hl=en&ei=1MidSp_hA5eGkAXjm73hBA&sa=X&oi= book_result&ct=result&resnum=1#v=onepage&q=argentina%27s %20international%20trade%20policy%20toward%20importing&f=false. 11) http://fedex.com/us/international/irc/profiles/irc_ar_profile.html?gtmcc=us#C04 12) http://www.en.argentina.ar/_en/sports/soccer/index.php 13) http://smetimes.tradeindia.com/smetimes/in-depth/2008/Aug/01/argentine-textileindustry.html 14) http://smetimes.tradeindia.com/smetimes/in-depth/2008/Aug/01/argentine-textileindustry.html

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