# _Financial markets_<sup>_55_</sup>

With the aftermath of the 2001 financial crisis, the depth of the Argentine financial system has shrunk. From 2001 to 2011, private credit by deposit money banks declined as a share of GDP from 22.4 percent to 13.5 percent, and their assets to GDP has shrunk from 33 percent to 22 percent over the same period. Stock market capitalization has plummeted from 67 percent of GDP to only about 12 percent. That said, access to financial institutions is relatively high compared to uppermiddle income countries, in terms of the number of bank accounts, the percentage of firms with checking accounts and other standard indicators. Most indicators of financial institution efficiency are in line with upper-middle income country standards. In terms of stability, financial institution stability (e.g., non-performing loans) is strong; however, stock market volatility is extraordinarily high.

One of the key issues for financial depth and for the cost of borrowing is the macroeconomic situation. Base rates remain extremely high by international standards, which combined with sovereign spreads, puts a floor on interest rates.

# _Public utilities_

During the 1990s, there was a wave of privatization of public utilities and infrastructure services (e.g., road concessions). The major electricity, gas and water companies passed to private hands, often with substantial foreign investment. The convertibility regime implied that dollar denominated investments earned dollar denominated returns. In 2002, the Economic Emergency Law was passed giving broad powers to government to re-negotiate contracts. Utility prices were frozen through 2003. Over time, the regulation of these utility prices was used to dampen inflation.

The process of contract renegotiation proceeded very slowly. For example, in March of 2006, the Economist Intelligence Unit reported: The government has also postponed all tariff increases for public utilities because of the worsening inflationary outlook. These had already been delayed for electoral reasons until after the October 2005 congressional elections. The extension for one year of the Economic Emergency Law in December has given the government additional breathing space. One of the provisions of the law authorises the executive to re-negotiate contracts with privatised public utilities. Out of a total of 47 re-negotiations of contracts with owners of privatised utilities broken in 2001-02, only one (that of an electricity distributor, Edelap) has been concluded and implemented. The government may well continue to authorise higher public utility rates for medium-sized and large consumers, but will probably postpone any increase for residential consumers. In other areas, such as transportation, the government is likely to continue granting subsidies to private-sector operators rather than granting rate increases. Apart from reducing private-sector utilities’ profitability, postponing rises in utility prices has discouraged new investment. -EIU Argentina Country Report, March 2006.

In 2006, the government nationalized the water company of the greater Buenos Aires region. For the electricity sector, public feuds have continued between the government and the still private electricity companies over blackouts and pricing. Some subsidies were reduced for

> 55 Data used in this subsection are from the _Global Financial Development Report 2014_ .

25