Argentina 2002-2005: Use of Bank Financing, Long-Term Credit and Their Impact on Companies’ Microeconomic Performance

The starting point of any policy decision tending to promote long-term bank financing is that it is scarce and that its provision is important for economic development. In the case of Argentina, in December 2005, long-term bank financing accounted for approximately 8.85% of GDP for total loans and 5.10% of GDP for loans to the non-financial private sector, if long-term means periods longer than 12 months; in the case of terms of over 24 months, the percentages were 7.16% of GDP and 3.76% of GDP, respectively. If, as reference information, we take into account that Gross Domestic Fixed Investment and the investment in durable equipment stood at around 21.46% and 8.49% of GDP, respectively, it is clear that the share of long-term bank financing is, at best, limited. If we focus on the depth of the Argentine financial system, the evidence is not promising, either. Out of a total of 150,960 loans to companies granted by financial entities regulated and supervised by the Central Bank of Argentina as of December 2005, only 16,030 (approximately 10.6%) had maturity terms over 12 months and only 8,733 (around 5.8%) had maturities over 24 months. Out of the 73,329 companies that received loans, only 12,126 (approximately 16.5%) had maturity terms over one year, while only 7,084 (around 9.7%) had terms exceeding two years. The purpose of our paper is to study, as of December 2005, if there are restrictions in the use of long-term financing among companies in Argentina, and then see how restrictions depend on the observable characteristics of the relevant economic agents and of the loans provided; as a result, we also analyze how the use of bank financing in general and long-term loans in particular affected companies’ microeconomic performance in the period 2002-2005. The paper concludes that, in Argentina, there is a starting point to promote long-term financing, since we could document the shortage of long-term loans and how important they are for economic development.