Since 2018, the Argentine economy has been in a serious slump. According to FocusEconomics, the unemployment rate was 10.4 percent last year, while inflation is currently predicted to be 48 percent, eroding the peso’s value.
In the 2019 election, Fernandez promised to lead the country out of recession and resolve the debt and currency issues that have wiped out savings and spending power.
With the epidemic still raging, public expenditure which was supposed to be used to pay off restructured debts is being diverted to combat the health crisis.
Poverty has increased by more than a third, with more than 10 million people in need of food aid, up from 8 million before the outbreak.
While the government can now tap capital markets to seek new loans, it can no longer borrow at low rates.
Ministers have instead had to rely on wealth taxes and other charges to raise much-needed funds. Argentines who use their credit card overseas, for example, are subject to a 30% solidarity fee.
Meanwhile, firms are subjected to pricing limits that they claim they cannot pay.
Is Argentina experiencing a financial crisis?
BUENOS AIRES, Argentina Alberto Fernndez, a presidential candidate in 2019, frequently refers to Argentina’s early-2000s economic crisis. In 2003, he put himself at the center of the country’s recovery (he was cabinet leader at the time), but he made one significant edit: the crucial and fruitful 2002 the crisis’s key turning point was pushed under the rug.
Twenty years later, that tumultuous year’s legacy is more relevant than ever. But now that Fernndez is president, he appears to be repeating the same mistakes. Despite claims of an economic recovery from the epidemic and the challenges that preceded it, the government’s policy is putting the country back on a downward spiral. It’s never too late to learn from the mistakes of the past.
Around this time in 2002, a small group of government economists met on weekends in Buenos Aires to plan for the day after Argentina’s 10-year-old currency board was decommissioned. This fixed exchange rate regime, which allowed the central bank to generate money only in return for international reserves, had unintentionally triggered a crisis of rising unemployment and poverty, angry depositors, collapsing banks, and escalating exchange rate pressures. Weekends provided an artificial reprieve from the everyday crisis the sole chance to plan for anything other than the next day’s calamity.
In retrospect, the semblance of a strategy that emerged from these discussions appears more planned than it actually was. In reality, the government’s response was a jumble of desperate defensive measures aimed at containing a tsunami: a devaluation combined with export taxes, a forced conversion of domestic dollar debts at the previous one-to-one parity, exchange and capital controls, a utility rate freeze, tight monetary policy, and a heavy reliance on public transfers as a Band-Aid for rising poverty.
Some of the measures were unavoidable, some were warped by political compromise, and still others were impacted by vigorous lobbying. But, with the exception of monetary policy (which turned more expansionary in 2003 and stayed that way for a decade), the ramifications of the measures adopted in those tumultuous days of 2002 are still present in Argentina’s economy today. Firms remain underleveraged, utilities remain subsidized, banks are de-dollarized, and export taxes continue to be a major source of foreign money.
What does this imply for Argentina’s recovery post-COVID? To begin with, a detailed reexamination of the 2002 legacy casts doubt on the government’s claims of a miraculous recovery from the pandemic.
Despite a mess left over from the previous administration in 2019, the Fernndez government was able to restore growth, employment, and investment to pre-crisis levels while improving public finances, thanks to dynamic economic activity, higher and more progressive tax rates on wealth and corporate income, and a successful debt exchange in 2020.
The most recent data, on the other hand, paint a more confusing picture. With the exception of primary exports, which benefited from a huge backlog in 2021 but are expected to fall in 2022, exports are still trailing their corresponding 2019 statistics. Because producers rushed to buy capital and intermediate goods at a subsidized exchange rate, imports outperformed exports, putting currency risk and capital flight at risk. GDP has yet to return to pre-COVID levels; by the end of 2021, it would have recovered epidemic losses, as did most other nations in the region, but it would still be below its 2018 peak (Argentina’s crisis occurred two years before COVID). When expressed in terms of per capita, these results appear to be slightly worse.
Argentina’s recovery has been patchy as well. It has been concentrated in industries like construction (a dollar replacement for exchange controls) and manufacturing (cars, textiles, and electronics), which are protected from foreign competition by import barriers and a huge spread between the official and free exchange rates. While this premium reflects speculative savers migrating away from the peso, it is also supported by the peso’s deliberate appreciation to contain (or rather, postpone) inflation. This misalignment of currency rates, along with export taxes and surrender requirements (the duty to sell export dollars), is already suffocating one of the economy’s most competitive sectors: knowledge-based services.
In terms of “improving fiscal finances,” a quick look at the composition and evolution of spending in 2021 reveals that the lower primary deficit (an expected 2.5 percent of GDP, well below initial official forecasts of around 4%) was largely achieved thanks to inflation, which increased from 36% in 2020 to 51% in 2021. Pensions and social handouts are linked to historical inflation and wages, so when inflation is strong and accelerating, they fall in real terms (because past inflation is below current inflation). As a result, a decrease in social spending somewhat compensated for an increase in utility subsidies for middle- and high-income households hardly a progressive policy combination.
Regrettably, this accounting alchemy works in both directions. If inflation slows and falls, fiscal spending grows in real terms. In 2022, there’s a slim probability that this will be a factor: To meet IMF demands, the government will have to eliminate utility subsidies and foreign exchange intervention, loosening the last two inflation anchors. However, inflation will have to come down sooner or later, and in that case, fiscal dividends would have to be replaced with genuine fiscal consolidation.
On the 20th anniversary of the 2002 crisis, there has never been a more appropriate time for the administration to reflect on the country’s current situation than now.
Perhaps the most common misconception about Argentina’s swift post-crisis recovery in 2002 is that it was triggered by the devaluation, which resulted in increased exports and more dynamic import substitution. While the latter may have played an impact, export volumes expanded at a slower rate than before the currency board, and the global commodities price bubble was still in its early stages when output peaked in 2002.
Instead, the primary source of recovery was an unexpected and politically unpopular source: corporations. As it turned out, the crisis-resolution package moved public and private profits to enterprises’ internal funds, which were then reinvested domestically, by alleviating corporate indebtedness (with the peso conversion) and operational costs (with subsidized utilities and depressed real wages). This explains why investment picked up again despite the lack of a functioning financial sector. As a result, growth accelerated job recovery and poverty reduction and, along with increased taxes and a commodity boom, provided the fiscal and external surpluses that were squandered in the late-2000s fiscal spending binge.
So, contrary to what some observers believed while advocating the “Argentina solution” to the euro crisis, it was not export-driven development that got the country out of problems. It was also not a state-led Keynesian push, as some in the government may believe today. Another characteristic of the post-2002 situation that remains significant is the fact that the government is broke and, despite a “successful” debt swap, is nonetheless barred from foreign financial markets as if it were still in default.
The ideological ambiguity of an inclusive recovery largely caused by a regressive shift to the private sector makes this version of Argentina’s unintentional 2002 miracle less appealing at first glance, despite being more real and relevant to present situations. While growth may not trickle down sufficiently in normal times, when the state’s resources run out, private investment and growth may be the only way to recover.
On this front, the Fernndez government appears to be split almost self-contradictory : it calls for more exports and investment behind closed doors while continuing to squeeze the private sector to fund an illusory consumption-driven recovery, including through inexplicable (and hardly green) gas and electricity subsidies. It is also on the verge of extending its stranglehold on private operations, most notably through airline industry regulation and national airline management.
If the administration fails to learn from the mistakes of the past, it will be unable to achieve the post-2002 recovery it seeks, worsening a crisis that has already lasted far too long.
What is the current state of Argentina’s economy?
Argentina’s GDP grew 11.9 percent year over year in the third quarter of 2021, according to the country’s statistics agency, which was in line with estimates after a 10.2 percent decrease the previous quarter.
After being affected hard by the COVID-19 pandemic, the South American grains-producing nation’s economy has recovered faster than projected, with the government raising its annual growth estimate for 2021 to over 10%.
According to a Reuters News Agency poll of 17 local and international analysts, the July-September quarter is expected to grow by a median of 12%.
“A recovery in consumption stood out in the third quarter,” said Isaas Marini, an economist at consultancy Econviews, who had forecasted a 12% increase and expected the recovery to persist into the fourth quarter as salaries improved.
“Salary increases, recent easing, and credit reactivation all point to a year-end growth rate of more than 10%,” Marini said. “Short-term risks include a lack of reserves to finance expansion and, as a result, exchange rate volatility.”
According to Pablo Besmedrisnik, an economist with the consulting firm Invenmica, “The extractive activity of oil and fuel production is one of the most powerful drivers today. The agricultural sector is likewise performing well and has a promising future.”
“The two sectors are critical to getting the foreign exchange Argentina requires in the near and medium term,” Besmedrisnik added.
In the second quarter of 2021, the South American country’s gross domestic product increased by 17.9%.
Is Argentina’s financial situation secure?
Argentina is placed 27th out of 32 countries in the Americas, with a score that is lower than the regional and global averages. Argentina’s GDP has been contracting for the previous five years, with the most significant drop expected in 2020. A five-year trend of increasing economic liberty has come to a halt.
What is the cause of Argentina’s crisis?
The 2018 Argentine monetary crisis was characterized by a severe depreciation of the peso, owing to high inflation and a precipitous drop in the currency’s perceived value at the local level as it lost purchasing power, as well as other domestic and foreign reasons. As a result, Mauricio Macri’s presidency requested a loan from the International Monetary Fund.
What is Argentina’s level of corruption?
In Transparency International’s 2013 Corruption Perceptions Index, Argentina was placed 106th out of 177 countries. It came in 11th place out of 20 Latin American countries surveyed. Argentina was ranked even lower in the World Economic Forum’s 201213 Global Competitiveness Report when it came to corruption. Argentina was ranked 145th least corrupt out of 152 countries surveyed, with only seven countries in the globe being more corrupt, according to the World Economic Forum.
According to the Financial Times, corruption in Argentina is often regarded as “engrained,” and “there is a sense that public officials are untouchable.” In May 2013, sociologist Atilio Born bemoaned the fact that “the Argentinian is quite accustomed to the idea that governments are corrupt, and does not seem astonished at acts of corruption,” and that politicians’ wrongdoing does not prevent them from being re-elected. “This is an economy that has accepted a legal drain of over 160 billion dollars for the past 20 years,” he continued, “and it is now coming to exact its retribution.” According to a CIPCE (Center for the Investigation and Prevention of Economic Crimes) research, between 1980 and 2006, public sector corruption cost the national treasury over $10 billion.
Although corruption has been a big problem in Argentina since the 1890s, it has been “on the rise” since the 1990s, according to an editorial in a prominent Argentine newspaper, La Nacin.
Diplomats from the United States and numerous other Western countries voiced great alarm about the present levels of corruption in Argentina, according to WikiLeaks cables released in 2011. According to the Heritage Foundation in 2013, “respect for markets and the rule of law has deteriorated under President Cristina Fernndez de Kirchner, and corruption has exploded.”
According to Transparency International, Argentina has adequate legislation and structures to prosecute corruption in the public sector, but enforcement is woefully lacking, resulting in “impunity continuing to outweigh honesty.”
What’s the matter with Argentina?
The pandemic has intensified a flight of foreign capital, lowering the value of the Argentine peso. As a result, the cost of imports such as food and fertilizer has soared, and the inflation rate has remained above 40%. More than four out of ten Argentines live in poverty.
An inevitable renegotiation with the International Monetary Fund, which Argentines despise for imposing painful budget austerity as part of a bailout deal two decades ago, looms over national life this year.
Argentina must draw up a new repayment schedule for $45 billion in IMF obligations after the pandemic decimated its public resources. The most recent and largest bailout in the fund’s history a $57 billion package of loans provided to Argentina in 2018 is to blame for this burden.
The fund’s customary veneration for austerity has waned under new management, easing some of the normal worry. Regardless, the negotiations will undoubtedly be difficult and politically tumultuous.
Is it a decent place to reside in Argentina?
Argentina is a popular retirement destination for many individuals. There are some substantial advantages for retirees considering moving to Argentina.
Low-cost, high-quality healthcare is at the top of the list for retirees in Argentina. Knowing you’ll be able to afford great care allows you to savor your golden years even more.
Retirees will appreciate the lifestyle and low cost of living. Argentina is an ideal retirement destination because of its thriving expat community and wide selection of recreational and cultural activities. Golf, dining at elegant restaurants, and lengthy beach walks are all within easy reach.
When you retire in Argentina, getting aid, whether it’s domestic help, a driver, or a nurse when you need it, is also affordable. As a result, you’ll have more time to accomplish the activities you enjoy.
There are also direct flights from Argentina to the United States and throughout South America. New York, Washington, DC, Miami, Houston, and Atlanta are among the major US travel centers covered by these routes. Many Central American, Asian, and European capitals are also accessible via direct flight.
Is Argentina a welcoming nation?
Drugs are easily available in Argentina, despite stringent regulations and harsh penaltiesbut not something that the average visitor or expat will have to worry about unless they go looking for trouble.
In Argentina, single females have a high level of personal safety. Aside from the danger of unwelcome attention in late-night bar/club scenes in select places, women in Argentina are mostly safe. Calling a taxi rather than walking home alone in dangerous locations or at night is the prudent choice.
Depending on the political and social context, Buenos Aires can appear benignly tranquil one day and a hotbed of revolt the next. You should be alright if you avoid all street demonstrations (no matter how peaceful they appear to be).
Always be aware of your location. Popular tourist districts in Buenos Aires can be found next to run-down, seedier regions. To avoid getting lost and winding up in an area where you don’t blend in, carry a paper map or use a location app on your phone. Try not to appear lost, even if you are.
Make sure you’re present when your card is swiped through the small machine whenever you use it at a restaurant or storedon’t let your card out of your sight for a second. This simple precaution is applicable all across the world.
Argentina is a pleasant, welcoming country to visit as well as a tranquil, safe place to live, so take advantage of it.
What is Argentina’s poverty rate?
With his wife’s wages of 14,000 pesos and a state subsidy of 13,000 pesos, the monthly family income is usually around 39,000 pesos ($195), significantly below the 67,000 pesos that a family of four in Argentina is considered poor.
The government announced on Thursday that the poverty rate in the country of 45 million people fell to 40.6 percent in the first half of 2021, down from 42 percent previously, in a country rich in natural resources such as cattle and corn, as well as natural gas, but plagued by inflation, economic mismanagement, and years of cyclical debt crises.
“We can only eat so much at a time. We don’t splurge on frills, but thank God we don’t go hungry “Maria Eugenia Gonzalez de Rodriguez, 39, a municipal cooperative worker who cleans storm drains in the neighborhood, agreed.
Rodriguez spends his free time teaching soccer to children and teenagers from low-income families so that they might aspire to the professional career that he previously wished for as a way out of poverty.
“I enjoy spending time with the lads and come to do it without any obligation or pay. I do it because I’m passionate about it, and it’s what keeps me going every day “he stated
Is Argentina a socialist or capitalist country?
Argentine socialism has taken several forms throughout the country’s history. In Argentina and, more widely, throughout Latin America, several of the country’s presidents have used socialist ideology as their political framework. As a result of this history, they are recognized on the international stage for their socialist past and leadership. Argentina’s embrace of socialist philosophy, particularly during the Peronist era, has added to this global sentiment. While many distinct socialist parties have existed in the past, the Socialist Party is the most important to consider (Argentina). Although the history of Socialism in Argentina may be traced back to specific periods, it is crucial to consider its impact as a result of worldwide events such as World War I, World War II, and the Malvinas War. In Argentina today, socialism is present in the administrations of Nstor Kirchner and his wife, Cristina Fernandez de Kirchner, who eventually became president.