The history of the deterioration of the Argentine economy – illuminations


Leaders of the world's largest economies gathered in the Argentine capital Buenos Aires as part of the G-20 economic summit to discuss crucial global economic issues, including future employment and food security, the US president's war on trade Donald Trump, Jamal Khashoggi.

Despite the poor chances that Argentine President Mauricio Macri will talk about the deteriorating economic situation in his country, guests should only try to convert their currencies to the Argentine peso to realize the situation. The US dollar was 20 pesos in April, More double, making Argentina the worst currency in 2018.

Following the ups and downs of the Argentine economy over the past two decades, and reviewing the economic and financial policies of Argentina, Brazil and Chile, we find the following:

Hard times

Argentina suffers from an outflow of capital, leading to the recessive economy of the country, the worst financial crisis of the last decades.

Sounds scary? For the Argentineans, this is nothing new In recent decades the country has gone through many economic crises. Economic disasters almost always ended with a combination of unsustainable levels of national debt, rising unemployment and poverty, looting, depositors withdrawing money from banks, flight of capital outside the country and hyperinflation, which in turn is preparing the ground for the next economic crisis.

This is not necessarily the case: only two years ago, the Argentine leadership has learned lessons from the past and started to control the economy more effectively: restrictions on the movement of capital have helped to stabilize the weight and to support the financial sector. Poverty rates, consumer spending has increased, unemployment has decreased and income distribution has improved.

Wrong policies

Based on the above, the country has enjoyed the basics of beneficial policies that supported public spending when President Makri took office in 2015 despite some challenges.

But instead of taking responsibility and curbing spending and inflation, Macri, a center-right, decided to cut corporate taxes, borrow from overseas at record levels to implement its policies and at the same time abolishing the capital restrictions in force since 2002.

This has led the country to be hit by a financial crisis that began in May this year, when the country has suffered a severe drought – the greatest cost in the country's history – leading to the death of important export crops such as soy and the corn. In the export of these two crops.

Foreign investors, driven by concerns over the government's ability to fulfill their obligations, have begun to renounce their short-term government bonds, while the Argentineans have started to abandon their Argentine peso savings when they have perceived economic problems to first sight.

In June, Argentina was looking for IMF assistance in the form of a $ 50 billion credit line, the largest amount the country has ever received from the International Monetary Fund.

Where does Argentina go?

Argentina has already squandered $ 15 billion of International Monetary Fund funds to maintain weight stability: it has been successful, but the central bank has sold government bonds worth tens of billions of pesos with yields of up to 70% , the highest rate of return on bonds in the world.

Despite the success of stopping the economic bleeding, the wound is still absent: the Argentine peso is close to its historical lows, while the economists have revised their inflation forecast for 2018 to 47.5%, double their initial estimate in April, the Argentine economy contracted by 1.9% in 2019, after having fallen by 2.6% as forecast this year.

Fortunately, there is still reason for optimism: the country may emerge from the current crisis, but it depends on the fact that Argentina will comply with the IMF requirement to end the budget deficit in the 2019 and if the country will adopt other rational policies such as increasing resources through the re-imposition of taxes on exports and the activation of capital restrictions to ensure the stability of the local currency.

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