Argentina’s endless economic crisis causes inflation to soar


Annual inflation in Argentina soared above 70% in July, the highest level in 30 years, and could reach 90% by the end of the year, according to data released by the Argentine government last week. . With dwindling central bank reserves, ballooning budget deficits and a looming debt bomb, runaway inflation has left many in the I am in a tight spot.

But this is not the country’s first dance with financial danger.

“For those of us who have lived in this country for a long time, everything has a sense of déjà vu,” said Carlos Gervasoni, an associate professor at the University of Torqueto di Terra in Buenos Aires. “It’s always the same story. What Argentina faces is different every five or ten years.”

Argentina’s annual inflation rate soared 70 percent Data released last week by the Argentine government showed that in July, at a 30-year high, 90 percent by the end of the year. With dwindling central bank reserves, ballooning budget deficits and a looming debt bomb, runaway inflation has left many in the I am in a tight spot.

But this is not the country’s first dance with financial danger.

“For those of us who have lived in this country for a long time, everything has a sense of déjà vu,” said Carlos Gervasoni, an associate professor at the University of Torqueto di Terra in Buenos Aires. “It’s always the same story. What Argentina faces is different every five or ten years.”

Argentina’s ongoing fight against inflation dates back to the 1980s or earlier. But the COVID-19 pandemic, combined with Russia’s war in Ukraine, a shrinking global food supply and tight energy markets, is shocking an already-hit economy.almost four tenths Argentines now live below the poverty line. Given the depreciation of the Argentine peso, the highly dollarized economy run through the billions Dollar value of foreign exchange reserves on a weekly basis.Some Argentinians rely on milk and diaper changeOthers complain that they have to guess the price of newspapers and rice bags because prices fluctuate so often. In many cases, you will only know when you go to the cash register.Tourists who want to use debit cards abroad must pay tax This is a desperate measure to maintain foreign exchange reserves domestically.

Alfonso Sandblad, a student at the University of San Andres in Buenos Aires, said, “Of course it’s a big deal, but you were born there, so you get used to it.” Even children are inseparable from the world of politics and the economy.”

But given the unstoppable budget deficit (the government is spending far more than it receives), the central bank will continue to print more pesos, depressing the value of the peso and further exacerbating inflation. increase.Argentina’s central bank last week raised lending rates to stratospheric levels (benchmark rates are currently 69.5 percent) seeks to curb inflation, but such measures also curb investment and economic growth.

And then there’s another debt crisis.Argentina still owes the International Monetary Fund $40 billion It received an additional $44 billion in loans as part of the 2018 bailout. early this year To meet its obligations from the IMF increases the risk of default, which only makes everything worse.

Benjamin Guedan, deputy director of the Latin American program at the Wilson Center, said: “The combination of global shocks, the overprinting of currency in Argentina, and very high inflation expectations has made this toxic stew. It’s done,” he said.

Argentina has a bit of a risk when it comes to defaults. historySince joining the IMF in 1956, Argentina has sought and agreed to 22 financial assistance programs from the IMF. $21.6 billion in IMF loans. (Also stopped paying $95 billion worth of bonds to other creditors. )

After the 2001 crisis, many Argentines blamed and still blame the IMF for imposing harsh conditions that exacerbated an already dire economic situation. Last year, Argentine President Alberto Fernandez criticized his 2018 IMF loan to Argentina, the largest loan in IMF history, saying: ‘Harmful and irresponsible’

The IMF often finances government reforms designed to curb runaway deficits. translate Subsidy cuts, spending cuts, public dissatisfaction. (One reason for the massive rate hikes by the central bank is to keep rates closer to inflation, which is one of his IMF demands.) But in Argentina’s case, the structural The problem becomes a hotbed. Due to financial difficulties, fiscal tightening may be just the bitter medicine the country needs to get out of its economic downward spiral.

In the early 1900s, Argentina richer than France and Germany. Immigrants flooded in, attracted by the country’s agricultural and manufacturing promises. Then came populism in the person of General Juan Perón, who became a powerful Labor Secretary with the advent of a military dictatorship during World War II. Peron, in charge of industrial relations, pensions and social services, provided the moon. A few years later he became president. The movement he established, and which in one form or another continues to live today, prioritizes the economic well-being of the masses in the short term at the expense of long-term economic development. It was a very long and short period of time.

Argentina has arguably one of the largest welfare systems in the developing world, subsidizing utilities, transportation and retirement for all citizens. According to his Gervasoni of the University of Torque Art d’Iterra, the average Argentinian’s electricity bill equates to less than $5 a month.In contrast, typical Italian and German households You could be paying upwards of $230 and $270 in monthly utility bills, respectively. The Argentine government relies heavily on export taxes to protect and generate income for domestic consumers. Earlier this year, the government increased export taxes on processed soybeans, one of the country’s key commodities. 33 percentnot only give soybean producers a fit, but also provide a way to squeeze more out of a part of a functioning economy. Not even half of YPF, the oil company that does

Maintaining a robust welfare program and heavily subsidizing public utilities sounds like a great short-term option, but the Argentine government doesn’t have enough money to sustain it. “This is a challenge because the government knows things are getting worse,” said Eduardo Levi Yeyati, an Argentinian economist who was chief economist at the Central Bank of Argentina. “No one wants to press the red button. It’s like the trolley problem.”

Especially when election season is approaching in a country with a strong union and peronist history. Early July, Minister of Economy of Argentina Martin Guzman resigns Guzman has only a handful of successors, suggesting he lacks political support to make the necessary macroeconomic policy choices amid growing tensions with Vice President Cristina Fernandez de Kirchner. lasted only a week. Now Sergio Massa has inherited the problem.

On the other hand, Massa publicly It has promised to cut export tariffs and stop printing more paper money, but has not disclosed any specific plans to do so. in the meantime, The ongoing political turmoil continues to fuel a lack of confidence in the leadership of Argentines, exacerbating economic insecurity.

“Argentines have been through so many crises that they are very flexible and resilient, and at times I get the impression that these situations are the norm and cause little disruption,” said Guedan of the Wilson Center. “I don’t think so. I think the situation is extreme right now, even for Argentina.”



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