Argentina – an economy that never misses an opportunity to miss an opportunity

Below is a video from The Economist that looks at the problems facing the Argentinian economy. It is well documented that Argentina’s economic woes since the 1940’s have impacted the economy today. Some of the main teaching points from the video:

• There has been mismanagement of the Argentinian economy for decades

• Argentina’s inflation rate – above 100% for almost all of 2023 – see graph.

• Argentinians save in US$. Black market for currency as Argentinians can only legally buy US$200 per month at the offical exchange rate. Official rate – 360 pesos, Black market rate – 760 pesos.

• GDP US$650bn – one of the largest in South America but 1946 strong interventionist government through President Peron. Also protected industry from foreign competition.

• Country hasn’t embraced globalisation and Peronists have been in power for 16 of the last 20 years.

• Argentina has both huge reserves of lithium and copper but doesn’t use them to its advantage.

• Government overspending on price subsidies – electricity bill in EU $40/month. Argentina electricity bill is $5/month. Cost to Government – $12.5bn = 2% GDP

• Of the 13 million employed in Argentina over a third are employed by the state which there is a crowding out of investment money.

• Argentina has had a fiscal deficit for the last 13 years so therefore becomes dependent on the central bank printing money = more inflation.

• With Argentina regularly defaulting on its debt it has been the IMF that is prepared to lend to them. Argentina holds almost a third of all of the IMF’s total lending.

• Criticisms that most economists have of the IMF is that the conditions of the loans to Argentina were not strict enough. No requirement to stabilise the economy which was a missed opportunity,

• Loans are repaid in foreign currency – to access US$ they impose export taxes – 33% on soybeans. To stop farmers hoarding beans in silos waiting to a better exchange rate they introduced the Soybean dollar exchange rate (better than the official rate for farmers). For overseas bands coming into Argentina promoters have to pay the official dollar plus a tax – it is called Dollar Coldplay. Using your Argentinian credit card you pay an extra tax which they call Dollar Qatar.

• Solutions tend to result in the same outcome – more debt and higher inflation. Things need to get worse before they get better. Short-term pain for long-term gain but for this to happen there must be trust.

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