Argentina’s annual inflation rate soared past 70 percent in July—the highest level in three decades—according to data released by the Argentine government last week, and it could hit 90 percent by the end of the year. The runaway inflation has left many in the country mired as they turn to barter and parallel currency markets amid dwindling Central Bank reserves, a bloated fiscal deficit, and a looming debt bomb.
But this is not the country’s first dance with economic danger.
“For those of us who have been around for longer, living in this country, everything has a sense of déjà vu,” said Carlos Gervasoni, an associate professor and chair of the political science department at Universidad Torcuato Di Tella in Buenos Aires. “It’s always the same story, there are just different flavors of what Argentina faces every five or 10 years.”
Argentina’s annual inflation rate soared past 70 percent in July—the highest level in three decades—according to data released by the Argentine government last week, and it could hit 90 percent by the end of the year. The runaway inflation has left many in the country mired as they turn to barter and parallel currency markets amid dwindling Central Bank reserves, a bloated fiscal deficit, and a looming debt bomb.
But this is not the country’s first dance with economic danger.
“For those of us who have been around for longer, living in this country, everything has a sense of déjà vu,” said Carlos Gervasoni, an associate professor and chair of the political science department at Universidad Torcuato Di Tella in Buenos Aires. “It’s always the same story, there are just different flavors of what Argentina faces every five or 10 years.”
Argentina’s ongoing battle with inflation dates back to the 1980s, or even earlier. But the COVID-19 pandemic, coupled with Russia’s war in Ukraine, shrinking global food supplies, and tighter energy markets, has sent shock waves through an already battered economy. Nearly 4 in 10 Argentines currently live below the poverty line. The economy—which is highly dollarized given the diminishing value of the Argentine peso—is running through billions of dollars’ worth of foreign reserves on a weekly basis. Some Argentines have resorted to trading milk for diapers. Others complain that the frequent changes in prices have left them guessing the cost of their newspaper or bag of rice—often they only find out when they get to the cashier. Tourists who do try to use debit cards overseas have to pay a tax of almost 50 percent on transactions—a desperate measure to keep foreign currency reserves in the country.
“It is a big problem, of course, but being born in it, you kind of get used to it,” said Alfonso Sundblad, a student at the University of San Andrés in Buenos Aires. “But what you feel the most is the uncertainty—you can never unplug from the political world and the economy, even though you’re a child.”
Yet, given an unstoppable fiscal deficit—the government spends much more than it takes in—the Central Bank keeps printing more pesos, which pushes the value of each one lower, making inflation even worse. The Central Bank of Argentina last week hiked lending rates to stratospheric levels (the benchmark rate is now 69.5 percent) in a bid to check inflation, but such steps will also check investment and economic growth.
And then there’s another debt crunch. Argentina still owes the International Monetary Fund $40 billion as part of its 2018 bailout, but took out another $44 billion loan earlier this year from the IMF to meet its obligation, adding to the risks of a default, which would just make everything worse.
“The combination of global shocks, overprinting money within Argentina, and a very high inflation expectation combines into this toxic stew,” said Benjamin Gedan, the deputy director of the Latin America Program at the Wilson Center.
When it comes to defaults, Argentina does have a bit of a history. Since it joined the IMF in 1956, Argentina has sought and agreed to 22 financial-support programs from the organization, the most notable of which was during the 2001 Argentine financial crisis when it defaulted on a $21.6 billion IMF loan. (It also halted payments on $95 billion worth of bonds to other creditors.)
Following the 2001 crisis, many Argentines blamed, and still blame, the IMF for imposing harsh conditions that worsened the country’s already dire economic situation. Last year, Argentine President Alberto Fernández criticized the IMF’s 2018 loan to Argentina, the largest loan in IMF’s history, as being “toxic and irresponsible.”
The IMF does often condition loans on government reforms meant to rein in runaway deficits, which translates into slashed subsidies, lower spending, and public discontent. (One reason for the massive Central Bank rate hike is to push interest rates closer to the rate of inflation, which is one of the IMF’s demands.) But in Argentina’s case, where deeply embedded structural issues in the political economy serve as a breeding ground for its financial troubles, fiscal tightening might be just the bitter medicine the country needs to snap out of its downward economic spiral.
In the early 1900s, Argentina was richer than France and Germany. Immigrants flooded in, attracted to the country’s agricultural and manufacturing promise. And then came populism, in the person of Juan Perón—a general who became a powerful secretary of labor with the arrival of the military dictatorship during World War II. In charge of labor relations, pensions, and social services, Perón offered the moon. A few years later, he was president. The movement he established, and which still lives on in various guises, prioritizes popular economic welfare in the short term at the cost of long-term economic development. It’s been a very long short term.
Argentina arguably has one of the biggest welfare systems in the developing world and subsidizes utilities, transportation, and retirement benefits for all its citizens. According to Gervasoni, of Universidad Torcuato Di Tella, an average Argentine pays the equivalent of less than $5 per month for their electricity. In stark contrast, typical Italian and German households are likely to pay more than $230 and $270, respectively, on their monthly energy bills. In a bid to protect domestic consumers and earn revenue, the Argentine government relies heavily on export taxes. Earlier this year, the government hiked export taxes on processed soybeans, one of its top commodities, to 33 percent, giving soy growers fits but offering a way to squeeze more out of one part of the economy that is working. (Argentina’s tendency to nationalize big firms, most recently the Spanish-owned half of oil company YPF in 2012, also doesn’t chum the waters for foreign investors.)
While maintaining a robust welfare program and generously subsidizing utilities seem like a great option in the short run, the Argentine government simply does not have enough coin to keep at it. “It’s a conundrum for the government, because they know that things are deteriorating,” said Eduardo Levy Yeyati, an Argentine economist who previously served as chief economist at the Central Bank of Argentina. “Nobody wants to push the red button—it’s like the trolley problem.”
No politician wants to be the bearer of bad news—especially when it is nearing election season in a country with particularly strong unions and a Peronist history. In early July, Argentine Economy Minister Martín Guzmán resigned amid rising tensions with Vice President Cristina Fernández de Kirchner, implying that he lacked the political backing to make the necessary macroeconomic policy choices. Guzmán’s successor lasted just a few weeks. Now, Sergio Massa has inherited the problem.
While Massa has publicly promised to cut back export tariffs and stop printing more money, he has not laid out a concrete plan to do so. Meanwhile, the ongoing political turmoil continues to add to Argentines’ lack of confidence in their leadership and exacerbate their financial anxieties.
“I think sometimes people have this impression that Argentinians are so flexible and resilient because they have survived so many crises, that these conditions are the norm and hardly disruptive,” the Wilson Center’s Gedan said. “I don’t think that’s the case. I think conditions now, even for Argentina, are extreme.”
FAQs
Has Argentina recover from economic crisis? ›
Nearly 40% of Argentines live in poverty today, compared to about a quarter at the start of the crisis. Argentina has spent more time than almost any other nation in recession since the 1950s, according to the World Bank. Still, today's price gains remain far from country's last bout of hyperinflation in 1989 and 1990.
Why is Argentina always in economic crisis? ›Beginning in the 1930s, the Argentine economy deteriorated notably. The single most important factor in this decline has been political instability since 1930 when a military junta took power, ending seven decades of civilian constitutional government.
How long has Argentina been in an economic crisis? ›The Argentine Great Depression was an economic depression in Argentina, which began in the third quarter of 1998 and lasted until the second quarter of 2002. It followed the fifteen years stagnation and a brief period of free-market reforms.
Is Argentina still in recession? ›Economic activity has recovered faster than expected, with an increase of 10.4% of GDP in 2021, after a fall of 9.9% in 2020 in the context of the crisis unleashed by COVID-19. At the end of 2021, the economy was 5% above its pre-pandemic level of activity.
When was Argentina the richest country in the world? ›Argentina began the 20th century as one of the wealthiest places on the planet. In 1913, it was richer than France or Germany, almost twice as prosperous as Spain, and its per capita GDP was almost as high as that of Canada.
How do Argentinians cope with high inflation? ›And millions of Argentines use the black market to evade government restrictions on buying U.S. dollars. Many Argentines now keep their savings in dollars hidden inside their homes, rather than at banks. And some are keeping their U.S. currency in safe deposit boxes, like these, at Ingot.
Why are people leaving Argentina? ›“The bad policies of all governments and the lack of the rule of law, among other factors, have caused a large number of Argentines to want the same as us, to leave.”
When did Argentina begin its decline? ›Argentina was plunged into a devastating economic crisis in December 2001/January 2002, when a partial deposit freeze, a partial default on public debt, and an abandonment of the fixed exchange rate led to a collapse in output, high levels of unemployment, and political and social turmoil.
Why is Argentina's inflation rate so high? ›The South American country, a major grains producer, has one of the world's highest inflation rates. The situation has been aggravated by rising global food and fuel costs andhas dented the popularity of President Alberto Fernandez's center-left government ahead of elections next year.
How stable is the economy in Argentina? ›Economic Outlook Note - Argentina
After a strong rebound in 2021 and an expected deterioration in the second half of 2022, GDP is projected to rise by 0.5% in 2023 and 1.8% in 2024.
Is Argentina suffering from inflation? ›
Eight percent, more or less - certainly more than we're used to. But Argentina has an inflation rate of 83%. The government has announced new exchange rates between the U.S. dollar and the country's peso.
Is Argentina still corrupt? ›In Transparency International's 2021 Corruption Perceptions Index, Argentina scored a 38 on a scale from 0 ("highly corrupt") to 100 ("highly clean").
Why is Argentina life expectancy so low? ›The socio-economic conditions of the indigenous population in Argentina suggests a fundamental flaw in their health and safety infrastructure, that ultimately allows for the easy spread of disease.
Is Argentina's economy strong or weak? ›Argentina's economic freedom score is 50.1, making its economy the 144th freest in the 2022 Index. Argentina is ranked 27th among 32 countries in the Americas region, and its overall score is below the regional and world averages.
Is Argentina a 1st world country? ›A major non-NATO ally of the United States, Argentina is a developing country that ranks 46th in the Human Development Index, the second-highest in Latin America after Chile. It maintains the second-largest economy in South America, and is a member of G-15 and G20.
What is the average salary in Argentina? ›Argentina is the third largest economy in Latin America and the second largest in South America. The average salary in Argentina is 45,200 Argentine Peso (ARS) or 427.82 US Dollars per month (as per the exchange rate in February 2022).
How poor is Argentina as a country? ›According to government data, almost four out of every 10 people in Argentina are considered poor; More than half of children aged up to 14 years old live in poverty, with 5.3 million nationwide in extreme poverty.
Where is the highest inflation in the world? ›Double-Digit Inflation in 2022
As the table below shows, countless countries are navigating record-high levels of inflation. Some are even facing triple-digit inflation rates. Globally, Zimbabwe, Lebanon, and Venezuela have the highest rates in the world.
- Reassess your spending habits. If inflation is making it difficult to stay within budget, take a moment to reassess your cash flow and where it's going. ...
- Take on new debt sparingly (and avoid variable rates) ...
- Become a sale shopper. ...
- Maximize loyalty and reward programs. ...
- Be strategic with savings.
...
The U.S. dollar will go far in these 20 international cities.
| Location | Currency Exchange | Average Cost of Daily Expenses |
|---|---|---|
| Buenos Aires, Argentina | 1 USD = 27.1010 ARS | $64 |
Why do so many Germans live in Argentina? ›
During the third period, after a pause due to World War I, immigration to Argentina resumed and Germans from Germany came in their largest numbers. This can be attributed to increased immigration restrictions in the United States and Brazil as well as the deteriorating conditions in post-World War I Europe.
Why is Argentina a high risk country? ›Argentina is categorised by the US State Department as a Country/Jurisdiction of Primary Concern in respect of Money Laundering and Financial Crimes. Narcotics trafficking and public corruption present significant anti-money laundering/combating the financing of terrorism (AML/CFT) challenges to Argentina.
Do people want to leave Argentina? ›The large numbers of Argentines who wish to move abroad are mainly motivated by the country's recent economic, political, and social instability, say analysts. The country is now confronting the largest recession in its history.
Is Argentina is a developed country? ›Argentina is a developing country with a highly literate population, an export-oriented agricultural sector, and a diversified industrial base.
What is the main source of income in Argentina? ›Agriculture, forestry, and fishing. Argentina is one of the world's major exporters of soybeans and wheat, as well as meat. It is also one of the largest producers of wool and wine, but most of its wine is consumed domestically.
Does Argentina have a good economy? ›The World Bank classifies Argentina as a high-income nation. The country's economy is driven by manufacturing, agricultural exports, natural resources and the services industry, which includes a thriving tourism industry. [Explore the top universities in Argentina.]
What is the real reason for inflation right now? ›Monetary policy is a major cause of the increase in inflation, says Stanford economist John Taylor. Inflation rises when the Federal Reserve sets too low of an interest rate or when the growth of money supply increases too rapidly – as we are seeing now, says Stanford economist John Taylor.
Which Latin American country has the most stable economy? ›Peru has the most solid and stable economy in Latin America and the Caribbean, according to Bloomberg, after updating its country risk indicators.
Where does Argentina rank in the world? ›Argentina is 57th in the overall Prosperity Index rankings.
Which country has the best economic stability? ›- Switzerland. #1 in Economically stable. #1 in Best Countries Overall. ...
- Germany. #2 in Economically stable. ...
- Canada. #3 in Economically stable. ...
- Netherlands. #4 in Economically stable. ...
- United Kingdom. #5 in Economically stable. ...
- Australia. #6 in Economically stable. ...
- Japan. #7 in Economically stable. ...
- Sweden. #8 in Economically stable.
Which country is not suffering from inflation? ›
In 2021, Samoa ranked 1st with a negative inflation rate of about 3.02 percent compared to the previous year.
How much does Argentina owe the World Bank? ›It replaces a failed $57 billion program from 2018, for which Argentina still owes over $40 billion. About $9.66 billion will be disbursed immediately, the fund said.
What are the disadvantages of living in Argentina? ›- Inefficient. Maybe it is because of the laid-back attitude, but it takes a long time to do anything, and it is hard to do. ...
- Banks and ATMs. Getting your cash can be a hassle. ...
- Unstable economy. ...
- Imports and electronics. ...
- Distance. ...
- Taxes are high. ...
- Everyone is late. ...
- Noisy neighbors.
Indigenous people face obstacles accessing justice, land, education, health care, and basic services. Argentina has repeatedly failed to implement laws protecting Indigenous peoples' right under international law to free, prior, and informed consent to government and business decisions that may affect their rights.
Is Argentina a communist or socialist country? ›Argentina's alignment with socialist ideology particularly during the Peronist years has further contributed to this global sentiment. Whilst there has been a history of many different socialist parties the main one to consider is the Socialist Party (Argentina).
Are the police corrupt in Argentina? ›Corruption. Corruption is a pervasive and widespread practice among police agents in Argentina. It's hard to know with precision the extent of corruption within Argentine law enforcement. Corruption is difficult to measure because most of it is never discovered and/or is not reported.
What is the number one cause of death in Argentina? ›- Central African Republic (53.345 years)
- Chad (54.458 years)
- Lesotho (54.366 years)
- Nigeria (54.808 years)
- Sierra Leone (54.81 years)
- Somalia (57.5 years)
- Ivory Coast (57.844 years)
- South Sudan (57.948 years)
Males born in the Lesotho have the lowest life expectancy of the world in 2022. Similarly low is the life expectancy for females born in this country. The average woman lives only 56 years. The lowest life expectancy for women in the world in 2022 was for girls born in Nigeria, with only 54 years.
Will Argentina's economy recover? ›For 2022, the recovery is expected to be sustained with 2.2% growth; this will be driven by private consumption, investment and exports, provided that the sectors most affected by the pandemic return to full operation and international demand remains unchanged.
How did Argentina recover from economic crisis? ›
There was trade and financial opening-up, privatization of almost anything that used to belong to the State, all around deregulation and so on. It might have been on account of those reforms that Argentina of the 1990s had widely been predicated as the success story of the decade among the so-called 'emerging markets'.
Is it worth living in Argentina? ›Argentina has an excellent visa just for retirees, the Pensionado Visa. The lifestyle and cost of living are also big plus points for retirees. The vibrant Expat community and the range of recreational and cultural activities available make Argentina an excellent choice for your retirement.
Is Argentina good economically? ›The World Bank classifies Argentina as a high-income nation. The country's economy is driven by manufacturing, agricultural exports, natural resources and the services industry, which includes a thriving tourism industry. [Explore the top universities in Argentina.]
Did IMF successfully help Argentina to transform its economy? ›This restructuring was unprecedented in some important ways. It allowed for economic recovery, with employment increasing by around 1.7 million jobs. According to the government figures, investment also increased by 35 percent. Giant debt payments to the IMF have become the main risk to Argentina's balance of payments.
Why is Argentina's inflation so high? ›The country is experiencing the highest annual inflation in 30 years, accelerated by the Covid‑19 pandemic, shrinking global food supplies, rising energy costs and the economic fallout from Russia's war on Ukraine.
What country is suffering the most from inflation? ›Argentina and Turkey are currently experiencing the highest inflation rates in the G20. In October 2022, Turkey's rate reached 85.51% (compared with prices in October 2021).
Did Argentina pay back the IMF? ›Over the past 63 years, Argentina has frequently used the resources of the IMF and holds the record for the largest loan distributed, reaching nearly $57 billion in 2018. However, in 2006 under the leadership of Néstor Kirchner, Argentina was able to pay off its debts, thus escaping Article IV IMF surveillance.
How much does Argentina owe the World bank? ›It replaces a failed $57 billion program from 2018, for which Argentina still owes over $40 billion. About $9.66 billion will be disbursed immediately, the fund said.
How many times has IMF bailed out Argentina? ›WHY DID ARGENTINA NEED THIS DEAL? Argentina, which has had 22 huge bailouts from the IMF, agreed to a record $57 billion program in 2018 under then-President Mauricio Macri. That deal failed to head off economic crisis and the country slumped into recession with high inflation.