Argentina’s currency woes have deepened in recent weeks despite determined policy responses on the part of the government and the central bank, as well as a $50bn financial package from the IMF. The country is now the world’s riskiest sovereign borrower behind Venezuela. It’s currency, the peso, has halved in value this year against the dollar. Today, Argentina is on financial life support, with the highest interest rates in the world. President Mauricio Macri is struggling to prevent an economic collapse and has announced austerity measures to reduce the deficit and cash handouts for the poor, but will these extraordinary measures work?
Social Debt Observatory researcher Eduardo Donza points out that while measures to stop inflation are crucial at the moment, more needed to be done: “There has to be an increase in local production to generate jobs and for that, we need to see a creation of state policies, a government that has the clarity and humility to call on all sectors to cooperate.” The economic crisis is affecting the most vulnerable, reports Teresa Bo from Buenos Aires. “The impact of the devaluation of the peso on food prices worries those who are trying to assist those in need. This year alone food prices have increased over 30 percent, making it difficult for people to buy the most basic food items in Argentina like bread, pasta and meat.”
“While the peso has stabilised, for now, it is very fragile,” said Richard Segal, senior emerging markets analyst with Manulife Asset Management, who added that Argentina’s economy would continue to be affected by a number of factors including the forthcoming elections and general unease in the country about going back to the IMF. Segal goes on to explain that as an emerging market, Argentina’s woes do have an impact on investors in local markets who “bail out because they do not want to take a chance… [and] they can only incur more risk. “For the time being, the contagion in the local markets has an impact on those investors but not so much on the real economies.” If Argentina defaults on its debt commitments again as it has in the past, “its impact will be on investors locally but also foreign direct investors”. “The chances of a default [in the] near term are low because they do have good relations with the IMF, but I think what needs to happen in the time being is there needs to be a greater burden sharing. It had, up to now, been on foreign investors and local taxpayers but it needs to be more on the corporate sector, which had been receiving a lot of subsidies, particularly to invest in energy and electricity, where there hadn’t been any investments for 10-12 years.”