The Argentine economy is on the verge of collapse

The recession due to triple-digit inflation, political turmoil and drought in Argentina, and a shortage of foreign currency brought the economy to the brink of collapse. In addition, the gap between the parallel black market exchange rate and the official exchange rate began to widen.

While government strategies such as price freezes, capital controls, and multiple exchange rates failed to ease pressure on the peso, Argentina posted triple-digit inflation for the first time in 30 years, at 102, 2 annuals in February.

Inflation has outpaced wage increases and reduced consumer spending. Likewise, according to estimates, it was stated that the drought could cost Argentina 19,000 million dollars in exports.

A historic drought devastated Argentina’s harvests of critical crops such as soybeans and corn. The harsh drought has slowed the country’s agricultural exports, disrupting the inflow of dollars and making it difficult for Argentina’s central bank to try to accumulate reserves.

GREAT CURRENCY CRISIS

On the other hand, many parallel exchange rates apply in Argentina, such as special exchange rates for tourists, soybean producers and the stock market. There are also strict capital controls in the country, where the peso loses half its value in almost a year.

Argentina also presented plans to renegotiate the IMF program, while central bank foreign reserves fell to a seven-month low last week. The IMF is also putting pressure on Argentina to devalue the official exchange rate.

The depreciation of the Argentine peso against the dollar. Yellow line: Black market – Blue line: Official peso/dollar exchange rate. Graphic: Steve Hanke, professor at Johns Hopkins University.

According to the Central Bank of Argentina, although the official dollar/peso price is around 220, the parallel price is double that figure. According to data from the financial site Dolarhoy.com, the dollar/peso parallel price, known as the “blue dollar” among locals in Argentina, is sold at a level close to 500.

a recession is expected

The level of economic activity in the country also pointed to a recession due to the effect of the drought. According to data released on Monday, economic activity was flat in February compared to the previous month. Compared with a year ago, the economy grew 0.2 percent.

Economists surveyed by Argentina’s central bank in March forecast gross domestic product to contract 2.7 percent this year. The economy also contracted in the last quarter of last year. If the economy contracts next year, it will be the sixth recession in the last 10 years.

THE BAD GOVERNMENT THE RIGHT OPPOSITION

Argentine President Alberto Fernández recently announced that he will not be a candidate in the October elections, while blaming the right-wing opposition and the previous term on the economic course.

“The Minister of Economy, Sergio Massa, is determined to resolve this situation. However, he faces problems raised by former president Mauricio Macri ”. Argentina’s external public debt, which was $240 billion in 2015, reached $323 billion in 2019, when the Macri era ended.

In addition, Fernández, at a press conference yesterday morning, accused economists and financial operators linked to the opposition of speculating against the peso. Fernández claimed that the right-wing opposition was spreading rumors that affected currency markets and hurt Argentine savings.