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Argentina is spiraling into economic chaos

It’s hardly news to say that Argentina is in deep economic trouble. With only a few exceptions, that has been a given for decades. But recent developments underscore just how much it is the responsibility of Argentine populist politicians and, to be blunt, those who persist in voting for them.

This dynamic was recently well-summarized by Fergus Hodgson writing in the Epoch Times. He begins by outlining the dire economic challenges facing the country:

Argentina enters 2020 with $332 billion in debt. This includes loans from the International Monetary Fund (IMF) and $148 billion owed to private bondholders. The rating agencies downgraded Argentine debt because of the new government’s decision to delay payment on $9.1 billion of Treasury bills. This already constitutes a technical default—a distressed-debt exchange—according to Fitch Ratings criteria. A further $64 billion comes due in 2021.

Repaying the debt would be difficult for any new administration, given Argentina’s horrendous policy landscape mired by cronyism, criminality, protectionism, and monetary instability. In Latin America, only Cuba and Venezuela stand out as more anti-capitalist than Argentina, which was ranked by the Fraser Institute as 146th out of 162 nations for economic freedom.

Inflation is above 55 percent, and the economy contracted 3 percent in 2019. Over the past four years, 21,500 small and medium enterprises (SMEs), a pivotal source of employment, have shut down. This has led to an official 10.1 percent unemployment rate, and roughly half of the economically active population works in the informal economy. In addition, Argentina continues to scare away capital; $72.2 billion has left since 2015.

Addressing these problems would require truly radical measures — measures, I suspect, that the long-suffering people of Argentina would not tolerate for very long. We know, however, that there is little chance of such policies being put in place. Indeed, the new president, Alberto Fernández, is already going down the well-worn path trod by other Peronist governments. As Hodgson points out:

To halt rising unemployment, the Fernández administration is simply forcing businesses to hold on to their employees, ignoring economic rationale. One of its first measures, a special executive order, declares that any Argentine laid off from his job in the next 180 days will receive double the normal severance package.

The impact is obvious. SMEs will be reluctant to hire anyone at all due to the increased burden, at least not on the books. The new government is hamstringing the very businesses key to any economic revival.

Hodgson relates more of the depressing details about how Fernández proposes to deal with his nation’s economic problems. “Utterly counterproductive” is the nicest way of describing it. Keep in mind also that Argentina’s vice president, Cristina Kirchner, served Argentina’s president between 2007 and 2015, and pursued many of the economic populist policies that have helped produced the preset situation. I wish that I was making this up, but I’m not.

Argentina deserves so much more than a reversion to the failed populist policies of the past that have been implemented by left-wing and right-wing Peronist politicians. Unfortunately, it seems unlikely that anything is going to change. And who will suffer the most? The answer to that question is very clear: the poor.

(Photo credit: Public Domain.)

Samuel Gregg

Samuel Gregg is Distinguished Fellow in Political Economy and Senior Research Faculty at the American Institute for Economic Research and serves as affiliate scholar at the Acton Institute.