Argentina: a bit of hope in the face of adversity



17 years after the terrible crisis that saw 13 million Argentinians (more a third of the country’s population) plunge below the poverty line, Argentina is once again facing financial crisis. Although since 1989 and Carlos Menem’s arrival in power the policies advocated by the “Washington Consensus” have been excessively applied – privatisations, dismantling the State, export policies – the country’s situation remains worrying. Unemployment is sitting at 9.3%, almost half the population are without social security and the country’s currency, the Peso, has been subject to inflation close to 20% for 10 years.

While Argentina’s next presidential election will take place in October 2019, Nathalie Johnson (pictured), an economist and teacher-researcher at Néoma Business School and Science Po Paris, gave an interview to Le Journal International on Argentina’s situation.


Le Journal International (JI): What is Argentina’s current financial situation? After a drop in growth in 2016, does the country seem to be doing better?


Nathalie Janson (NJ): I would say that since Mauricio Macri was elected in 2015, things have improved. Growth was 2.8% in 2017 (-2.6% in 2016 and +2.3% in 2015). This has been made possible due to the introduction of certain measures such as lowering customs barriers and taxes by paying the “vulture fund”. After 15 years of negotiations, Argentina can once again borrow from the capital market. The country is also benefitting from global growth.


JI: Can we rule out the risk of another double financial and monetary crisis, like the one Argentina experienced in 2001?


NJ: Theoretically, no. We are not in the same situation. Nevertheless, we have to remain cautious, especially with the upcoming elections in a year and a half. If there’s a ‘populist’ movement, such as Kirchner’s was to prevail, then there could be a loss of confidence in the capital market again (Macri lost 20 points in the polls in a few months). Argentina clearly has a monetary problem and a long history with inflation. The country had a short break under Carlos Menem (1989-1999) with the ‘currency board’ policy established by Menem in 1991. This policy required a convertibility law establishing a rigid system of parity between the peso and the American dollar. In other words, each peso made had to have a dollar counterpart. In the last couple of months, the peso has lost 10% of its value. It’s a currency judged to be non-credible that has always been compared to the dollar despite the repeal of ‘currency board’. Therefore, when the interest rates on the dollar rise, there is a classic scenario: savers take refuge in the dollar. And in fact, the fall of the peso leads to capital flight. There was indeed an attempt to curb this trend in 2001, under the government of Roque Fernandez with a measure called “el corralito” which limited cash withdrawals to $250 a week for individuals, but it was abolished in 2002.



JI: Why has Argentina always experienced this financial turbulence? What is it about Argentina?


NJ: It’s true, it’s a unique case. In Argentina, we operate on a combined fiscal system. That is to say, the provinces have significant autonomy. There is not always central state control. The provinces can create more money by printing more but also by creating parallel currencies like ‘Patagon’, used in Buenos-Aires to the detriment of the State.

It is worth adding as well that Argentina’s historical fiscal indiscipline stems from the ‘currency board’. Corruption and embezzlement are also largely responsible for Argentina’s “monetary woes”.


JI: What solutions could be put in place to get out of this chronic financial instability?


NJ: That’s the big question. If financial indiscipline breeds more financial indiscipline, then Argentina’s regions should be subject to further regulations, and we should focus on fighting corruption. Otherwise, to cure an endemically sick currency, we would need to officially ‘dollarise’ Argentina, but in a way that is both politically and geopolitically suitable.


JI: IMF (International Monetary Fund) policies have been widely criticised, as well as the role of the United States. Do you believe this criticism is justified?


NJ: Standard IMF treatment without taking into account the context is not effective. In a country where corruption is rife, I do not think that raising taxes is the best solution. Also, being aware of Argentina’s chronic monetary problems, the IMF issued a new loan repayable over… a century. With interest rates above market rates. For example, if Argentina declares bankruptcy in 30 years, the interest already paid will have largely repaid the loan… and will therefore have brought the IMF a lot of money.


As far as the US is concerned, it is clear they have not made the task any easier. But they are not responsible for non-payment or corruption.


JI: But all the same, governments come and go. Austerity policies are being pursued, but the results are disappointing to say the least. Could a ‘heterodox’ policy be a possibility?


NJ: That would require eradicating corruption, which generates inequality in itself. Right now, we’re not there. Despite everything, things are going better on the employment front (the official unemployment rate is 9.3%).


JI: Looking at the financial instability of the countries in the region, [we] are reminded of the deflation of the Brazilian Real in 1999. Is it conceivable or even desirable to establish a common currency between the Mercosur member countries, following the example of the Euro?


NJ: I don’t think so. This could be the case for the smaller countries. It’s the case in Ecuador where the currency is the Dollar. But generally speaking, having the same currency is not desirable in this troubled region. When we see all the difficulties the EuroZore has, it’s difficult to tell ourselves that this would work well in Latin America, where fiscal indiscipline is commonplace.

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