Argentina’s Economic Crisis Deepens as Macri Applies IMF Measures
Friday, August 23, 2019
GREG WILPERT: Welcome to The Real News Network. I’m Greg Wilpert in Baltimore.
Argentina’s economic crisis, which we have covered here on The Real News Network several times before, continues to worsen. Following an August 12th free-for-all primary election in which the incumbent President, Mauricio Macri, lost by 15 points to opposition candidate Alberto Fernandez, Argentina’s currency, the peso, became significantly devalued. Initially it lost about 40% of its value relative to the dollar. The devaluation, in turn, intensified an already very high annual inflation rate of 54%, and raised the specter that Argentina could default on its sky-high foreign debt. The bond rating agency, Fitch, said that the devaluation “suggests a real risk of default” and that it raises the potential for a sharper deterioration in economic growth.
Argentina’s economic crisis began early last year. Also last year, to shore up its financial situation, the neoliberal government of Mauricio Macri took on the largest IMF loan in history of $57 billion. In return, Macri committed his government to a series of austerity measures including layoffs of tens of thousands of public employees and cutting back on social spending. The IMF measures clearly did not have the desired effect, however. Here’s what Macri’s newly appointed finance minister, Hernan Lacunza, had to say about the currencies crash.
HERNAN LACUNZA, ARGENTINIAN FINANCE MINISTER: The president gave me a central mandate, not exclusionary, but leading all other objectives of which there are many, but the principle one is to guarantee the stability of the currency during this electoral period. … Our contribution to this nominal stability will guarantee the fiscal guidelines established in the agreement with the IMF.
GREG WILPERT: Argentine labor unions and social movements are now gearing up for a new wave of large-scale protests. Joining me now to discuss the developing crisis in Argentina is Mark Weisbrot. Mark is Co-Director of the Center for Economic & Policy Research in Washington, DC and he recently wrote an op-ed article for The New York Times titled, “Who is to blame for Argentina’s economic crisis?” Thanks for joining us again, Mark.
MARK WEISBROT: Thank you, Gregory.
GREG WILPERT: So President Macri recently argued that the reason that the peso, Argentina’s currency, was devalued was because investors feared that the new government headed by Alberto Fernandez and with Cristina Fernandez as Vice President, that that would cause more economic problems. What do you think? Is there any truth to that argument that this might’ve led to the devaluation?
MARK WEISBROT: Well, it’s always a shaky thing to blame your own economic mismanagement and the results of that on a future government who hasn’t even taken power. That’s what they’re doing when they say, “We’re worried about this new government taking over” and that’s what the markets are reacting to. But really, the economy’s been in recession for over a year and in June they signed an agreement with the IMF in which they committed to a series of measures— mostly tighter fiscal policy. That is, tightening the budget and tighter monetary policy, which meant raising interest rates— and just short-term interest rates are now 75%, which is outrageously high— and taking measures that would slow the economy. So it’s not surprising that they got into this mess, and it’s really, I think, unnecessary and not very honest to blame it on the possibility of another government being elected.
GREG WILPERT: Now, Cristina Fernandez was President from 2007 to 2015 and her husband was president before that. Her party is now set to win the presidency again, probably on October 27th when the next round of elections takes place. Now, do you think that the financial markets and the economy and economists should be concerned more about Mauricio Macri, or about Alberto Fernandez? Just let’s do a comparison of the results between the previous government— that is of Fernandez and Kirchner— and compare that to Mauricio Macri.
MARK WEISBROT: Well, first of all, just by historical comparison, the years 2003 to 2015 when they Kirchners were in in the presidency, the economy did very well. It grew 42% in terms of per capita GDP, which was three times the rate of say, Mexico. Their poverty was reduced by 71% and extreme poverty by 81%, and I’m not using the government’s numbers there. Those are from CEDLAS, which is affiliated with the World Bank and uses a different inflation number and therefore has – those are actually much lower than the official figures. So and the IMF numbers also, those aren’t using the official numbers either. So by any measure, any socioeconomic major indicator, that was a period of very large increases in living standards for the vast majority of Argentines.
The current mess that you have for a little over three and a half years, of course, is terrible. Poverty’s actually gone up, unemployment has gone up, the economy has actually shrunk in terms of per capita GDP. So it’s really a failure, but it’s worse than that because they’re really committed to continuing something that really can’t work, which I guess economists like Krugman have called expansionary austerity. The idea that you can actually take macro-economic measures, tighter fiscal and monetary policy, which would be expected to shrink the economy, and you’re going to make it grow. That’s the real problem. They’re committed to that.
I have to say, that is one great advantage, probably the only one of having an IMF agreement like they have, is that you can actually see. We don’t have to speculate about what went wrong in the past three and a half years. We can see it and we can see it in the agreement because the government lays out its strategy, agrees to take certain measures, explains what they expect those measures to do, and the data is all there. So you can see, for example, by October they were way off in terms of economic growth, the exchange rate, everything, and inflation. So you could actually see the failure written out for you transparently. It’s all public information.
GREG WILPERT: This is really something we need to explore a little bit more in depth at some point, and why it is that despite these IMF agreement to impose more austerity, and not getting the desired result, they keep insisting on that formula. But I just want to move on to the other question, which is what now a government under Alberto and Cristina Fernandez, should they be elected in October, what they could do in order to get out of this economic mess of high inflation, high debt payments, and growing poverty?
MARK WEISBROT: Well, I think that it’s nowhere near as bad as what they inherited back in 2003, although the economy was starting to recover at that time. It was recovering, but if you look at the crisis, for example, the depression in 1998 to 2002, that was much deeper. If you look at how bad it was in terms of having this fixed exchange rate, overvalued exchange rate that they had to get rid of, and the devaluation, they had to default on the debt, I don’t think the government has to – they don’t have to have a fixed exchange rate anymore, so the exchange rate can adjust. They need to stabilize it and they don’t have an unpayable debt, so this talk of default on the debt is at this point somewhat exaggerated. So I think mostly fixing the macro-economic policy— not pouring gasoline on the fire as the current government is doing— would be most of what they have to do to recover.
GREG WILPERT: But what would that mean concretely? Would it mean that they might have to raise taxes in order to spend more or maybe – because of the debt is already extremely high?
MARK WEISBROT: Well, the debt isn’t that high. It’s not an unpayable debt, again, like they had at the end of 2001 when they defaulted. It’s gone up a lot. Macri, that’s another failure. He came in with a relatively low debt because the previous government couldn’t even borrow internationally. So they had 53% of GDP debt and last year it was over 86. But still, the interest payments on the debt are still payable and I think they would have to—They would have to have some kind of fiscal stimulus and they would have to raise taxes to pay for some of it, but they can tax the upper income groups.
GREG WILPERT: Now, what do you think all of this means for the US and for the balance of power in the region? After all, right now we’ve got this huge wave of conservative and right-wing governments throughout Latin America with the last holdouts being, I guess, Bolivia and Venezuela. But now if Argentina were to switch sides, so to speak, although we don’t expect it to become part of the Bolivarian Alliance or anything like that, but what would that mean for the US?
MARK WEISBROT: Well, in terms of left and more independent governments, you also have Mexico and Uruguay, I think, to include there and some others. I think that this would change the balance of power some. Argentina – Macri is very much aligned with Trump and the Fernandez government would take a more independent stance and would try to mold a peaceful solution there and in the region. They just wouldn’t take the United States’ side as this government is doing. So it would be a move towards what you had in the first decade of the 21st century when you had these independent institutions, like when UNASUR, the Union of South American Nations, you had the left governments in the majority of the population or the region that really made the region more independent than it’s ever been, and this will be a move in that direction.
GREG WILPERT: Okay. Well, we’re going to leave it there. I was speaking to Mark Weisbrot, Co-Director of the Center for Economic & Policy Research. Thanks again, Mark, for having joined us today.
MARK WEISBROT: Thank you for inviting me.
GREG WILPERT: And thank you for joining The Real News Network.