{"id":4223,"date":"2018-09-16T23:24:27","date_gmt":"2018-09-16T23:24:27","guid":{"rendered":"http:\/\/qatar-tourism.com\/Ar\/2018\/09\/16\/argentinas-crisis-what-went-wrong-and-what-is-next\/"},"modified":"2018-09-16T23:24:27","modified_gmt":"2018-09-16T23:24:27","slug":"argentinas-crisis-what-went-wrong-and-what-is-next","status":"publish","type":"post","link":"https:\/\/qatar-tourism.com\/Ar\/2018\/09\/16\/argentinas-crisis-what-went-wrong-and-what-is-next\/","title":{"rendered":"Argentina&#8217;s crisis: What went wrong and what is next"},"content":{"rendered":"<div id=\"body-200771816342556199\" readability=\"268.077711682\">\n<p class=\"speakable\">On June 7, a month after requesting a lifeline to prop up its plunging currency, <a href=\"https:\/\/www.aljazeera.com\/topics\/country\/argentina.html\">Argentina<\/a> declared that it had reached an agreement with the International Monetary Fund (IMF) for a three-year, $50bn standby lending arrangement.<\/p>\n<p class=\"speakable\">The financial deal\u00a0was aimed at providing breathing space for the government\u00a0and reassuring\u00a0nervous investors in the face of deepening concerns over a gaping fiscal deficit, skyrocketing inflation and pressing debt obligations.<\/p>\n<p class=\"speakable\">Yet, things don&#8217;t seem to have gone as hoped.<\/p>\n<p>In August, the peso dropped more than 25 percent against the US dollar and <a href=\"https:\/\/www.reuters.com\/article\/argentina-economy\/argentine-peso-closes-down-14-pct-at-385-per-dollar-traders-idUSL2N1VY1K2\" target=\"_blank\">has now lost<\/a> more than half its value since the start of the year.<\/p>\n<p>In response, Argentina&#8217;s central bank raised interest rates to a world record <a href=\"https:\/\/twitter.com\/BancoCentral_AR\/status\/1035160941355257856\" target=\"_blank\">60 percent<\/a>, while President Mauricio Macri announced a series of &#8220;emergency&#8221; measures to eliminate the primary fiscal deficit, including cutting the number of government ministries and raising export taxes.<\/p>\n<p>The belt-tightening measures have seen Argentines, many of whom blame the IMF&#8217;s\u00a0policies for a devastating <a href=\"http:\/\/cepr.net\/documents\/publications\/argentina_2002_09_03.htm\" target=\"_blank\">economic collapse<\/a>\u00a0in the early 2000s,\u00a0<a href=\"https:\/\/www.aljazeera.com\/news\/2018\/09\/argentina-crisis-govt-plans-cut-ministries-180906172542713.html\">take to the streets<\/a><strong>\u00a0<\/strong>in recent weeks amid growing anger over spending cuts and rising consumer prices.<\/p>\n<p>So how did Argentina reach this point? Al Jazeera takes a look.<\/p>\n<h2>Kirchner&#8217;s legacy<\/h2>\n<p>Macri took office in 2015 on the back of <a href=\"https:\/\/www.reuters.com\/article\/us-argentina-election-idUSKBN0TB0XJ20151123?feedType=RSS&#038;feedName=topNews\" target=\"_blank\">promises to reverse<\/a> the interventionist policies of his predecessor, Cristina Fernandez de Kirchner, and get the country&#8217;s stalled economy moving again.\u00a0<\/p>\n<p>Kirchner&#8217;s government had implemented a controlled exchange rate, which limited the\u00a0buying or selling of foreign currencies. It also <a href=\"https:\/\/www.ft.com\/content\/9b565542-8f3f-3168-9cc3-b9de04561f08\" target=\"_blank\">restricted access<\/a> to US dollars in a bid to protect the central bank&#8217;s depleting reserves, which had been used for years to prop up the peso.<\/p>\n<p>&#8220;Cristina left the economy in default without access to financial markets, a very high inflation and one of the most regulated and least free economies on the planet,&#8221; Nicolas Cachanosky, author of Reflections on the Argentine economy, told Al Jazeera.<\/p>\n<p>&#8220;The central bank was also left with very low reserves and little legal security. This resulted in frightening investors instead of attracting them,&#8221; he added.<\/p>\n<p>A week after assuming office, Macri lifted the currency controls and introduced a series of pro-market reforms with the aim of countering years of protectionism and high levels of government spending, as well as tackling double-digit inflation, boosting exports and spurring economic growth.<\/p>\n<p>During his first year, he also began <a href=\"https:\/\/www.aljazeera.com\/news\/2018\/02\/argentina-truckers-block-streets-protest-austerity-180222071404956.html\">slashing utility subsidies<\/a> in a bid to reduce the fiscal deficit, which resulted in Argentines paying more for gas and electricity.<\/p>\n<p>But the moves did not go far enough, according to some analysts.<\/p>\n<p>&#8220;At some point, the government said he couldn&#8217;t make more changes because he had political restrictions. This might be true, but not being able to do more does not mean he did enough,&#8221; Cachanosky said.<\/p>\n<p>&#8220;His government received an economic time bomb; the problem is that the reforms it made were slower than the countdown.&#8221;<\/p>\n<h2>&#8216;Crisis of trust and credibility&#8217;<\/h2>\n<p>In 2016, inflation surged to <a href=\"https:\/\/www.reuters.com\/article\/us-argentina-investment\/argentina-2016-inflation-seen-at-40-percent-to-42-percent-finance-minister-idUSKCN0ZA2TY\" target=\"_blank\">40 percent<\/a>, before falling down to 25 percent last year.<\/p>\n<p>During these two years, Macri&#8217;s government spent beyond its means and kept borrowing dollars to finance the budget shortfall. This generated pressure on the central bank to print more money in order to finance budget deficits, which eventually led to consumer prices rising.\u00a0<\/p>\n<p>In his efforts to tackle the crisis, Macri opted to avoid drastic changes that would have further destabilised a country which had 29 percent of its population living in poverty at the start of his term.<\/p>\n<p>However, by April 2016, the poverty rate in the country had increased to 32.6 percent.<\/p>\n<p>Amid this climate, investor concerns about the government&#8217;s ability to tackle the country&#8217;s economic challenges lingered<strong>\u00a0<\/strong>and the long-awaited foreign investments did not materialise.<\/p>\n<p>&#8220;This was a crisis of trust and credibility with Macri,&#8221; Sergio Berensztein, president at Poliarquia Consultores in Argentina&#8217;s capital, Buenos Aires, told Al Jazeera.<\/p>\n<h2>International pressure<\/h2>\n<p>To make matters worse, Argentina this year experienced one of its worst droughts in decades which crippled its agriculture sector.<\/p>\n<p>As the same time, the struggling peso&#8217;s woes continued with investors pulling their money from the currencies of emerging markets into the US dollar to benefit from a series of interest rate increases by the US Federal Reserve.\u00a0<\/p>\n<p>&#8220;When conditions change in the international system, countries like Turkey, Argentina, South Africa, and all emerging economies suffer this kind of market corrections,&#8221; Berensztein said.<\/p>\n<p>&#8220;In Argentina, there was a fall in the price of commodities, plus the drought, which also ended up affecting exports,&#8221; he added.<\/p>\n<p>&#8220;All this complicated the situation, and eventually triggered a devaluation &#8230; these are internal distortions that are difficult to solve when the transnational scenario changes.&#8221;<\/p>\n<h2>Interest rates and IMF<\/h2>\n<p>Along with cutting spending and increasing reserve requirements for lenders, Argentina&#8217;s government also changed leadership at the central bank,\u00a0which responded to the peso&#8217;s rapid depreciation by increasing interest rates first to <a href=\"https:\/\/tradingeconomics.com\/argentina\/interest-rate\" target=\"_blank\">45 percent and then to 60 percent<\/a>.<\/p>\n<p>Argentina has also\u00a0<a href=\"https:\/\/www.imf.org\/en\/News\/Articles\/2018\/06\/20\/pr18245-argentina-imf-executive-board-approves-us50-billion-stand-by-arrangement\" target=\"_blank\"><span>agreed<\/span><\/a>\u00a0with the IMF to cut its fiscal deficit to 1.3 percent of gross domestic product (GDP) by 2019, down from 3.9 percent last year.<strong>\u00a0<\/strong>The <a href=\"https:\/\/www.reuters.com\/article\/argentina-fiscal\/update-1-argentina-primary-deficit-falls-to-0-8-pct-of-gdp-in-first-half-idUSL1N1UF0Y1\" target=\"_blank\">current<\/a> fiscal target for 2018 is 2.7 percent of GDP.<\/p>\n<p>But the moves have failed to ease investors&#8217; worries, exacerbated by the fact that about <a href=\"https:\/\/www.reuters.com\/article\/us-argentina-economy-debt-explainer\/explainer-how-argentinas-sovereign-debt-could-threaten-macris-program-idUSKCN1J31BH\" target=\"_blank\">70 percent<\/a> of Argentina&#8217;s debt is dollar-denominated. This makes repayment much more expensive in the face of a stronger dollar.<\/p>\n<p>After turning to the IMF for the $50bn assistance, the government said it would use the funds to boost its dwindling reserves.\u00a0<\/p>\n<p>&#8220;There was no better option, [the] IMF&#8217;s mission is to sort the problem of the government&#8217;s liquidity and ability to pay, and our crisis is a crisis of trust due to the fiscal balance,&#8221; Berensztein said.<\/p>\n<p><span>&#8220;Given the circumstances, this was the only option.&#8221;<\/span><\/p>\n<p>Argentina has a mixed, if not troubled, history with the IMF that stretches back several decades.<\/p>\n<p>The global body&#8217;s involvement in the economy is a political minefield, with the echoes of its role in the\u00a0disastrous 2001-2002 economic crisis &#8211;\u00a0which thrust millions into poverty &#8211;\u00a0still vivid in many ordinary Argentines&#8217; memories.<\/p>\n<p><span><span><span>In May, a\u00a0<a href=\"https:\/\/www.dalessio.com.ar\/informes\/informe-el-75-cree-que-es-inadecuado-pedirle-ayuda-al-fmi\" target=\"_blank\">survey<\/a>\u00a0of more than 1,000 people by Argentine\u00a0pollsters D&#8217;Alessio Irol\/Berensztein\u00a0revealed that 75 percent of respondents felt seeking assistance from the Washington, DC-based\u00a0IMF was problematic.<br \/><\/span><\/span><\/span><\/p>\n<h2>What&#8217;s next?\u00a0<\/h2>\n<p>While the IMF loan has given reserves a boost,\u00a0<span>Macri has also\u00a0<\/span><a href=\"https:\/\/www.aljazeera.com\/news\/2018\/09\/argentina-begins-talks-imf-speed-50bn-loan-180904155846905.html\">requested an early reimbursement<\/a>\u00a0to deal with the continued <a href=\"https:\/\/www.ft.com\/content\/758e9e60-6e54-11e8-852d-d8b934ff5ffa\" target=\"_blank\">pressure on the peso<\/a>.\u00a0<span>However, a $3bn tranche that Argentina was expecting to receive\u00a0<\/span><a href=\"https:\/\/uk.reuters.com\/article\/uk-argentina-economy\/imfs-3-billion-tranche-to-argentina-on-hold-as-talks-go-on-source-idUKKCN1LU2IQ?il=0\" target=\"_blank\">has reportedly been<\/a><span>\u00a0put on hold as talks with the IMF over the negotiated agreement continue.<\/span><\/p>\n<p>The government, meanwhile, is expected to continue its efforts to reduce spending as part of its attempt to cut its budget deficit under the IMF deal.<\/p>\n<p><span>But the outlook remains negative, with a<\/span>nalysts predicting that the economy will shrink by two percent this year and unemployment will rise.<\/p>\n<p><span>The government had set a target of a 15 percent inflation this year, but analysts now estimate that it will exceed\u00a0<\/span><a href=\"https:\/\/tradingeconomics.com\/argentina\/inflation-cpi\/forecast\" target=\"_blank\">40 percent<\/a><span>\u00a0by the end of 2018.\u00a0<\/span><\/p>\n<p>&#8220;The IMF called for conditions, but these conditions are not different to what Argentina should have done earlier,&#8221; said Alejandro Collar, an economist from Buenos Aires.<\/p>\n<p>&#8220;The government did much less than it was expected to do; both the macroeconomic deficits and the dollar rate are a reflection of that,&#8221; he added.<\/p>\n<p>&#8220;This is the result of a heavy inheritance that he [Macri] did not want to solve.&#8221;<\/p>\n<p>Argentines will head to the polls on October 27, 2019 to elect their next president, as well as members of the national congress and provincial governors.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>On June 7, a month after requesting a lifeline to prop up its plunging currency, Argentina declared that it had reached an agreement with the International Monetary Fund (IMF) for a three-year, $50bn standby lending arrangement. The financial deal\u00a0was aimed at providing breathing space for the government\u00a0and reassuring\u00a0nervous investors in the face of deepening concerns&hellip;<\/p>\n","protected":false},"author":4,"featured_media":4224,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[],"class_list":["post-4223","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-2","has_thumb"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Argentina&#039;s crisis: What went wrong and what is next - Qatar TourismQatar Tourism, Qatar news, Discover Qatar, tourism in Qatar, explore Qatar, Qatar adventures, Qatar today, Qatar events, desert safari Qatar, Qatar daily news, \u0642\u0637\u0631 \u0645\u063a\u0627\u0645\u0631\u0627\u062a , \u0627\u0644\u0633\u0641\u0627\u0631\u064a\u0631\u062d\u0644\u0627\u062a<\/title>\n<meta name=\"description\" content=\"Qatar Tourism, Qatar news, Discover Qatar, tourism in Qatar, explore Qatar, Qatar adventures, Qatar today, Qatar events, desert safari Qatar, Qatar daily news, \u0642\u0637\u0631 \u0645\u063a\u0627\u0645\u0631\u0627\u062a , \u0627\u0644\u0633\u0641\u0627\u0631\u064a\u0631\u062d\u0644\u0627\u062a\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/qatar-tourism.com\/Ar\/2018\/09\/16\/argentinas-crisis-what-went-wrong-and-what-is-next\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Argentina&#039;s crisis: What went wrong and what is next - 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