[Economics] The Argentine economy arrives loaded with challenges at the halfway point of Fernández's mandate

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ARGENTINE ECONOMY
Buenos Aires, Dec 8 (EFE) .- The battered Argentine economy reaches the Equator of the Peronist government Alberto Fernández with the challenge of consolidating the recovery that began in 2021 after three years of severe recession and under threat from serious macroeconomic imbalances and the heavy debt with the International Monetary Fund (IMF).

Fernández arrived at the Casa Rosada on December 10, 2019 with the promise to rescue Argentina from almost a decade of stagnation that had turned into a recession in 2018, with high inflation, recurring exchange rate tensions, an unsustainable level of indebtedness and rates of poverty and unemployment on the rise.

The new Executive had begun to take "emergency" measures to contain the crisis when, with just one hundred days in the Administration, he had to begin to deal with the covid-19 pandemic.

The strict sanitary isolation measures decreed by Fernández and maintained, although with progressive openings, during much of 2020 gave way to the collapse of economic activity, business closures, job destruction and increased poverty.

 

The dramatic scenario forced the Government to strongly increase spending to assist the worst hit sectors, raising the primary fiscal deficit to 6.5% of GDP in 2020, a year that resulted in an economic collapse of 9.9%, one of the worst in Argentine history.

RECOVERY AND INFLATION

The improvement in the health situation, particularly from the advance of vaccination, opened the way in 2021 to a process of economic recovery.

There are sectors that have already returned to the levels of activity prior to the pandemic and, according to the relevant private consultancies monthly by the Central Bank, GDP will close the year with a recovery of 9.7%.

"Despite a scenario as adverse as the one we faced, Argentina is going through a clear recovery process," Fernández said days ago, in a meeting with businessmen.

However, there are serious unresolved imbalances that condition the drive for recovery. High inflation is one of the main ones.

According to private projections, consumer prices would close the year with a cumulative rise of 51.1%, widely exceeding the rate of 36.1% in 2020, the year in which inflation moderated due to economic paralysis.

 

The expansionary policy has boosted prices this year, but the Government, without too many alternatives, insists that inflation is a "multi-causal" problem and not strictly monetary and has chosen to keep regulated prices at bay, such as those of some services, and for imposing price freeze agreements in the case of mass consumption products, such as food and medicines.

The other major limitation for the Argentine economy is the shortage of dollars, responsible for recurring financial tensions, exchange restrictions, multiple prices and the worrying drain on the Central Bank's reserves.

DAMN DEBT

In his first two years in office, Fernández has also had to deal with the headache of a level of indebtedness incompatible with Argentina's ability to pay and its inability to refinance in international markets.

The first major stumbling block, that of debt with private creditors, the Government managed to overcome in September 2020, after months of tricky negotiations with powerful investment funds, by completing restructuring of bonds under foreign and local law for a combined value of 105,089 of Dollars.

But Fernández has not yet solved the other great pending challenge: refinancing debts with the IMF for some 43,300 million dollars that Argentina would have to pay - without the resources to do so - between 2022 and 2024 and that derive from a financial aid agreement signed in 2018.

 

According to Gabriel Torres, Moody's principal analyst for Argentina, if the country "does not settle with the IMF, there will come a time when it will not be able to cancel a payment and it will default."

"The agreement is important to resolve the issue of debt payment and, also, to give a signal to the market of what to do with the macroeconomy," said Torres.

 

Link: https://holanews.com/la-economia-argentina-llega-cargada-de-retos-al-ecuador-del-mandato-de-fernandez/