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Don’t Cry for Me Argentina – The Financial Crisis Facing Argentina’s New President                

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Stephen R. Rolandi
December 18, 2023

“Throughout history, there have been only four kinds of economies in the world: developed/advanced countries, underdeveloped countries, Japan and Argentina.” —Simon Kuznets (1901-1985)

I have developed a strong interest in the history, politics and culture of Argentina ever since I saw the musical Evita at the National Theater in Washington, DC in the 1990s. This popular Broadway play focused on the life of Eva Peron Duarte (1919-52), the second wife of Argentine President Juan Domingo Peron; many saw her as the driving force behind her husband’s rise to political power during the 1940s and 1950s. The political party founded by the Perons played a major role in  Argentine political history for several decades.

Argentina, originally a Spanish colony until it won its independence in 1816, has grown to be one of the largest nations in South America, with a current population of nearly 47 million. In the early 20th century, Argentina possessed one of the world’s most prosperous economies; yet, since then, Argentina has suffered a series of boom-and-bust economic cycles, which have seen it fall well behind its regional neighbors. The country’s economy has been plagued by massive amounts of debt, currency devaluations and hyper-inflation. In the 20th Century, Argentina also experienced political turmoil and democratic reversals. Paradoxically, Argentina has one of the highest adult literacy rates in the world.

From 1998-2002, Argentina experienced an economic depression, which followed 15 years of stagnation and a brief period of free-market reforms. However, by 2003, Argentina’s economy rebounded, when GDP grew by an average of 9 percent annually from 2003-2008; presidential administrations during this period utilized neo-Keynesian economic policies which saw significant fiscal and trade surpluses.

Despite this progress, economic hard times returned to Argentina during the administrations of Mauricio Macri (2015-19) and continued under Alberto Fernandez (2019-23). During this time, the national public debt of Argentina continued to grow, as a percentage of the nation’s GDP, as shown below in this chart (data supplied by the International Monetary Fund (IMF):

Fernandez was inaugurated as Argentina’s President as the nominee of a new coalition party (“Frente de Todos” or FdT) in December of 2019, a few months before the worldwide COVID-19 pandemic. The pandemic took a toll on the nation’s economy, as GDP contracted by about 10 percent in 2020, and while it rebounded with growth of about 10 percent in 2021, inflation and poverty levels increased. Inflation exceeded 60 percent by July 2022.

Argentina’s national debt has also increased in the last few years to alarming levels. As of June 2023, Argentina’s national debt was approximately $403.8 billion; and projected to reach $447 billion by the end of 2023, according to the Census and Economic Information Centers (CEIC)—this represents an average debt load of approximately $9,514 per person, in a nation where average annual income is only $6,300.

Current debt projections forecast total national debt to rise to $801.2 billion in 2024; $1.2 trillion in 2025; and $1.7 trillion in 2026. Additionally, Argentina’s current inflation rate (as of November 2023) stands at 160 percent.

Argentina nosedived into an economic crisis in 2018 which it never fully recovered from, compounded by COVID-19. Argentina’s currency (peso) lost 50 percent of its value against the U.S. dollar. The IMF responded by loaning a record $57 billion to Argentina, but this failed to stabilize the national economy. The Fernandez administration then printed more money during the pandemic, which only increased inflation. Argentina is on the brink of another recession, and the nation’s central bank is running low on net cash reserves.

Thus it was no surprise when libertarian economist and newcomer politician Javier Milei was elected—with 56 percent of the vote—Argentina’s President last month on a populist, “anarcho-capitalist” platform.    

Argentina’s New President

In his campaign, Dr. Milei proposed an austerity agenda of deep spending cuts, sharp devaluation of the peso (he proposed placing Argentina on the U.S. dollar standard); reducing the size of the public sector; and other reforms aimed at reducing the country’s rate of inflation. He assumed office on Sunday, December 10, and immediately announced the following measures (see New York Times, December 14, 2023):

  • Halt new infrastructure projects;
  • Reduce energy and transportation subsidies for residents;
  • Cut payments to Argentina’s 23 provinces;
  • Officially reduce the value of the peso to 800 pesos for $1 US dollar (previously, it was 350 pesos for $1 US dollar)
  • Increase the amount of support payments for Argentina’s poorest families—support payments would be increased to $50/month; and food subsidies raised by 50 percent to $85/month.

No doubt these measures will increase inflation; reduce income, economic activity, employment and possibly poverty. The Milei government estimates that the economic pain will last for two years in the hope that economic conditions improve. I would not be surprised if Argentina approached the IMF for another short-term loan to ease this austerity, which would lead to even more debt.

Time will tell how things play out over the next few years. Argentina’s experiences should be a lesson to elected officials in our country to deal proactively with our burgeoning national debt.

Postscript: Suggestions for further reading:

Readers who wish to deepen their understanding of Argentina’s financial crisis may want to read Paul Blustein “And the Money Kept Rolling In (and Out): Wall Street, the IMF and the Bankrupting of Argentina,” published in 2006 (Public Affairs Books), and Gregory Makoff’s forthcoming “Default: The Landmark Court Battle over Argentina’s $ 100 Billion Debt Restructuring,” published by Georgetown University Press (February 2024). There are also many good general histories of Argentina; I would recommend works written by David Rock; Jill Hedges; and Robert D. Crassweller.

Author: Stephen R. Rolandi retired in 2015 after serving with the State and City of New York. He holds BA and MPA degrees from New York University, and studied law at Brooklyn Law School. He teaches public finance and management as an Adjunct Professor of Public Administration at John Jay College of Criminal Justice (CUNY) and Pace University. Professor Rolandi is a Trustee of NECoPA; President-emeritus of ASPA’s New York Metropolitan Chapter and past Senior National Council Representative. He has  served  on several association boards, and is a frequent guest commentator on  public affairs and political issues. You can reach him at: [email protected] or [email protected] or  914.441.3399 or 212.237.8000.

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