The IMF and Argentina

In this article, we shall examine the International Monetary Fund’s actions regarding the economic and currency crisis in Argentina. We will briefly discuss the origins of the currency crisis in Argentina, along with statements and actions of the IMF. As we shall see, the economic crisis in Argentina has strong international relations implications related to economic stability domestically and even internationally.

Argentina’s Economic Crisis

The Argentinian state has been experiencing a severe economic and currency crisis for years. However, in 2018, Argentina’s currency, the peso, has suffered even greater losses compared to the United States dollar. Much of the economic hard times in Argentina has been attributed to increased interest rates by the United States (Argentina’s interest rate is at 60 percent (Gillespie & Gilbert, 2018), and fall of oil prices, other geopolitical problems for emerging market currencies, along with a drought within Argentina itself, which has had an effect on soy output (Financial Times, 2018).

This all seemed to culminate with a large selling off of the peso in late August, 2018, with the month of August, in 2018 being “the peso’s worse month since the country’s historical debt crisis in 2001.” However, there are worries that the economy will continue to weaken and become smaller, which may only make the economic situation even worse (Gillespie & Gilbert, 2018).

Argentina’s President Mauricio Macri has called the situation in the country an “emergency,” and in June of 2018, the IMF promised 50 billion in loans to Argentina (Gillespie & Gilbert, 2018). However, in late August of 2018, Macri asked the International Monetary Fund for 50 billion dollars to help Argentina’s economy (Financial Times, 2018) quicker than the period of times the funds were to be dispersed.

In addition, as has been pointed out with the International Monetary Fund, lending often comes with a variety of monetary policy recommendations, that, among other things, calls for a reduction in spending, more privatization, and even reductions in government subsidies. Thus, As a result, the government of Argentina has looked to find ways to slow and/or halt the crisis in the country. Among other things, the government has called for an increased in taxes, and more specifically, raising export taxes, although “Taxes on exports have been highly contentious for Argentina’s powerful farming sector and Mr Macri had promised this year to continue to reduce taxes on exports of soya” (Financial Times, 2018).

Those looking to invest in Argentina have been watching to see whether changes would be “gradual,” or fast coming. There is hope that Argentina will get out of its main deficit in 2019 (Financial Times, 2018) (as opposed to the original goal of the balanced budget by 2020) (Gillespie & Gilbert, 2018) although whether Argentina’s leadership can do so by 2019 remains to be seen.

But even if Argentina is able to get back to a balanced budget in 2019, there are still questions as to whether new capital would be attracted into Argentina (Gillespie & Gilbert, 2018).

As we have seen in the situation with Greece and its debt crisis, the government of Argentina is in a difficult position. By borrowing from the International Monetary Fund, Argentina may have to make strong commitments to raise taxes and privatization. However, too much cutting of social programs could lead to domestic unrest, which would be a concern to Macri and his backers. There is a belief by some that voters will take out their frustrations with current policies and conditions (Gillespie & Gilbert, 2018).  It also should be noted that “the IMF is a deeply unpopular institution in Argentina. It loaned billions to the country in December 2000 but didn’t come to the rescue when Argentina defaulted on $95 billion of debt in 2001 — at the time, the largest default by a country in history. The default led to an unprecedented economic crisis, wiping out one-fifth of the economy and causing poverty to soar. This is why Macri’s decision to return to the IMF has been poorly received in Argentina” (Gillespie & Gilbert, 2018).

There have also been questions as to whether what is taking place in Argentina is similar to what is going on elsewhere in the world in places such as Turkey. As noted in Gillespie & Gilbert (2018), “…while Turkey’s President Recep Tayyip Erdogan has unorthodox economic vies, Argentina followed the textbook recipe of hiking interest rates, selling reserves and cutting spending faster. Markets however, are taking a dimmer view on Argentina based on fundamentals, writes Tom Orlik and Felipe Hernandez from Bloomberg Economics. ”Argentina has a larger fiscal deficit and higher inflation than Turkey,” they note.”