Argentina enters the presidential elections this Sunday with an economy that is plummeting. The Gross Domestic Product did not grow in the last three months. Inflation exceeded 142% year-on-year. One in four Argentines lives in poverty and two minimum wages are not enough to cover the basic basket of a household with four members. In the exchange market, there are more than a dozen quotes for the dollar. The Central Bank’s gross reserves have fallen by half in the last four years and the net reserves are in the red. The State, in addition, must pay off a debt of 44,000 million dollars with the International Monetary Fund (IMF). Argentines hope that whoever arrives at the Casa Rosada will end the agony. The options are two and disparate: an economist who promises a brutal shock and the current Minister of Economy.
The Peronist candidate, Sergio Massa, has been in charge of economic management for the last year and many wonder what he will do differently if he becomes President. His coalition attributes the worsening of the crisis to a historic drought that left losses of 20 billion dollars, to the impact of the pandemic and to the credit that the Government of Mauricio Macri took with the IMF. The ultra-liberal Javier Milei, on the other hand, blames the crisis on “the scam” of the monetary issue and proposes dollarizing the economy to get rid of rampant inflation, in addition to reducing public spending to a minimum, ideas that economists around the world have classified as dangerous. This is an x-ray of the indicators that suffocate Argentines.
Gross domestic product
The Gross Domestic Product (GDP) of the second largest South American economy fell 4.9% in the second quarter of this year compared to the same period of the previous year. This indicator, which measures the behavior of a country’s economy, has had ups and downs, but Argentina has been stagnant for many years: in the last decade, it only grew in the years 2013, 2015 and 2017; In the rest, the economy contracted. The first year of government of the outgoing president, Alberto Fernández, which coincided with the start of the pandemic, the drop in GDP was 9.9%. The following year, the indicator rebounded and that trend continued. GDP per inhabitant, which was around $22,000 in 2022, is 9% lower than it was a decade earlier, according to an IMF report.
Inflation
The Consumer Price Index tells Argentines month by month about inflation or how much purchasing power they have lost. The rate grew 8.3% in October compared to September, according to the latest official data, and reached 142.7% year-on-year, a record in the last 30 years. Argentina, which has one of the highest inflation rates in the region, remains the second worst placed, behind only Venezuela. In 2015, when the conservative Mauricio Macri assumed the presidency, inflation was 25%. When he left the Casa Rosada, four years later, it had doubled, up to 54%. Today, the rate of price increase is almost triple and, according to private projections, it will accumulate an increase of 185% this year.
Poverty
Four out of every ten Argentines are poor, according to the National Institute of Statistics and Censuses (INDEC). Poverty grew five points during the Government of Mauricio Macri (2015-2019) and almost five more during the Government of Alberto Fernández, who will hand over office on December 10. The data for the second half of 2023 are the highest since the beginning of 2021, after a year of pandemic. The rate worsens among young people: 56% of those under 15 years of age are poor. Furthermore, 9.3% of Argentines do not have enough income to buy food. The minimum wage is 146,000 pesos in November, an amount so small that twice that money is not enough to pay for the basic basket (food, transportation, clothing, etc.) of a household made up of two adults and two minors.
Unemployment
The unemployment rate is one of the few indicators that has improved, although it occurs in an increasingly precarious labor market, with falling wages due to inflation. When President Fernández took office, 8.9% of Argentines were unemployed and actively looking for work. In the second quarter of this year, the percentage fell to 6.2%, according to INDEC, and mainly affected young people between 14 and 29 years old: the rate for that age group was 13.4% in the case of women and 12.3% in men. Unlike previous quarters, the drop in unemployment was motivated in the last three months by a drop in the number of people looking for work and not by the increase in employment, which remained stable.
Evolution of the Argentine peso against the dollar
The peg of the peso with the US dollar ended in Argentina after the crisis of the playpen, in 2002. Until then, a monetary law established a fixed equivalence between both currencies. Today in Argentina there are a dozen exchange rates that emerged as the exchange restrictions imposed since 2011 were tightened. Back then, one official dollar was equivalent to 4.3 pesos and the parallel dollar, the so-called dollar blue (the one that is exchanged in the illegal market), to 4.6.
At the end of 2019, when Fernández arrived at the Casa Rosada, the ratio was 62 pesos per dollar. Since then it has climbed to 369 pesos per dollar, after having been frozen at 365 for three months. The exchange gap exceeds 160%: one dollar blue It is sold on the street for 950 pesos.
International Reserves of the Central Bank
The Government has tried to sustain the value of the peso through interventions in the exchange market at the cost of squandering the Central Bank’s scarce reserves. The Argentine monetary authority reports that gross reserves fell 53% in the last year to $20.9 billion. The calculations by private consultants, however, analyze the net reserves, that is, the money in banknotes that the Central Bank has freely available. These numbers, which are not endorsed by the Central Bank, show figures in the red: analysts calculate that when Fernández arrived at the Casa Rosada the Central Bank had 12,000 million dollars in its coffers; Four years later, they estimate that the level is negative by more than 10 billion dollars. The foreign currency deficit is chronic in the country, but in 2023 a historic drought affected the agricultural sector, which contributes seven out of every ten dollars that enter the country.
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