In Argentina’s chronic economic crisis, COVID-19 may simply speed up the inevitable

Photo by Caio Christofoli from Pexels
  • Argentina was already on the brink of default for the sixth (or ninth) time before COVID-19 shut the economy down. Things have gotten worse.
  • Like many countries, Argentina is taking multiple hits. Export prices have collapsed – soya bean prices are down to almost half what they once were. Government revenues are down about 15%. Expenses are up by a quarter.
  • And there is little hope of any kind of quick recovery. Even if the pandemic is dealt with, the government is considering flushing the streets with cash and an already crippled economy is unlikely to recover.

BUENOS AIRES. It is often easy to overlook the fact that the COVID-19 pandemic has not happened in a bubble. The US economy was booming, so the outbreak put the breaks on that growth. Other economies were not so lucky.

Argentina, a country that could be the poster child for financial mismanagement, was already on the brink of financial catastrophe (again) before the outbreak. COVID-19 forced a shift in focus for the government from keeping the economy afloat to keeping people alive. That shift in focus has given the government some political cover to justify a default, but has also created the conditions for the country to dig itself deeper into an economic crisis that was already building up.

Argentina is once again in a technical default of its debts and is quickly using up any resources it might have to fight off COVID-19 while running out of goodwill among investors.

The Covid-19 pandemic has all but shut down the country’s economy – Argentina was quick to put in place strong stay-at-home orders to prevent the spread of the disease. At the same time, the government started spreading cash around – cash it technically does not have.

A plan proposed by the presidency would defer payments on specific bonds for as long as a decade but investors are not jumping for joy . With profligacy as the main policy of virtually all parties and governments for decades, economist Miguel Angel Boggiano labels this default as the sixth in 200 years. He is more generous than others, who count it as the ninth.

This bankruptcy is different. The pandemic is ravaging both the local and international economies and has weakened foreign demand for Argentine goods. The international price of soybeans, Argentina’s main export, is hovering around US$320 a ton, far lower than the US$488 a ton fetched in 2012. Despite heavy taxes, soya is simply is not generating enough revenue to support the latest round of state handouts – and neither are other exports.

The economy is facing a pair of negative effects that compound each other: Argentina is making less money but spending a lot more. On the one hand, fiscal revenues have fell 15% in the first quarter in real terms. On the other, expenses grew more than 25% in real terms in March 2020, compared to a year earlier. The problem is compounded by an expected contraction of the economy by 5.7% in 2020, according to the IMF – in other words, revenues are unlikely to grow in the medium term.

In the second half of March, the budget to ensure minimum nutrition for the population was reinforced with an extra 132% from the pre-coronavirus nominal figure, according to CEPA, an economic consultancy. Food security is a serious concern in Argentina, especially in the slums around the capital of Buenos Aires.

One extra piece of negative information is that President Alberto Fernández has openly spoken about simply printing cash to bolster economic activity. All discussion of flooding the country with new cash ignores predictions from the IMF’s that inflation would exceed 53% for this year.

Finance Minister Martin Guzman is trying to give the country some oxygen by putting off debt payments for at least three years. Bondholders are negotiating, and a final decision is pending but spreads have remained high at above 35%. The spread is the difference between the face-value cost of a bond and what it costs in the actual market. In other words, investors are pricing in yet another default.

“A government that defaults on its debts stops receiving investments,” said Federico Sturzenegger, a former central bank president, in a recent conference. He questioned the current policy of acquiescence to political power, a policy that leaves little room for economic growth and also makes the IMF’s 2021 growth estimate of 4.4% like a very long shot.

For now, Argentina is offering to service interest payments after November 2022 and to return capital on its debts four year later in 2026. The proposed scheme would represent a 62% reduction in interest payments and a 5% contraction in principal payments, according to MHR, an economic consultancy. These discounts would not be applicable to all debt, only to specific dollar-denominated bonds.

The deferment would give Argentina some breathing room and, perhaps, offer a way out of a very challenging outlook for the next few years, a challenging outlook that Covid-19 has made infinitely worse.

29 Comments

  1. My partner and I stumbled over here by a different web address
    and thought I should check things out. I like what I see so
    i am just following you. Look forward to exploring your
    web page again.

  2. Hello there, just became alert to your blog through Google, and found
    that it’s really informative. I am gonna watch out
    for brussels. I will appreciate if you continue this in future.
    Many people will be benefited from your writing. Cheers!

  3. Hey there! Do you know if they make any plugins to assist
    with SEO? I’m trying to get my blog to rank for some targeted keywords but I’m not seeing very good gains.
    If you know of any please share. Appreciate it!

  4. My developer is trying to persuade me to move to .net from PHP.
    I have always disliked the idea because of the costs.
    But he’s tryiong none the less. I’ve been using WordPress on several websites for about a year and am worried about switching to another platform.
    I have heard good things about blogengine.net.
    Is there a way I can transfer all my wordpress posts into it?
    Any help would be really appreciated!

  5. It’s a pity you don’t have a donate button! I’d without a doubt donate to this
    outstanding blog! I guess for now i’ll settle for book-marking and adding
    your RSS feed to my Google account. I look
    forward to brand new updates and will share this site with my Facebook group.

    Talk soon!

  6. Howdy just wanted to give you a brief heads up and let
    you know a few of the pictures aren’t loading correctly.
    I’m not sure why but I think its a linking issue. I’ve tried it in two different
    browsers and both show the same outcome.

  7. I needed to thank you for this wonderful read!! I absolutely enjoyed every little bit of it.
    I’ve got you bookmarked to check out new things you post…

  8. free dating sites
    I have been surfing online more than 4 hours today, yet
    I never found any interesting article like yours. It’s pretty worth enough for me.
    Personally, if all website owners and bloggers made good content as you did,
    the net will be a lot more useful than ever before. free dating sites

  9. scoliosis
    Hi, every time i used to check web site posts here early in the dawn, because
    i enjoy to find out more and more. scoliosis

  10. scoliosis
    It’s appropriate time to make some plans for the future and it’s
    time to be happy. I have read this post and if I could I want
    to suggest you few interesting things or advice. Maybe you can write next articles referring to this article.
    I wish to read even more things about it! scoliosis

  11. scoliosis
    I am not sure where you are getting your info, but good topic.

    I needs to spend some time learning more or understanding more.
    Thanks for fantastic info I was looking for this info for my mission. scoliosis

  12. I¦ve read a few excellent stuff here. Definitely price bookmarking for revisiting. I surprise how much effort you put to make any such fantastic informative site.

  13. This is a really good tip particularly to those new to the
    blogosphere. Short but very accurate info… Thanks for sharing this one.

    A must read article!

  14. Heya i am for the first time here. I came across this board and I find It truly
    helpful & it helped me out a lot. I hope to
    offer one thing back and help others like you helped me.

  15. I am sure this piece of writing has touched all
    the internet users, its really really good paragraph on building up
    new web site.

  16. Thanks for the marvelous posting! I quite enjoyed reading it,
    you might be a great author.I will always bookmark your blog and will
    come back in the future. I want to encourage one to continue your great job, have a
    nice evening!

  17. If some one needs to be updated with most up-to-date technologies therefore
    he must be go to see this website and be up to date
    everyday.

  18. It’s amazing to pay a quick visit this web site and reading the views of all colleagues about this article, while I am also zealous of getting familiarity.

  19. May I just say what a relief to discover someone who truly knows what
    they are discussing over the internet. You certainly understand how
    to bring a problem to light and make it important. More and more people need to check this out
    and understand this side of your story. I
    can’t believe you’re not more popular since you definitely possess the gift.
    asmr 0mniartist

  20. Hey there would you mind letting me know which hosting company you’re utilizing?
    I’ve loaded your blog in 3 different internet browsers and I must say this blog
    loads a lot faster then most. Can you suggest a good hosting provider at a reasonable price?

    Cheers, I appreciate it! asmr 0mniartist

  21. hi!,I really like your writing very a lot! proportion we keep up a correspondence extra approximately your post on AOL?
    I require an expert on this space to unravel my problem.
    May be that’s you! Having a look forward to see you. asmr 0mniartist

Leave a Reply

Your email address will not be published.