“We had nothing left”: Argentina’s misery worsens in pandemic
Before the pandemic, Carla Huanca and her family were making small but significant improvements to their cramped apartment in the slums of Buenos Aires.
She worked as a hairdresser. Her partner ran a bar in a nightclub. Together, they brought home about 25,000 pesos ($ 270) per week – enough to add a second story to their house, creating additional space for their three boys. They were about to plaster the walls.
“Then it all closed,” Ms. Huanca, 33, said. “We ended up with nothing.”
Amid the lockdown, she and her family needed emergency documents from the Argentine government to keep food on the table. They have resigned themselves to rough walls. They shelled out for wireless internet service to allow their children to manage distance learning.
“We have spent all our savings,” Ms. Huanca said.
the global economic devastation which accompanied Covid-19 was particularly striking in Argentina, a country which entered the pandemic in the midst of a crisis. His economy fell almost 10% in 2020, the third consecutive year of recession.
The pandemic has accelerated an exodus of foreign investment, which has lowered the value of the Argentine peso. This increased the costs of imports such as food and fertilizers, and kept the inflation rate above 40 percent. More than four in ten Argentines are mired in poverty.
The suspension of national life is an inevitable renegotiation later this year with the International Monetary Fund, an institution Argentines largely hate for imposing crippling fiscal austerity as part of a bailout two decades ago.
With its public finances exhausted by the pandemic, Argentina must work out a new repayment schedule of $ 45 billion in debts to the IMF. loans granted to Argentina in 2018.
Now under new management, the fund has diminished its traditional respect for austerity, easing some of the usual anxiety. Even so, the negotiations are sure to be complex and politically heated.
Argentina’s government, led by President Alberto Fernández, is rife with contention ahead of midterm elections in October. The administration faces a daunting challenge from the left, with former president – and current vice-president – Cristina Fernández de Kirchner demanding a more combative stance with the IMF
Businesses say the government has failed to come up with a strategy that will generate sustained economic growth. Freeing Argentina from stagnation and inflation is a goal that has eluded the country’s leaders for decades. In a country that has defaulted on its sovereign debt no less than nine times, skepticism perpetually drags national fortunes by limiting investment.
“There is no plan. There is no way forward, ”said Miguel Kiguel, a former Argentinian financial secretary who runs Econviews, a consultant based in Buenos Aires. “How to get companies to invest? There is still no trust.
The Fernández administration is banking on the merits of a more cooperative relationship with the IMF, seeking to strike a deal with the institution that avoids the government punishing budget cuts and allows it to spend to promote economic growth.
Such hopes would once have been unrealistic. From Indonesia to Turkey to Argentina, the IMF has forced countries to cut spending amid crises, removing the fuel for economic growth and punishing those who depend on official aid.
But today’s IMF, led for two years by Kristalina Georgieva, has moderated the institution’s traditional obsession with fiscal discipline. She urged governments to collect wealth taxes to finance the costs of the pandemic – a measure Argentina has adopted at the end of last year.
The fund’s analysis of Argentina’s debt situation, and its conclusion that the burden was unsustainable, laid the groundwork for a settlement with international creditors last year. Investors eventually agreed to write down some $ 66 billion worth of bonds, overcoming opposition from the world’s largest asset manager, Black rock.
Argentina’s government is assuming it can secure a deal from the fund that will allow the country to significantly defer debts, offering relief from impending payments – $ 3.8 billion this year and more than $ 18 billion l ‘next year – without strict requirements which he reduced expenses.
“IMF leaders made it clear that this was the framework,” said Joseph E. Stiglitz, Nobel laureate in economics at Columbia University in New York. The new deal will reflect “the new IMF”, he added, “acknowledging that austerity does not work and acknowledging their concerns about poverty.”
The IMF’s expected flexibility with Argentina reflects its growing confidence in President Fernández and his Minister of the Economy, Martin Guzmán, who studied with Mr. Stiglitz.
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On the surface, their administration represents a return to the thinking that has animated Argentinian public life since the 1940s under the leadership of Juan Domingo Perón. His presidency featured muscular state authority, public largesse for the poor, and disregard for budgetary considerations.
Historically, Peronist politicians have given aid to struggling communities and spent in oblivion, paying the bills by printing pesos. This has often produced runaway inflation, crises and despair. Reformists took power intermittently with a mandate to restore fiscal order by cutting public spending. This enraged the poor, laying the groundwork for the next Peronist upsurge.
The last president, Mauricio Macri, took office as the so-called solution to this cycle of booms and recessions. International investors have celebrated him as the vanguard of a new technocratic approach to governance.
But Mr Macri has exaggerated by exploiting his popularity with investors. He borrowed with exuberance, even as he upset the poor with cuts to government programs. Its debt spree combined with yet another recession forced the country to submit to the ultimate humiliation – asking the IMF for a helping hand.
In elections two years ago, voters rejected Mr Macri and installed Mr Fernández, a Peronist. Some have suggested that Fernández might take an acrimonious stance with creditors, including the IMF. But the Fernández administration has been pragmatic, gaining the confidence of the IMF while maintaining aid to the poor.
“We must avoid following the patterns of the past which have caused so much damage,” Economy Minister Guzmán said in an interview. “We want to be constructive and resolve these issues in a way that works.”
The most pernicious problem remains inflation, a reality that besets businesses and households, adding to the pressure exerted on the poor by rising food prices.
In large economies like the United States, central banks typically respond to inflation by raising interest rates. But that stifles economic growth – which is not a tenable proposition in Argentina, where the central bank is already keeping interest rates at the mind-numbing 38% level.
Instead, Guzmán has pressured unions to agree to meager pay increases, arguing that small paychecks will go further if inflation can be brought under control. He imposed price controls on food, while urging other companies to keep prices lower for their products.
The government has also increased taxes on exports, angering cattle ranchers and farmers.
“You spend more time filling out government spreadsheets than producing,” complained Martín Palazón, a farmer who grows soybeans, corn and wheat and raises cattle outside of Buenos Aires.
Still, the lamentations of Argentinian businesses and growing strains on the poor coincide with the reality that the country’s prospects are already improving.
Argentina’s economy is expected to grow nearly 7% this year, with soybean exports driving growth, while high commodity prices give the country a needed source of hard currency.
Many Argentinian companies doubt the recovery can accelerate, especially as the central bank keeps interest rates high.
Edelflex, a company based just outside of Buenos Aires, designs equipment used by breweries, food processors and pharmaceutical manufacturers to handle liquids. High borrowing costs have prevented the company from making improvements to its factories that could generate further growth, said company president Miguel Harutiunian.
“We inevitably take a short-term view and cannot invest in new technologies,” Mr. Harutiunian said. “The end goal of a business – or a country – cannot simply be to survive.”
Texcom, a textile manufacturer with three factories in Argentina, manufactures fabrics for international sporting goods brands. In the midst of a government-mandated quarantine in March of last year, the company halted production. By May, Texcom had reopened and moved to an area of great need: it provided material for protective gear like masks needed by frontline medical staff.
Despite this, the company’s production halved last year compared to 2019, and it expects production this year to return to just 70% of the pre-pandemic level.
The president of the company, Javier Chornik, is now used to seeing his fortune rise and fall with the perpetually volatile fluctuations in the national economy.
“Argentina has been in a maze for years and they cannot get out of it,” he said. “The country always seems to be growing, then there is a crisis, and we are going backwards. We come and go and can never go anywhere.
In the southern Buenos Aires slum, Ms. Huanca’s partner had recently returned to his old job at the nightclub, but rising food and fuel prices had effectively reduced their income.
Then came a wave of new cases of Covid in their neighborhood. The government has imposed further restrictions amid fears of variants rapidly spreading to neighboring countries Brazil. His partner’s employer cut his hours, cutting his salary in half.
“I’m afraid of what might happen now,” she said. “Everyone is very worried. “