Reviews | Argentina’s economic success in the face of Covid-19

While COVID-19 has been tough on everyone, it is not an “equal opportunity” disease. The virus poses a greater threat to those who are already in poor health, many of whom are concentrated in poor countries with weak public health systems. Moreover, not all countries can spend a quarter of their GDP to protect their economy, like the United States has. Developing and emerging economies have faced severe financial and fiscal constraints. And because of vaccine nationalism (hoarding by rich countries), they had to seek out all the doses they could get.

The Fernández government has indicated that it is open to any program that does not compromise economic recovery and increase poverty. While everyone should know by now that austerity is counterproductive, some influential IMF member states can still push for it.

When countries suffer such pain, office holders tend to receive more blame than they deserve. Often the result is more confrontational politics which makes it even more difficult to resolve real issues. But even with the bridge stacked against them, some countries have managed to record strong recoveries.

Take Argentina, which was already in recession when the pandemic hit, in large part due to the economic mismanagement of former President Mauricio Macri. Everyone had seen this film before. A right-wing, business-friendly government had won the confidence of the international financial markets, which duly poured in. But the administration’s policy turned out to be more ideological than pragmatic, serving the rich rather than ordinary citizens.

When these policies inevitably failed, Argentines elected a center-left government that would devote most of its energy to cleaning up the mess, rather than pursuing its own agenda. The resulting disappointment would then pave the way for the election of another right-wing government. Unfortunately, a pattern repeated over and over again.

But there are important differences in the current cycle. The Macri government, elected in 2015, inherited relatively little external debt, due to the restructuring that has already taken place. International financial markets have thus been shown to be even more enthusiastic than usual, lending the government tens of billions of dollars despite the absence of a credible economic program.

Then, when the going got tough – as many observers had predicted – the International Monetary Fund stepped in with its biggest bailout: a $ 57 billion program, of which $ 44 billion was quickly dispersed throughout. what many saw as a bare attempt by the IMF. , under pressure from the administration of US President Donald Trump, to support a right-wing government.

What followed is typical of such political borrowing (as I detailed in my 2002 book, Globalization and Its Discontents). Domestic and foreign financiers have had time to get their money out of the country, leaving Argentine taxpayers to hold the bag. Once again the country was heavily in debt and had nothing to show. And, once again, the IMF’s “program” failed, plunging the economy into a deep downturn, and a new government was elected.

Fortunately, the IMF now recognizes that its program has failed to meet its stated economic goals. The “ex-post evaluation” of the Fund places a large part of the blame on the Macri government, whose “red lines on some policies may have excluded potentially critical measures for the program. These measures included a debt operation and the use of capital flow management measures. . “

Regular IMF apologists will attribute the failure of the program to lack of communication or clumsy implementation. But better communication is not the solution to poor program design. The market understood this, although the US Treasury Department and some members of the IMF did not.

Given the mess that the government of Argentine President Alberto Fernández inherited at the end of 2019, it seems to have achieved an economic miracle. From the third quarter of 2020 to the third quarter of 2021, GDP growth reached 11.9%, and is now estimated at 10% for 2021, almost double the forecast for the United States, while employment and investment returned to higher levels than at the time. Fernandez took office. The country’s public finances have also improved, even with a countercyclical stimulus policy, thanks to strong economic growth, higher and more progressive tax rates on wealth and corporate income, and debt restructuring. from 2020.

There has also been a significant growth in exports, not only in value but also in volume, following the implementation of development policies designed to promote the growth of the market sector. These include credit policy reforms; a reduction in export duties to zero in value-added sectors, coupled with higher rates on commodities; and investments in public infrastructure and research and development (the kinds of policies Bruce Greenwald and I advocate in our book Building a Learning Society).

Despite this significant progress in the real economy, the financial media have chosen to focus entirely on issues such as country risk and the exchange rate differential. But these problems are hardly surprising. Financial markets are watching the mountain of debt provided by the IMF fall due. Given the huge size of the loan that needs to be refinanced, an agreement that simply extends the amortization period from 4.5 to 10 years is barely enough to ease Argentina’s debt worries.

In addition, Argentina is still feeling the effects of the portfolio speculative capital that has poured in under Macri’s presidency. Much of this has been trapped by this government’s capital controls, resulting in constant pressure on the parallel exchange rate.

It will take years to clean up the financial mess of the previous government. The next big challenge is to reach an agreement with the IMF on Macri-era debt. The Fernández government has indicated that it is open to any program that does not compromise economic recovery and increase poverty. While everyone should know by now that austerity is counterproductive, some influential IMF member states can still push for it.

The irony is that the same countries that still insist on the need for “confidence” could undermine confidence in Argentina’s recovery. Will they be ready to accept a program that does not involve austerity? In a world still grappling with COVID-19, no democratic government can and should not agree to such terms.

In recent years, the IMF has gained new respect with its effective responses to global crises, from the pandemic and climate change to inequality and debt. If it were to change course with the old-fashioned austerity demands on Argentina, the consequences for the Fund itself would be serious, including the less willingness of other countries to engage with it. him. This, in turn, could threaten global financial and political stability. In the end, everyone would lose.