The situation is far worse than when Menem (a peronist) was also forced into reform. Here we are essentially dealing with a scorched earth.
- The government has killed investor confidence to inject new capital in Argentina.
- The government does not have money - it cannot tax an economy that does not produce and it cannot borrow at this moment, but promisingly it is keen to reach a debt agreement. The only option it has in the meantime is to print money which yes or yes creates inflation which kills the poor.
- There will be mass unemployment. The amount of business closures will only multiply.
- Consumer confidence and capacity is wrecked and will stay wrecked for a long time.
- People are already pissed off with the health situation and running low on patience.
- A brain and capital drain lays ahead once borders reopen - like was seen back in 2002.
- The whole world is also having issues and are increasingly inwardly focused while commodity prices are bottom of the barrel, meaning no external help for poor, indebted and isolationist little Argentina.
How to keep the peace? The only way to make jobs, get people spending and pay for social plans to keep people fed is by having money to spend in the first place. Without this money social unrest will grow, eventually pushing the government up against a wall. Either they:
- Get taken out by angry masses / don't survive the next election doing long lasting damage to their political movement as ironically those who will suffer most from this mess are those who voted for them (with the exception of the political class and public workforce)
- Come up with a "social compromise" (e.g. deep restructuring going back on everything they stand for, its peronism and popularism afterall so ideals don't really mean much in the first place)
- Or in worst case scenario, dig in and go Venezuela / Iran by hijacking the state (least likely in my opinion, as these models have proven time and again to be doomed to failure and only serve to prop up corrupt regimes and limited associated interests that always lead to massive human rights abuses to sustain themselves, which may be too far for Argentine to take - can hardly see the Madres de Plaza del Mayo supporting Chavez/ Maduro style forced disappearances and torture centers, right?)
The following articulates the issues that will affect the economy and the FX rates nicely:
https://www.infobae.com/economia/20...ren-una-economia-como-la-de-iran-o-venezuela/
"
We are in a decay trap. We are trapped and also with very high inflation. In the last 10 years, the annual average inflation was higher than the accumulated average for the same period in Latin American countries"
"
To double per capita income we need 390 years when Colombia needs 39 years. If you look at the last 46 years, in 19 of them GDP per capita fell, that of 2020 is 19% less than that of 2010"
"For this year, Broda calculated that the economy is moving towards a drop in activity of between 12% and 14% of GDP, in addition to moving towards higher inflation rates because
the pandemic found a country without the ability to take out debt to finance itself and only resource is monetary issue by the Central Bank."
“
Argentina is in a decadence trap (of government spending) that it can only escape by copying the successful movements of the world. Everywhere in the world they did orderly macroeconomics.
There are business and union lobbies everywhere, but they were able to do it (...) We will not get out of this with a state structuralist program, which is what we are most likely to do, ”said Broda.
"It is a very, very complicated horizon, this is much greater than the two great recessions we had after the exit of convertibility and the international financial crisis of 2008 and 2009," he said."
"The macroeconomist also referred to the extensive renegotiation of the debt governed by foreign courts,
was optimistic about the possibility of reaching an agreement, but said that while it would be good news, it is not the main problem."
