The first round of the upcoming national elections in Argentina will take place on 11th August 2019 with a view to highlighting the new Argentine President who will take the country’s fortunes and its citizens into his own hands. However, there are no created new hopes and expectations for Argentine citizens that Argentina will be able to overcome its chronic financial problems.
by Thanos S. Chonthrogiannis-https://www.liberalglobe.com
The history of Argentinian debt crises
From the 19th century and the first debt crisis that took place in Argentina (1890)-which debt crisis caused the collapse of Argentina by then creating a domino-chain debt crisis (1890-1897) in Australia, the US and then India-until to date, Argentina has entered an endless spiral of debt crisis and economic problems (high inflation and unemployment).
In any case, the first debt crisis in Argentina (1890) was not owed to Argentina. What caused the then debt crisis was the huge trade deficit of the then Great Britain that forced Great Britain gradually to take a long and huge liquidation of its investments abroad with aim to cover its own huge trade deficit.
Much of the economic scarcity that progressively occurred in Argentina, Australia and the US between (1890-1897) came from the withdrawal of English capital in these countries.
Photo by Author: Casa de Moneda, Source: Own work,
licensed Public Domain, https://en.wikipedia.org/wiki/Public_domain
After the end of the WWII (1945) and until today Argentina for almost seventy years has experienced many times the situations of extreme recession in its economy. On the other hand, its political system did not appear to be worthy of the aspirations of Argentine citizens where in some cases reaching the point that the political system of Argentina was characterized as national traitors.
This happened when valuable funds to help support and subsequently develop the Argentine economy which had been given as loans by the IMF, a very large part of them were smuggled abroad and deposited in third party accounts (political persons and members of their families).
The current situation of Argentinian economy
In the current era the currency of Argentina-peso is constantly under pressure. At the same time the Argentine economy is under the supervision of the IMF which IMF has given the Argentine economy injections of liquidity (capital loans) totaling $56 billion.
On the other hand, the drastic increase in the rate of poverty and the small size of consumer spending is not enough to support demand in the economy, with result to constantly create shocks on the side of demand and generate violent situations and an explosive climate in society.
At the same time Argentina is increasing its spending to a greater extent than its revenues, which its revenues are mainly based on its exports of cereals and meat. Argentina’s revenues are in US dollars, forcing in this fiscal and financial management way to accumulate debts of the Argentine central government, which accumulated debts thereafter devalue constantly the value of her currency.
Because of this unchanged deficiency, investors are constantly asking for more and more funds to invest in creating an explosive spiral in the country’s fiscal finances.
The political instability and excessive populism which is used to win the elections are the key causes of the frequent occurrence of big inflation and the disaffection of the national currency.
That is why Argentine citizens themselves do not have confidence in the currency of their country and prefer their savings to be in US dollars, indirectly guaranteeing the stability of the currency value.
More are the deposits in $ US overseas than the deposits in Argentine pesos inside. On the other hand, the IMF loan instalments will be finalised (as a financial support program) in 2020.
The causes of the debt crises and the solution
Argentina’s misfortune boils down, to the state’s administration’s which consumes large proportion of the country’s GDP, the public industrial sector is bankrupt and unable to perform, the Argentine market is too small in order to implement an import substitution strategy, while the Treasury to cover the treasury deficit forces any Argentine government to make uninterrupted money printing that continually increases inflation and public debt.
The only way to escape this vicious circle is Argentina’s total annual expenditure of the Argentine State not to exceed 15% of GDP annually with 4% of GDP being the total annual wage and pension expenditures of the public sector.
At the same time, it should apply equivalent fiscal value measures to the economy that bear the amount of taxation at the level of coverage of this annual 15% of GDP that will absorb as maintenance costs the state.
This will release the healthy forces of entrepreneurship in the sectors of the economy that Argentina has a comparative advantage to produce new wealth that will support its growing currency.
Mauricio Macri advocated a market economy, vigorously addressing populism and his populist political opponent. But the fear of losing victory in the upcoming elections forced him to slide and adopt populist practices, choosing the freeze on electricity bills and food prices.
Thanos S. Chonthrogiannis
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