The harsh warning of the Wall Street Journal about Argentina’s “credibility crisis”

IPROFESSIONAL – In South America – just sending economic aid, according to the author – has little chance of success given the current political scenario in the region.

“Nowhere does this approach have a worse chance of success than in Argentina, where President Alberto Fernández is bringing the country to the ground in the traditional Argentine way. No amount of foreign aid can fix a country where the productive economy has been reduced to a tool to serve the interests of an all-powerful political class, ”says the journalist who writes about the region every Monday.

“Argentines were frustrated by the failure of center-right president Mauricio Macri to deliver on promises of a growth-oriented reform of 2015-19. So they returned the left Peronist populists to power in December 2019. About six months later, Argentina defaulted for the ninth time in its history, the third in 18 years, ”O’Grady recounted. on the The harsh warning from the Wall Street Journal about Argentina’s “credibility crisis”

The insolvency of Argentine economic policy

For the analyst, the Argentine debt saga after the default and restructuring is a sign of the insolvency of economic policy. Debt that, after the swap, began trading at a 10% risk premium rapidly deteriorated to a 13.7 percent premium.

“Normally a restructuring takes some pressure off public finances and renews the government’s access to capital markets. But this has not happened in Argentina because investors understand that if there are no reforms to boost growth, restrict spending and stabilize the peso, the debt burden will only increase, “she said.

“A more optimistic growth outlook would help after a year in which the government imposed a draconian quarantine on COVID-19. That lockdown did not prevent Argentina from registering one of the highest per capita covid death rates in South America. Meanwhile, gross domestic product is expected to decline between 12% and 15% in 2020. “The note argues that Biden’s approach to the relationship with South America has little chance of success. Biden’s relationship with South America has little chance of success

“Argentina’s fiscal deficit for 2020 is estimated at 10% of GDP and the central bank has been making the same old mistake of printing money to finance it. The budget foresees lower inflation for next year, but inflationary expectations appear to be increasing. Aldo Abram, an economist with the Buenos Aires think tank Libertad y Progreso, wrote last month that he expects inflation to be “around 50%, at least” this year as demand for pesos falls and controls unsustainable prices become more “flexible”. The government maintains the official exchange rate artificially high while on the black market the currency is trading at about half that value, “added the harsh article.

“High taxes discourage producers and savers. A 35% export tax, for example, will discourage soybean growers from shipping their grain abroad. A new wealth tax for individuals with more than $ 2.5 million reminds the ambitious that success is punished. The transfer of residence of Internet billionaire Marcos Galperin to Uruguay at the beginning of last year now seems foreseeable: one less canary died in the coal mine, ”the column said.