People protest in Buenos Aires, Argentina last month against President Mauricio Macri’s economic policies. RONALDO SCHEMIDT/AFP
Despite a history of many International Monetary Fund (IMF) rescue programmes, Argentina once again faces a deepening financial crisis, raising questions about whether the Washington-based lender made a mistake in its dealings with Latin America’s third largest economy.
The IMF, which last year approved a record $57 billion loan for Argentina in exchange for sweeping economic reforms, is in the eye of the storm after President Mauricio Macri suffered a crushing defeat in the August 11 primary elections.
The victory of Peronist candidate Alberto Fernandez put Macri’s reelection in serious jeopardy, and threw financial markets into turmoil, worsening the already grim economic outlook.
Macri requested a loan from the IMF in April last year after a run on the currency weakened the peso and worsened the ongoing financial downturn.
Despite early signs the reforms he implemented were stabilising the economy – and amid the optimistic analysis from the IMF – prices soared and job losses accelerated, sparking outrage and protests in a country with a long, fraught history with the fund.
Argentina has one of the highest inflation rates in the world at 55 per cent, while unemployment has risen to 10.1 per cent this year and a third of the population lives in poverty.
“Everyone involved really, really should have known better,” Nobel Prize-winning economist Paul Krugman said on Twitter in a thread he titled Crying for Argentina.
He accused Macri of shying away from necessary steps for fear of the political blowback, saying he was “unwilling to take the heat for large budget cuts”.
Macri’s reluctance may have been understandable, given the antagonism towards the IMF and its austerity requirements, even though the fund this time has insisted on protecting spending for social programmes.
“Macri either couldn’t or wouldn’t bite the bullet,” Krugman tweeted, deploring the increase in foreign debt.
Official data show the external debt, largely denominated in US dollars, rose to 88.5 per cent of gross domestic product this year from 52.6 per cent in 2015.
Krugman also questioned the IMF’s continued willingness to provide financing in the country’s repeated economic crises.
“What’s striking . . . is that this is incredibly close to the script from 1998-2001,” Krugman tweeted. The current episode features “similar policy mistakes, and similar enabling of those mistakes by the IMF”.
