Why Argentina Keeps Finding Itself in a Debt Crisis

Recovered company workers chained to the Central Bank fence in protest against economic crisis
Recovered company workers chained themselves at the Central Bank fence to protest against the economic crisis on 4 September 2019 in Buenos Aires, Argentina. Photographer: Carol Smiljan/NurPhoto via Getty Images

Julian Diaz was all set to expand his restaurant empire in Buenos Aires, adding two new outlets to the three foodie favorites he already runs.

But a recession – yet another one – blew him off course. Instead, the 37-year-old has reduced headcount and put his plans on ice until year-end.

“The hardest part is not knowing what’s next, not being able to think about how you’re going to develop,” says Diaz. “At a business level, it hits your bottom line. But at a personal level it’s just nauseating.”

It’s familiar territory for Argentines: Economic crisis triggered by mounting deficits and debt, and political instability with sharp swings between governments of the right and left. In that climate, as Diaz says, it’s hard to see ahead—one reason the country ranks low on Bloomberg’s index of investment as a driver of development.

How Argentina Scores on The New Economy Forum Drivers and Disrupters Index

Higher score indicates better performance

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Low- and middle-income averages



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Argentina’s President-elect Alberto Fernandez takes the reins December 10 and pledges to resurrect the economy. Still, the populist leader faces competing demands from far-left wings of his broad coalition to increase social spending, while investors want to see him prioritize debt negotiations.

There are widespread market concerns that Fernandez, whose running mate is populist former President Cristina Fernandez de Kirchner, will undo Macri’s pro-market stance.

The current recession began last year. While a severe drought and selloffs across emerging markets played a part, the root cause was a budget deficit that investors hesitated to finance as President Mauricio Macri’s government lost credibility.

South America’s second largest economy is expected to contract for a second year in 2019 and a third in 2020. Inflation is above 50%, and the peso is on track to be the worst performer in emerging markets for the fourth straight year.

An IMF rescue package, backed by the Fund’s biggest-ever loan, failed to stabilize the economy, forcing Macri to defer debt payments and impose capital controls after a shocking primary defeat to Fernandez in August.

Argentina’s economic woes began long before he took office. Since 1950, Argentina has spent 33% of the time in recession, second in the world behind the Democratic Republic of Congo, according to the World Bank.

A cycle has developed in which leaders routinely spend more than the government earns in tax revenue, forcing them to issue bonds that investors eventually sour on. That domino effect often ends with high inflation, recession and, sometimes, a debt crisis. In 2001, Argentina defaulted on $95 billion in sovereign bonds, a record at the time. Bond markets seem to think that another payment crisis is likely soon.

Politically, the country has swung between pro-business governments and more populist ones. That has brought policy reversals that make long-term investment very difficult. Tax laws have been modified 80 times since 1988, while fiscal rules changed 14 times. There have been 61 central bank chiefs in the institution’s 84 years.

The upshot is an economy that doesn’t match the country’s vast natural resources and highly educated population. Macri is just the latest leader to founder after promising to get Argentina back on its feet. Now Fernandez faces the same daunting challenge.