Edit: Noha copper
direct: Egyptian economist Mohamed El-Erian said that investors and economic observers started to launch the same questions that he asked 18 years ago regarding “who lost Argentina?”
Al-Arian said in an article published by “Project Syndicate” that at the end of 2001, Argentina was in the grip of the accusations game, shortly before it was involved in a state of default and a deep recession to suffer from a permanent blow in its international credibility.
This time, many of the contestants will return to playing the role of victims and the accused, but new people will join them, and whether or not they all re-create an avoidable tragedy.
How did the situation in Argentina deteriorate?
After the bad initial election results, the President of Argentina found himself running for a new term in office under financial and economic conditions that he had promised would never come back.
Argentina recently implemented controls on capital movement He announced a restructuring of debt payments.
Moody’s has tended to lower Argentina’s sovereign credit rating to a more non-investment grade “scrap,” while Standard & Poor’s has downgraded the rating to “Selective default on debt repayment.”
The country is heading towards a deep economic recession, along with a very high rate of inflation, so that increasing poverty is a certainty after that.
It was not until 4 years after Mauricio Macri assumed the presidency of Argentina until he began to pursue a reform agenda that was widely praised by the International Monetary Fund, but since then the country has been embroiled in difficulties and has become a recipient of record support from the International Monetary Fund.
What past mistakes has Argentina been involved in again?
Argentina fell into crisis again for a simple reason That is, the state has not changed enough since the last collapse, and therefore its economy and financial conditions remained vulnerable to both internal and external shocks.
In spite of the commitment of the financial and economic authorities in Argentina to achieve an ambitious reform program, they also made many mistakes that could have been avoided, and among those mistakes are the implementation of structural and financial reforms in a uneven manner, and the central bank wasted its credibility in important moments.
To get more into the topic, the Argentine authorities have succumbed to the same temptations that their predecessors stumbled.
Huge foreign debt .. In an attempt to compensate for the slower-than-expected progress, the authorities allowed an excessive escalation of debt in foreign currency, exacerbating what economists call the “original sin” of “a significant currency mismatch between assets and liabilities, as well as between revenue and debt service.”
The worst thing is that these bonds were invested not only by investors with experience in emerging markets but also by the so-called “tourist investors” who seek quick returns higher than the ones in their countries.
The latter type is flawed by the lack of sufficient knowledge of the class of assets that it is involved in, and consequently, a crunch that contributes to price excesses, whether on the way up or in the way down.
Market frenzy .. Investors ignored the fact that Argentina’s history was not without chronic fluctuations and the absence of occasional liquidity, which includes 8 cases of default, and strongly demanded any debt issued by the government or companies, including 100-year bonds that collected $ 2.75 billion with a return of only 7.9 percent.
The actions of the investors paid the bond yields of the Argentine bonds less than the financial, economic and liquidity conditions required, which encouraged Argentinian entities to issue more bonds despite the weak foundations.
Loose monetary policies – such as very low or negative interest rates such as the European Central Bank and monetary easing programs in developed countries – have encouraged investors’ growing tendency to seek higher returns.
Consequently, important statutory central banks such as the European Central Bank or the Federal Reserve and the Bank of Japan are the latest players in the old Argentine accusations game.
Moreover, due to years of strong support from the central bank for asset markets, investors expect sufficient and predictable liquidity to compensate for all types of individual credit weakness.
This phenomenon is exacerbated by the spread of negative investment, with the majority of indicators favoring prominent market values, with the fact that the more debt issued by emerging markets such as Argentina, the greater their relative weight in many indicators.
The IMF has a footprint .. Then comes the International Monetary Fund, which quickly stepped in again to help Argentina when domestic policy delays made investors more volatile in 2018.
So far, Argentina has received 44 billion dollars in the largest bailout package provided by the International Monetary Fund in its history.
However, from day one, the Fund’s program faced criticism for its assumptions about the aspects of growth in Argentina and its path to long-term financial availability.
As it happens, the same issues that thwarted previous efforts by the International Monetary Fund to Argentina are back.
As is the case in Agatha Christie’s novel “A Crime on the East Train”, everyone has had a hand in the ongoing economic and financial crisis in Argentina, and all of them have also been victims with suffering from reputations and in some cases financial losses.
However, these costs are limited compared to what the Argentine people will face if their government does not move quickly in cooperation with private creditors and the International Monetary Fund to fix the economic and financial decline.
So what is the solution?
And whoever will prevail in the presidential elections next month, the Argentine government must reject the idea that its only option is to accept or reject all the demands of the IMF and external creditors.
Like Brazil during the reign of President Luiz Ansio Lula da Silva in 2002, Argentina needs to start on a third path by developing a homegrown adjustment and reform program focusing more on protecting the most vulnerable segments of society.
Given the slowing global economy and the high risk of global financial volatility, there is no time to waste.
Everyone with an interest in Argentina has a role to play in preventing the recession and the default that the country suffered from at the beginning of the 21st century.
Managing a local economic recovery will not be easy, but achievable and considered many better alternatives.
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