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It is known that Argentina is going through another economic crisis, similar to the previous ones and, at the same time, with distinctive features. The fall in activity began in the second quarter of 2018, when an inflationary and exchange rate jump was evident from May of that year.
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The present it accumulates nine consecutive quarters of year-on-year decline, from the second quarter of 2018 to the second quarter of 2020. It is likely to extend three more quarters, if the long-awaited rebound in GDP occurs in 2021, when the activity data is compared with the floor experienced these days by the isolation measures.
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In such case, Argentina will be transiting thesecond deepest economic crisis in its history, after 2001-2002, It began in the fourth quarter of 1998 and lasted for 17 quarters, until the end of 2002. In total, GDP contracted by 20% accumulated in just over four years.
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If the projections of a 10% drop in GDP in 2020 (the IMF forecasts a drop of 9.9% in the year), the current crisis would accumulate a drop of close to 15% in three years.
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With this trend, the recession would be greater than that of hyperinflation, for nine consecutive quarters and a cumulative drop of 14% between the second quarter of 1988 and the second of 1990, and also higher than that of 2009 due to the global financial crisis, which involved four quarters from the fourth of 2008 (-6%), and had a strong and fast exit with a rebound of 10% of GDP in 2010.
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Analysts’ view of the situation
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Ramiro Castiñeira, director of Econometric, expressed to Infobae: “COVID-19 impacts all countries. For those who managed to strike a balance between attacking the virus with confinement, but allowing the economy to flow, they will see falls of 5% of GDP this year. In those countries that were the epicenter of infections, such as Italy and Spain, the Product fall will be more than 10%. Argentina is getting into that sack without wanting to. A balance should be sought between health and economy, because all countries are going to have deaths and a drop in GDP. Argentina is going to have a collapse economic, similar to that recorded by those countries that were the center of contagion”.
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“In what is year-on-year variation, 2020 could be the biggest drop in the economy in a single year, although it must be borne in mind that the impact of the 2001-2002 crisis was much greater than the present one. Then the percentage drop in GDP was similar, but accompanied by a devaluation that multiplied the value of the dollar by four. Suffice it to remember that in 2020 the average salary is falling to a level of USD 400, but in 2001 it was much lower. Minimum pensions in 2002 fell to $ 50, while now even measured by the parallel exchange rate are around $ 150. The crisis of 2001 pulverized everything, I do not think we will see that poverty, real loss of wages and currency devaluation escalate as they did then ”, pointed out the expert from Econétrica.
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Rebound expected for 2021
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Ramiro Castiñeira affirmed that “next year it will be a rebound if one takes into account that there is a quarantine in this and under the premise that there will not be one in 2021. But there will not be a later level of activity such as the that was registered prior to the COVID-19 crisis. Recovering the level of early 2020 will require more than two years of recovery. I think the government of Alberto Fernández will go through the entire mandate to return to the GDP level of when he assumed”.
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Rodrigo Álvarez, director of the consulting firm Analytica, also considered that “Next year there will be a technical rebound, the issue is that we have not yet found the floor of the fall. The economy will naturally bounce a couple of points, but the process of recovering the previous activity level will be very slow. It impacts depth, but also speed, which will not give companies and families time to adapt to this destruction of wealth. A good part of the capital is used to survive these months and it will not be available to take workers and invest when the confinement passes, so recovering the pre-crisis activity is complex ”.
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“For all this, to recover the normal flow, deteriorated by inflation, and attend to debts with that normal flow, we see a scenario in which the economy is going to taxi to take off, but that taxi is very slow. The economy has to find a floor first and then start to recover. That is the technical recovery with factories that begin to produce and resume activity from a paralysis with 60% of idle capacity. But the second phase, to reach pre-confinement levels, is much more difficult, “said Rodrigo Álvarez.
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For Diego Coatz, Chief Economist of the Argentine Industrial Union (UIA), “In May and so far in June, a certain reopening of companies has already begun, always with a minimum allocation, affected by preventive protocols and very low demand. The industry already operates more normally in inland areas, but still with low demand and consumption. This crisis is unprecedented for Argentina because it is affecting both supply and demand. “
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The quarantine questioned
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The Economist Diego Giacomini, director of Economy & Regions, declared himself “very critical of the extent of the confinement” and stated that “Compulsory quarantine is criminal, against the natural rights of the human being and primary private property, which is his body, his energy and his work force, that is, the inherent rights to achieve their ends, to survive first, to live, to progress and to develop. The vision of protecting health falls, because it does the opposite of what it proclaims, it ends up threatening life itself. They also speak of essential activities, but this is defined from the individual, not from the State. For an actor, acting is essential, that’s what he lives on. Wanting to define essentiality from the collective is a mistake. “
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“This quarantine makes a moral and ethical mistake: it creates two castes of individuals, from different positions before the law. We all stop being equal before the law. There are the politicians, those in the media, those who perform essential tasks, and all the rest. This is very serious ”, argued Giacomini.
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“Economically, Argentina cannot do what other countries do, which make a mix of debt and monetary issue, as in the US and Europe. There they came to the rescue with active fiscal policies, they issue debt. People, when risk aversion increases, take refuge in US or German Treasury bonds. So, Expansive fiscal policy is financed at very low cost. Argentina is in default and cannot finance itself. In developed countries people also take refuge in money, they can issue without generating inflation because demand grows. But there is no country with a greater rejection of the currency than in Argentina, ”said Diego Giacomini.
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In other words, Argentina cannot carry out an assistance program with fiscal policy because it cannot issue debt or currency. However, it does and breaks records, with the longest quarantine in the world. Most of the money issued is still in the banks and the speed of circulation of the money plummeted, “warned Giacomini.
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Aldo Abram, director of the Fundación Libertad y Progreso, contributed: “other countries in the region have managed fiscally prudently in the past, in an austere way, had savings and availability of credit, such as Peru and Paraguay that issued debt for less than a 5% rate They may face the costs of a quarantine in which much production is lost. But Argentina, due to its history of waste of decades, is not in that circumstance, nor can it have the Central Bank to finance itself, because it does not have a stable and reliable currency. We have dedicated ourselves to defrauding the Argentineans from the Central Bank with our currency and today, who have to issue, nobody wants the currency and the value of the peso is being destroyed. ”
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An economist who holds a management position in a public bank referred to Infobae which is “obvious that as isolation and quarantine continue, at the same time there is going to be a brake on demand and supply which generates the contraction of GDP due to a factor that must be taken into account that it is not economic, such as the spread of the coronavirus ”.
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“Argentina has fewer tools than neighboring countries to stimulate activity, therefore the effect of the quarantine in Argentina could be more profound, but it must also be considered that the local economy has come from a recession since before the outbreak of the Therefore, the coronavirus starts lower than the rest, and once the confinement has been overcome it will also end lower. In this case, comparing Argentina’s economic contraction with other countries in the region is incorrect without assuming our lowest starting point ”, observed the official, who recalled that “In the short term it can help to reach an agreement with creditors of debt, although solving this problem is a necessary but not sufficient condition for a rapid economic recovery ”.
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