Argentina’s economy has tied itself into a Gordian knot. Undo the FX regulations and inflation, and its hard currency debt surges. Increase real interest rates to counter inflation and you knock the economy back into recession. Tackle fiscal deficits – delivered to the economy in terms of public subsidies – and prices and inflation rise again, and the government quickly loses the popular and legislative support it needs to manage the economy.
Argentine governments tend to stress gradual change, but are then exposed to the vagaries of luck over domestic and external variables. And Argentina hasn’t earned the right to be lucky. Move more quickly, however, and we’re back to the inability to maintain governability and implement its economic plans. That’s if the government has a plan at all: something today’s administration has singularly failed to articulate.
One problem is that, as one senior banker puts it: “We don’t have a currency. With inflation at 50%, the peso isn’t a legitimate store of value.” That’s one of the main reasons why credit-to-GDP is at an all-time low – even for Argentina – at around 12.5%.