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Argentina Needs Intensive Care

Argentina's President Mauricio Macri knew that he had inherited a sick economy when he took office in 2015, but failed to take his medicine. As a result, the country now has no choice but to face up to a period of painful structural adjustment.

WASHINGTON, DC – Imagine a man who has lived too extravagantly and eventually must go to the doctor for treatment of an acute disease, along with several other chronic conditions. The doctor prescribes a ten-day course of antibiotics, and advises his patient to start taking better care of himself. After three days of taking the pills and following the doctor’s orders, the man feels much better. But he finds the quiet life painful, so he forgets the medicine and his doctor’s advice and doubles down on debauchery.

For a while, his return to the high life feels great. But, before long, he is back at the doctor, in even worse shape than before. The cycle repeats itself: he takes his medicine for a full week this time, but eventually reverts to his old habits.

Argentina is that man, chronically overspending and over-regulating until it is forced to go to the International Monetary Fund for a new round of treatment. In 2001, the country suffered a major crisis, and had to borrow from abroad to meet government expenditures. With a current-account deficit over 5% of GDP and its currency pegged to the US dollar, its structural policies proved unsustainable. It needed IMF support just to cover its current expenses, and had no resources left for debt service.

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