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The Trouble with Argentina

Although Argentina benefited somewhat from the pandemic-driven shift in global demand toward physical goods, its recovery has hardly been strong enough to offset other deficiencies. With inflation high and the real interest rate on its debt exceeding its trend real GDP growth, the country is still heading for a cliff.

NEW YORK – In a recent commentary, Joseph E. Stiglitz describes Argentina’s recovery in 2021 as a “COVID Miracle.” Yet in our view, the country is heading for another economic disaster.

Consider Argentina’s recent economic history. When President Alberto Fernández took office in December 2019, he inherited a two-year recession and soaring inflation (53.8%) from his predecessor, Mauricio Macri. The pandemic then deepened the Macri recession, and real (inflation-adjusted) GDP fell by 9.9% in 2020. While Argentina’s vast natural resources helped its recovery as the pandemic shifted global demand from services to physical goods, even an estimated 10% real growth rate in 2021 was not enough to restore Argentina’s GDP to its pre-COVID peak in the fourth quarter of 2017.

Moreover, while the COVID recession dampened inflation in the second half of 2020, the recovery drove the annual rate back up to 50.9% by the end of 2021, despite the government’s periodic price freezes and export caps on some meat products and grains. A 50% inflation rate is not economically, socially, or politically sustainable. But reducing it requires monetary and fiscal restraint, which means enduring a period of below-potential growth and higher unemployment.