Argentinian President Mauricio Macri waves as he arrives for the closing of a conference organized by the Argentine Industrial Union EITAN ABRAMOVICH/AFP/Getty Images

Argentina’s Unseen Fragility

With growth fueled by an increase in debt, Argentina is facing an uncertain economic future, despite investors' generally rosy view. The government of Mauricio Macri has options to address the country’s macroeconomic risks, but none of them will be free of tough choices.

NEW YORK – At first glance, Argentina’s macroeconomic outlook appears bright. Growth has rebounded after a period of stagflation; last year, GDP rose 2.9% year on year, while annual inflation fell to 24.8%, from nearly 40% in 2016.

But there are clouds on the horizon. The recent recovery has been fueled by debt, with the current-account deficit in 2017 reaching 4.6% of GDP – equal to 39% of Argentina’s total exports. While Argentina’s external debt remains low overall, its rapid growth is a source of concern. Indeed, for President Mauricio Macri, it represents an economic challenge that cannot be ignored.

To stabilize its external debt, Argentina will need to achieve trade surpluses. The optimal way to do this is by increasing the production of exportable goods, rather than through a recession that depresses imports. But, while the goal may be clear, the capacity of current policies to achieve it is not .