Argentinian Depression

by Serban V.C. Enache

Leaving aside Venezuela for a moment, I thought we’d focus on the situation in Argentina. This article will contain a lot of graphs, so please bear with me. We will look at the symptoms and then formulate a diagnosis.

When looking at the inflation rate, we see that things started going erratic with 2014. And with 2016, it went from bad to worse.

Next, we’ll look at the Unemployment Rate and the Labor Force Participation Rate. These two graphs paint a contradictory picture. The latter went up a bit, which is good, while the former went up as well, which is bad.

How about Industrial Production? Nightmare stats for 2018 and the beginning of 2019.

Let’s get a wider view on Industrial Production. It’s a nightmare.

What about overall capacity utilization? Monstrous.

What about Monetary Policy? The Central Bank’s key interest rate is in the double digits and its highest peak in 2018 was at about 75 percent.

The interbank rate, the rate at which banks lend reserves to each other short-term, is similar to the previous graph, as is normal.

Argentina’s minimum wages graph also sheds important insight, as we see the reactive picture to the economic and financial ailments outlined previously. Labor Unions in Argentina are very powerful, and often strike during negotiations. We see that between 2010 and 2012, and between 2012 and 2014, minimum wage growth follows the same speed, more or less, but it accelerates between 2014 and 2016, and it goes even faster in the next years.

Let’s look at Argentina’s foreign exchange reserves. FX reserves have been going up dramatically compared to the 2014-2016 period. In January this year, Argentina had 60.3 billion US dollars in reserves. This situation is due to the Government obtaining money from the IMF.

Household debt to GDP tells us that from 2017 it started to grow, reaching a peak of almost 7.5 percent of GDP in 2018.

How about gasoline prices? Not what you’d expect. It actually went down by a bit in recent years.

Tax-wise, things have stayed the same. The company tax, the personal income tax, the sales tax, and social security taxes have remained unchanged. Exports remained relatively stable, while imports grew between 2017 and 2018. Argentina’s imports tend to decrease on the heels of each year.

Can’t find faults in the macros here. The Argentinian Domestic Private Sector has been building equity year-after-year since 2011. In 2017, it incurred a slight deficit of 0.9 percent. Unfortunately, the macro numbers for 2018 aren’t available yet.

Was the weather different? If you suspected something like a drought, you nailed it. During the 2017-2018 season, the country experienced drought-level moisture and high temperatures. The national average yield was almost 30 percent worse than in the previous year, with losses calculated at about 3.4 billion dollars.


We have a bad harvest, a collapse in industrial production and overall capacity utilization, rising unemployment, a financial bottleneck due to high interest rate monetary policy, households taking on 2 extra percentage points of GDP in debt, the negative current account almost doubling in size in one year [2017], and the minimum wage rising faster than usual due to the high inflation. Note: changes in the minimum wage impact the entire wage structure at varying degrees according to specific circumstances. Note: we should take the official stats with a grain of salt, particularly the labor figures. My friend from Buenos Aires, Diego Lattes, would be first to say so, and I’d say the same about Romania.

The Government of Mauricio Macri is an outright disaster. Inflation and economic contraction made Macri turn to the IMF. Last year his Government agreed to a 56.3 billion dollar loan, accepting in turn strict [arbitrary] targets set by that vulture institution. Mauricio Macri is center right, so that tells you all you need to know about his policies; ditto if he was center left. I reiterate, Macri’s Government is a disaster. Argentinians should reject his so-called reforms and plan to balance the budget, and should vote him out at the next election. This mess can only get worse with him in office.

Argentina requires investment. And it needed it yesterday. The mainstream media and alternative media, outlets like Zerohedge, all like to invoke the Government printing money and corruption as the cause for Argentina’s ailments. Most countries on earth print money [a crude way of saying they run fiscal deficits]. Most countries on earth are corrupt, including the developed ones, including the super powers. But how did they develop? Surely they didn’t develop by “abolishing” corruption, for lack of a better word. No. They developed through investment, through credit – they didn’t first make the output and then come up with money for it, but vice-versa. Argentina needs better policies and better people in Government.

For more information on the inflation problem, see The Cure For Hyperinflation. Solutions are found at the end of that article.