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Updated October 10, 2019
Argentina’s Economic Crisis
Argentina is grappling with a serious economic crisis. Its
current account deficit (a broad measure of the trade
currency, the peso, has lost two-thirds of its value since
balance), which increased from 2.7% of GDP in 2016 to
2018; inflation is hovering around 30%; and since 2015 the
4.8% of GDP in 2017.
economy has contracted by about 4% and its external debt
has increased by 60%. In June 2018, the Argentine
Crisis and Initial Policy Response
government turned to the International Monetary Fund
Argentina’s increasing reliance on external financing to
(IMF) for support and currently has a $57 billion IMF
fund its budget and current account deficits left it
program, the largest program (in dollar terms) in IMF
vulnerable to changes in the cost or availability of
history. Despite these resources, the government in late
financing. Starting in late 2017, a number of factors began
August and early September 2019 postponed payments on
to create problems: the U.S. Federal Reserve (Fed) began
some of its debts and imposed currency controls. The
raising interest rates, reducing investor interest in Argentine
outcome of the presidential election on October 27, 2019,
bonds; the Argentine central bank reset its inflation targets,
which pits current center-right President Mauricio Macri
raising questions about its independence and commitment
against the center-left Peronist ticket of Alberto Fernández
to lower inflation; and the worst drought in Argentina in 50
for president and former President Cristina Fernández de
years hurt commodity yields, significantly eroding
Kirchner for vice president, will shape Argentina’s policy
agricultural export revenue.
response to the economic crisis.
Investors began selling Argentine assets, putting downward
Economic Crisis in Argentina
pressure on the peso (Figure 1). With most of its debt
denominated in dollars, a depreciated peso increased the
Argentina has a long history of economic crises. It has
value of the debt in terms of pesos. To improve investor
defaulted on its external debt (debt held by foreigners) nine
confidence, the central bank and government announced in
times since independence in 1816. Argentina has also
April and May 2018 higher interest rates (to 40%) and
entered into 21 IMF programs since joining the
fiscal reforms to cut the budget deficit. Market volatility
international organization in 1956. The current economic
continued, however, and in June 2018, the Macri
crisis facing Argentina stems from longstanding challenges,
government reached an agreement with the IMF for a three-
as well as more recent developments.
year, $50 billion program. The government received $15
Economic Reforms but Growing Vulnerabilities
billion from the IMF upfront, with the intention to treat the
remainder of the program as precautionary (having the
When President Macri was elected in 2015, he ushered in a
resources available but to not actually to draw on them).
series of economic reforms aimed to address the
unsuccessful economic policies of the previous Kirchner
Figure 1. Value of the Argentine Peso: 2018 to date
governments, which had governed Argentina since 2003.
Pesos per U.S. dol ar
He cut export taxes, lifted currency controls, and resolved a
15-year long dispute with holders of defaulted Argentine
bonds, allowing Argentina to resume access to international
capital markets. The central bank also raised interest rates
to 25% to curb inflation. The economy contracted by 1.8%
in 2016, but resumed growth of 2.9% in 2017.
To maintain political support for the reforms and support
the country’s most vulnerable (one in three Argentines was
living below the official poverty line in 2015), the
government held off on substantial fiscal reforms to address
the budget deficit, 4.3% of GDP in 2014. However, the
Macri government saw borrowing costs rise, as it switched
to traditional borrowing from international capital markets
relative to the Kirchners’ unorthodox financing tools,
including money creation and coercing domestic banks into
Source: Global Financial Data
buying government bonds. The Macri government issued
$56 billion in external debt between January 2016 and June
At the program’s outset, skeptics raised questions about the
2018. Interest payments facing the government caused the
fiscal cuts and growth projections underpinning the
budget deficit to increase to 6.4% of GDP in 2017.
program. Through the program, the government committed
to politically unpopular austerity measures to bring the
Meanwhile, capital inflows into the country to finance the
primary deficit (the government budget, excluding interest
deficit contributed to an overvaluation of the peso, by 10-
payments) into balance by 2020, from 3.8% of GDP in
25%. This overvaluation also exacerbated Argentina’s
2017. The IMF was aware of the potential risks when the
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Argentina’s Economic Crisis
program was approved in June. IMF staff noted in program
reached a record low, and Argentina’s stock markets
documents they could not certify under the baseline forecast
dropped.
scenario with a high probability that Argentina’s debt
would be sustainable. Argentina’s external debt is currently
President Macri subsequently shifted his economic policy
projected to reach $285 billion in 2019, an increase of more
approach. The Economy Minister Nicolas Dujovne, who
than $100 billion since 2015 (Figure 2).
negotiated the IMF deal, resigned on August 17, 2019, and
Figure 2. Argentina’s External Debt
the government rolled out plans for tax breaks, minimum
wage increases, and freezing fuel prices. In late August
2019, the government announced it would postpone $7
billion in payments on short-term local bonds while pushing
for a maturity extension of $50 billion in longer-term debt
mostly held by foreign investors. The government is also
seeking to delay repayment of $44 billion of IMF loans. On
September 1, 2019, the government, unable to stabilize the
peso with high interest rates and sales of foreign exchange
reserves, authorized currency controls. Many of these
policies are at odds with economic policies pursued by
Macri upon his election in 2015.
Economic Implications for the U.S.
U.S. economic exposure to Argentina through direct trade,
investment, and financial channels is relatively limited.
Source: IMF, Argentina: Fourth Review Under the Stand-By Arrangement,
Some U.S. investors, however, could be affected if the
July 2019.
Argentine government seeks to restructure its debt.
Notes: * IMF forecast.
The role of the IMF also has implications for the United
Despite an infusion of funds from the IMF and
States, the IMF’s largest shareholder. Argentina has
commitments on fiscal reforms, the peso continued to
historically been a frequent IMF borrower, and previous
depreciate over subsequent months, and the government
programs have encountered difficulties. Argentina’s default
announced aggressive policies to stabilize the peso. The
in 2001, while on a sizeable IMF program, led the IMF to
central bank raised interest rates to 60% in late August
substantially revise its lending policies. In 2018, the U.S.
2018, the highest in the world, and the government
government strongly supported the IMF program for
Argentina, given President Macri’s demonstrated
committed to hastening the pace of fiscal reforms. President
Macri requested the IMF accelerate disbursements of its
commitment to improving U.S.-Argentine relations and
reforming its economy. U.S. government views, however,
financing. In September 2018, the IMF increased the
could change if Fernández wins the election and takes an
program to $57 billion and agreed to front-load
aggressive position against the IMF.
disbursements of financing, roughly doubling the amount
available in 2018 and 2019.
Oversight Questions for Congress
Developments in 2019
The Macri government made tough policy decisions,
including austerity measures and high interest rates.
The Macri government pursued fiscal reforms, reducing the
What more could or should the Argentine government
budget deficit from 5.3% in 2018 to an estimated 2.5% in
or IMF do to stabilize the economy?
2019, and the IMF disbursed funds to Argentina in March
and July 2018. The current account deficit also narrowed,
Argentina has been on IMF programs for more than half
from 5.2% in 2018 to an estimated 2.0% in 2019. However,
the years it has belonged to the institution. In what ways
Argentina’s economy contracted by 1.2% in 2019, whereas
is the current IMF program similar to and different from
the IMF program initially envisioned a return to growth in
previous IMF programs for Argentina? Should the
2019. Austerity measures and high interest rates likely
United States support an extension of the repayment
contributed to the economic contraction. The peso’s
period for IMF loans to Argentina?
devaluation made it hard to tame inflation, estimated at
Should the IMF have required debt restructuring with
30% in 2019, and increased the real value of Argentina’s
private creditors before extending the program to
debt (mostly denominated in dollars), forecast at 76% of
Argentina? What risks does Argentina’s program pose
GDP in 2019.
to U.S. financial commitments at the IMF?
The austerity measures and lingering recession in Argentina
Are U.S. financial institutions sufficiently capitalized
eroded Macri’s political popularity. In the August 2019
and diversified to withstand a potential debt
primary election (which combined candidates from all
restructuring by Argentina? Which U.S. investors would
parties), Macri lost decisively to the Fernández-Fernández
be affected by an Argentine debt restructuring?
ticket. Fernández has pledged to “rework” Argentina’s IMF
For more on Argentina, see CRS In Focus IF10932,
program if elected; many investors fear that a Fernández-
Argentina: An Overview, by Mark P. Sullivan.
Fernández government would resume the unorthodox
economic policies from the Kirchner years. Following the
Rebecca M. Nelson, Specialist in International Trade and
primary, capital flight from Argentina accelerated, the peso
Finance
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Argentina’s Economic Crisis
IF10991
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