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Updated January 28, 2020
Argentina’s Economic Crisis
Argentina is grappling with a serious economic crisis. Its
Meanwhile, capital inflows into the country to finance the
currency, the peso, has lost two-thirds of its value since
deficit contributed to an overvaluation of the peso, by 10-
2018; inflation is hovering around 30%; and since 2015 the
25%. This overvaluation also exacerbated Argentina’s
economy has contracted by about 4% and its external debt
current account deficit (a broad measure of the trade
has increased by 60%. In June 2018, the Argentine
balance), which increased from 2.7% of GDP in 2016 to
government turned to the International Monetary Fund
4.8% of GDP in 2017.
(IMF) for support and currently has a $57 billion IMF
program, the largest program (in dollar terms) in IMF
Crisis and Initial Policy Response
history. Despite these resources, the government in late
Argentina’s increasing reliance on external financing to
August and early September 2019 postponed payments on
fund its budget and current account deficits left it
some of its debts and imposed currency controls.
vulnerable to changes in the cost or availability of
financing. Starting in late 2017, several factors created
In the October 2019 general election, the center-right
problems for Argentina’s economy: the U.S. Federal
incumbent President Mauricio Macri lost to the center-left
Reserve (Fed) began raising interest rates, reducing investor
Peronist ticket of Alberto Fernández for president and
interest in Argentine bonds; the Argentine central bank
former President Cristina Fernández de Kirchner for vice
reset its inflation targets, raising questions about its
president. The Fernández-Fernández ticket campaigned on
independence and commitment to lower inflation; and the
a reorientation of Argentine economic policies, which could
have implications for Argentina’s recovery from the crisis
worst drought in Argentina in 50 years hurt commodity
yields, significantly eroding agricultural export revenue.
and its IMF program.
Investors began selling Argentine assets, putting downward
Economic Crisis in Argentina
pressure on the peso (Figure 1). With most of its debt
Argentina has a long history of economic crises. It has
denominated in dollars, a depreciated peso increased the
defaulted on its external debt (debt held by foreigners) nine
value of the debt in terms of pesos. To improve investor
times since independence in 1816. Argentina has also
confidence, the central bank and government announced in
entered into 21 IMF programs since joining the
April and May 2018 higher interest rates (to 40%) and
international organization in 1956. The current economic
fiscal reforms to cut the budget deficit. Market volatility
crisis facing Argentina stems from longstanding challenges,
continued, however, and in June 2018, the Macri
as well as more recent developments.
government reached an agreement with the IMF for a three-
year, $50 billion program. The government received $15
Economic Reforms but Growing Vulnerabilities
billion from the IMF upfront, with the intention to treat the
When President Macri was elected in 2015, he ushered in a
remainder of the program as precautionary (having the
series of economic reforms aimed to address the
resources available but to not actually to draw on them).
unsuccessful economic policies of the previous Kirchner
governments, which had governed Argentina since 2003.
Figure 1. Value of the Argentine Peso: 2018 to date
He cut export taxes, lifted currency controls, and resolved a
Pesos per U.S. dol ar
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
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Argentina’s Economic Crisis
primary deficit (the government budget, excluding interest
The government also postponed some debt payments,
payments) into balance by 2020, from 3.8% of GDP in
sought delays in repayments to the IMF, and imposed
2017. The IMF was aware of the potential risks when the
capital controls.
program was approved in June. IMF staff noted in program
Since taking office in December 2019, President Fernández
documents they could not certify under the baseline forecast
has pursued a number of measures that aim to revive the
scenario with a high probability that Argentina’s debt
domestic economy, such as freezing utility tariff prices,
would be sustainable. Argentina’s external debt is currently
reducing medicine prices, increasing worker wages, giving
projected to reach $285 billion in 2019, an increase of more
tax rebates to the most vulnerable members of society, and
than $100 billion since 2015 (Figure 2).
increasing severance pay. To offset the fiscal cost of these
Figure 2. Argentina’s External Debt
reforms, the government enacted a number of tax increases.
The government is also focused on addressing its debt. It
has opened talks with bondholders and other creditors,
including the IMF, to which the Argentine government
owes about $44 billion. The government has set March 31
as a deadline for renegotiating its debt, before large debt
payments fall due between April and July. Debt
negotiations could also be complicated by problems with
debt issued by local governments, particularly Buenos
Aires.
Economic Implications for the U.S.
U.S. economic exposure to Argentina through direct trade,
investment, and financial channels is relatively limited.
Some U.S. investors, however, could be affected if the
Argentine government seeks to restructure its debt. The role
Source: IMF, Argentina: Fourth Review Under the Stand-By Arrangement,
of the IMF also has implications for the United States, the
July 2019.
IMF’s largest shareholder. Argentina has historically been a
Notes: * IMF forecast.
frequent IMF borrower, and previous programs have
Despite an IMF funds and fiscal reforms, the peso
encountered difficulties. Argentina’s default in 2001, while
continued to depreciate over subsequent months. To
on a sizeable IMF program, led the IMF to substantially
stabilize the currency, the central bank raised interest rates
revise its lending policies. In 2018, the U.S. government
to 60% in late August 2018, the highest in the world, and
strongly supported the IMF program for Argentina, given
the government committed to hastening the pace of fiscal
President Macri’s demonstrated commitment to improving
reforms. President Macri requested the IMF accelerate
U.S.-Argentine relations and reforming its economy. U.S.
disbursements of its financing. In September 2018, the IMF
government views, however, could change under President
increased the program to $57 billion and agreed to front-
Fernández, particularly if his government takes an
aggressive position against the IMF.
load disbursements of financing.
Oversight Questions for Congress
Developments in 2019
The Macri government made tough policy decisions,
The Macri government pursued fiscal reforms, reducing the
including austerity measures and high interest rates. Are
budget deficit from 5.3% in 2018 to an estimated 2.5% in
the recent measures by the Fernández government likely
2019, and the IMF disbursed funds to Argentina in March
to address the economic concerns?
and July 2018. The current account deficit also narrowed,
from 5.2% in 2018 to an estimated 2.0% in 2019. However,
Argentina has been on IMF programs for more than half
Argentina’s economy contracted by an estimtaed 1.2% in
the years it has belonged to the institution. In what ways
2019, whereas the IMF program initially envisioned a
is the current IMF program similar to and different from
return to growth in 2019. The peso’s devaluation made it
previous IMF programs for Argentina? Should the
hard to tame inflation, estimated at 30% in 2019, and
United States support an extension of the repayment
increased the real value of Argentina’s debt (mostly
period for IMF loans to Argentina?
denominated in dollars), forecast at 76% of GDP in 2019.
Should the IMF have required debt restructuring with
private creditors before extending the program to
The austerity measures and lingering recession in Argentina
eroded Macri’s politic
Argentina? What risks does Argentina’s program pose
al popularity. In the August 2019
to U.S. financial commitments at the IMF?
primary election (which combined candidates from all
parties), Macri lost decisively to the Fernández-Fernández
Are U.S. financial institutions sufficiently capitalized
ticket, which had pledged to “rework” the IMF program if
and diversified to withstand a potential debt
elected. Following the primary, capital flight from
restructuring by Argentina? Which U.S. investors would
Argentina accelerated, the peso reached a record low, and
be affected by an Argentine debt restructuring?
Argentina’s stock markets dropped.
For more on Argentina, see CRS In Focus IF10932,
Argentina: An Overview, by Mark P. Sullivan.
President Macri subsequently shifted his economic policy
approach. The Economy Minister who negotiated the IMF
Rebecca M. Nelson, Specialist in International Trade and
deal, resigned, and the government rolled out plans for tax
Finance
breaks, minimum wage increases, and freezing fuel prices.
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Argentina’s Economic Crisis
IF10991
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