Argentina was already going through a serious economic crisis when the pandemic began a year ago, making it one of the worst hit countries in the world in 2020.
It had been in recession for years and had one of the worst inflation rates and one of the world’s most devalued currencies when the coronavirus hit in March 2020.
The fear of covid – 19 and the prolonged quarantine ordered by the government to try to stop it, caused an economic contraction of almost 10%.
The figure is one point less than the drop in Gross Domestic Product (GDP) that Argentina suffered during the crisis of 2001 / 2002, which until now had been the worst in its history, when more than half of the population fell below the poverty line.
Today more than four out of ten Argentines are poor , according to the Social Observatory of the Argentine Catholic University (UCA).
With prices rising by 40% year-on-year and the peso depreciating almost one 30% in 2019 and even more so in the previous year, it is not difficult to understand why fewer and fewer manage to make ends meet.
President Alberto Fernández, who took office three months before the pandemic began, had to restructure a huge inherited debt (equivalent to 90% of the GDP of the country), and could not access credit markets, as so many other nations have done to finance the health crisis.
Instead, it has resorted to monetary issuance -that is, to printing money -, accelerating the inflationary effect.
Peronist Fernández and his vice president, former president Cristina Fernández de Kirchner (2007 – 2015), they have also applied a series of heterodox measures -some very controversial- to try to alleviate the crisis.
Here we tell you what the main government initiatives have been to try to keep the country afloat and seek an economic rebound.
1. Ban on layoffs
With employment falling in all parts of the world due to the coronavirus and quarantines, the Argentine government took an unusual measure in March of 2020, when the The pandemic was incipient, to prevent the same from happening in Argentina: it prohibited layoffs.
Through a decree it even prohibited the suspension of workers.
Although the initial measurement lasted 60 days has been extended successively to this day. The last extension, last January, is valid until the end of April, so the ban will last more than one year.
The measure of the The government seeks to protect workers, with the intention that they do not lose their sources of income.
However, it has turned out to be a stick in the wheel for companies, since the staff represents the main cost of employers.
Amid the economic slowdown, with a serious drop in activity in many sectors, banning layoffs left women companies without “room for maneuver,” economist Martin Vauthier, director of the Eco Go consultancy, explained to BBC Mundo.
The expert pointed out that the worst hit have been small and medium-sized companies (SMEs ), which generate the 75% of employment in the country.
According to a survey conducted by the Argentine Confederation of Medium Enterprises (CAME), more than 41. 000 SMEs closed their doors in 2020 , twice as many as disappeared during the crisis of 2001 / 2002.
This is one of the main reasons why, despite the ban on firing, unemployment increased by 8.9% in 2019 to the 11% late from 2020.
The amount -equivalent to about 2.2 million people- does not contemplate the almost 800. 000 Argentines who directly stopped seeking employment, among other things due to restrictions on using public transport during the long quarantine.
However, the government has highlighted the effectiveness of the ban.
During a meeting with businessmen at the end of 2020, the Minister of Labor, Claudio Moroni, pointed out that the loss of employment in Argentina “it was low in relation to other countries.”
Moroni also highlighted that the government did not attend one 300. companies and 2 million workers through the Emergency Assistance Program for Work and Production (ATP), which subsidized the 50% of salaries of private companies during the strictest stage of mandatory quarantine.
two. Increase in farm tariffs
This is not the first economic crisis faced by Alberto Fernández.
As chief of staff of Nestor Kirchner (2007 – 2015), the current president was a key actor in the country’s recovery after the debacle at the beginning of the century.
And he is convinced that Argentina will rise again hand in hand with the sector that raised it two decades ago: the field.
The depreciation of the peso has made the main Argentine export goods, such as soybeans, wheat, corn and meat, cheap, making them more attractive.
Luck also seems to be favoring the South American country again: as in 2003, the prices of grains have shot up again at the global level , increasing the entry of d and foreign exchange.
To take advantage of this bonanza, Fernández increased taxes on agricultural exports.
Within days of assuming, he eliminated by decree some tax ceilings imposed by his predecessor, Mauricio Macri, and raised tariffs on wheat and corn again to 12%.
Meanwhile, the sale abroad of the largest export product, soybeans, was taxed with a tax of 30% of its value. In March, the figure increased to 33% for large producers.
With these levies, it is estimated that the Argentine treasury will collect this year some US $ 8. 000 million more than last season.
However, the sub gone strained the relationship between the government and the agricultural sector , generating fears that the confrontations and strikes of the first government of Fernández de Kirchner would be reissued, when, after succeeding her husband in 2007, tried to increase the tas a on soybean export to 35%.
Some subsequent decisions by President Fernández, such as a temporary suspension of corn exports with the intention of lowering the local cost of meat and milk (corn is used as feed for cows), or the threat of expropriating the cereal stream Vicentin, one of the main agro-export companies in the country, put both sectors on the brink of a shock.
However, the government’s decision to back down with both initiatives prevented the conflict from escalating, and the camp suspended its measures of force.
3. Tax on the rich
Another reason for discomfort of agricultural producers with the government is the so-called Solidarity and Extraordinary Contribution Law, better known as the extraordinary tax to wealth.
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Argentina activates the wealth tax to combat the effects of the coronavirus
This is a levy proposed by the Executive, and approved by law last January, which rates the assets higher than the 200 million pesos (about US $ 2 million).
The payment is for a single time, although the detractors assure that it could well be maintained, as has occurred with other rates, supposedly transitory, that arose during the emergency of 1200 / 2002 and remain in force to this day.
The government announced that it expects to raise around US $ 3. 000 million with this exceptional contribution, which applies rates ranging from 2% to 3.5 % for fortunes in the country, and up to 5, 25% for goods abroad.
The money will be used to guarantee the supply of medical supplies, to help small and medium-sized companies, and to finance student scholarships, social development and natural gas projects, something that has been supported by a large sector of the population.
But there are several reasons why this “solidarity contribution” has caused anger and Between large agricultural producers and businessmen.
The first is that Argentina already has a tax to wealth , the so-called Personal Property Tax, which applies rates ranging from 0.5% to 1, 25% for assets in the country and from 0.7% to 2, 25% for goods abroad.
For this reason, critics affirm that the new tax supposes a “double taxation”.
They also consider it “confiscatory”, since both taxes added together can reach 7 , 5%, more than any financial income, forcing some people to have to sell part of their assets.
But the most controversial point of this law, which has been questioned even by some who support The idea of taxing the richest people more is that it also impacts on productive assets .
exchange (sementera, grain stock, hacienda), machinery and all other assets that, as a whole, are the base of production and development of Argentina “, criticized the Fu ndación Barbechando, made up of agro-industrial producers.
The Foundation and various business groups warned that the law “will increase unemployment and discourage investment” , since it covers all the assets of a person, including their participations in productive companies.
The 22 last March a federal judge accepted an injunction presented by an executive who considered that the tax affects his right to property. The magistrate ordered the treasury to refrain from collecting the contribution in that case.
Now the justice will have to define whether the new tax is constitutional or not.
4. Debt negotiation
Beyond managing the economy, one of the keys that Argentina will need to get out of the crisis is to reach an agreement with its main creditor, the International Monetary Fund (IMF).
In 2018 the agency granted the then president Mauricio Macri the largest loan in its history: US $ 57. 000 million.
Argentina received US $ 44. 000 million before the government passed into the hands of Fernández, who withdrew from receiving the rest of the loan.
Since then, the Minister of Economy, Martín Guzmán, has been engaged in restructuring the country’s bulky debt, which in total amounts to about US $ 320. 000 million.
First, managed to renegotiate with the toughest group: foreign bondholders , many of whom had refused a swap during the Kirchner government.
Paradoxically, the IMF turned out to be a key supporter of the country to restructure those US $ 65. 000 millions in foreign debt.
Despite the unexpectedly good harmony between the government and “the Fund”, the parties have not yet managed to agree on a formula to return those US $ 44. 000 millions.
The South American nation intends to extend the payment term beyond 10 years allowed by the Agency’s Extended Facilities Agreement, on the basis that the IMF agreed with Macri an “unpayable” loan .
But the Fund has refused a longer duration, stating that its regulations do not allow it.
Many analysts believe that it is likely that an agreement, which will surely include the demand for structural reforms, It would only be signed after the mid-term legislative elections , in October.
Meanwhile, Argentina has a double relief to reach the end of the year.
On the one hand, the extra income mentioned above, which will come thanks to the countryside and the tax on wealth.
But in addition, the country expects to receive economic aid from the most unexpected of sources: the IMF itself.
The agency announced that will distribute US $ 650. 000 millions among its member countries through so-called special drawing rights (in English: Special Drawing Rights or SDR). This is the largest injection of liquidity in the history of the IMF
Argentina is expected to receive US $ 4. 354 millions, an amount even higher to the net reserves -that is, freely available- that your Central Bank has.
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