Argentina was already going through a serious economic crisis when the pandemic began a year ago, making it one of the hardest 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 most undervalued currencies in the world 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 a economic contraction of almost 10%.
The figure is one point less than the drop in the Gross Domestic Product (GDP) that Argentina suffered during the 2001/2002 crisis, 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 40% year-on-year and the peso depreciating almost 30% in 2020 and even more the previous year, it is not difficult to understand why fewer and fewer are making 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 country’s GDP), and was unable to access credit markets, as so many other nations have done to finance the health crisis.
Instead, he has resorted to monetary issue -that is, to print money-, accelerating the inflationary effect.
The Peronist Fernández and his vice president, the former president Cristina Fernández de Kirchner (2007-2015), 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. Prohibition of dismissals
With employment falling in all parts of the world due to the coronavirus and quarantines, the Argentine government took an unusual measure in March 2020, when the pandemic was incipient, to prevent the same from happening in Argentina: it prohibited layoffs.
Through a decree he even prohibited the suspension of workers.
Although the initial measure lasted 60 days, it has been successively extended to this day. The last extension, last January, is valid until the end of April, so the ban will last more than a year.
The government measure 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, as staff represent the main cost to employers.
In the midst of the economic slowdown, with a serious drop in activity in many sectors, prohibiting layoffs left companies with “no room for maneuver,” economist Martin Vauthier, director of the Eco Go consultancy, explained to BBC Mundo.
The expert pointed out that the hardest hit have been small and medium-sized enterprises (SMEs), which generate 75% of employment in the country.
According to a survey carried out 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 2001/2002 crisis.
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This is one of the main reasons why, despite the ban on firing, unemployment increased from 8.9% in 2019 to 11% by the end of 2020.
The figure – equivalent to some 2.2 million people – does not include the almost 800,000 Argentines who directly stopped looking for work, 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 job loss in Argentina “was low relative to other countries.”
Moroni also highlighted that the government assisted some 300,000 companies and 2 million workers through the Emergency Assistance Program for Work and Production (ATP), which subsidized 50% of the salaries of private companies during the strictest stage of mandatory quarantine.
2. Increase in farm fees
This is not the first economic crisis that Alberto Fernández faces.
As Néstor Kirchner’s chief of staff (2003-2007), the current president was a key actor in the recovery that the country experienced after the debacle at the beginning of the century.
And he is convinced that Argentina will stand up again hand in hand with the sector that raised it two decades ago: field.
The depreciation of the peso has made Argentina’s main 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, grain prices have soared again globally, increasing the inflow of foreign currency.
To capitalize on this bonanza, Fernández increased taxes on agricultural exports.
Within days of taking office, he eliminated by decree some tax caps 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 was increased to 33% for large producers.
With these levies, it is estimated that the Argentine treasury will collect this year about $ 8 billion more than last season.
Nevertheless, the subidas 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, she tried to increase the tax on soy exports 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 Vicentin cereal stream. , one of the main agro-export companies in the country, put both sectors on the brink of a clash.
However, the decision of the government of Go backwards With both initiatives, he prevented the conflict from escalating, and the camp suspended its measures of force.
3. Tax on the rich
Another reason for the discomfort of agricultural producers with the government is the so-called Law of Solidarity and Extraordinary Contribution, better known as the extraordinary wealth tax.
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It is a levy proposed by the Executive, and approved by law last January, which rates the patrimonies over 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 happened with other, supposedly temporary, rates that arose during the 2001/2002 emergency 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 among 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 assets abroad.
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For this reason, critics claim that the new tax is “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 wealthiest more, is that it also impacts on productive assets.
“It taxes working capital, exchange goods (sowing, grain stock, property), machinery and all other assets that, as a whole, are the basis of production and development in Argentina,” criticized the Barbechando Foundation. , made up of agro-industrial producers.
The Foundation and various business groups warned that the law “it will increase unemployment and discourage investment”, since it covers all the assets of a person, including their interests in productive companies.
On March 22, 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 courts must 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 then-president Mauricio Macri the largest loan in its history: US $ 57,000 million.
Argentina came to receive US$44.000 millones before the government passed into the hands of Fernández, who gave up receiving the rest of the loan.
Since then, the Minister of the Economy, Martín Guzmán, has been working to restructure the country’s bulky debt, which in total amounts to some US $ 320,000 million.
First, managed to renegotiate with the toughest group: foreign bondholders, many of whom had refused a trade during the Kirchner government.
Paradoxically, the IMF turned out to be a key support for the country in restructuring those $ 65 billion in foreign debt.
Despite the unexpectedly good tune Between the government and “the Fund”, the parties have not yet been able to agree on a formula to return those US $ 44,000 million.
The South American nation intends to extend the payment term beyond the 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 it probable that an agreement, which will surely include the demand for structural reforms, would just be signed after the mid-term legislative elections, in October.
Meanwhile, Argentina has a double relief to make it to the end of the year.
On the one hand, the extra income mentioned above, which will come thanks to the countryside and the wealth tax.
But in addition, the country hopes to receive economic aid from the most unexpected from sources: the IMF itself.
The agency announced that will distribute US $ 650,000 million among its member countries through the so-called special drawing rights (in English: Special Drawing Rights or SDR). It is the largest injection of liquidity in the history of the IMF
Argentina is expected to receive US $ 4,354 million, an amount even higher than the net reserves – that is, freely available – that its Central Bank has.
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