Question

What is Argentinian greatest weakness to becoming a global economic power in the short term (5 years horizon), 700 words

Answer 1

For several years Argentina has been MMT-style "printing money for the people." Its mistakenly-called "inclusive monetary policy" of past print money to fund huge government spending- has plunged the nation into severe inflation and deflation. That is the key reason why there are inflation rates in the third world in a country with excellent education , human resources and high economic potential. The Argentine economy is more weak and fragile than comparable ones. Argentina, however, is also one of the highest economic potential nations.

Despite the Federal Reserve's dovish policies and the changing direction in the normalization cycle, the Peso is once again the worst-performing currency against the dollar in 2019. The dollar index did not change much against its currency basket, and it was the destructive monetary policy that caused the Peso to crash. A weak currency is a danger to the country's stability and successive governments seem only to want to patch up the central bank's misguided monetary policy. As the reality shows, a stronger Peso will not make Argentina's economy more competitive or produce more.

Governments tend to see high inflation and blame an inexistent foreign enemy rather than avoid funding the unsustainable public expenditure with newly printed currency. The currency's lack of purchasing power is applied to an inflation rate not meant to equate to a nation with Argentina's capacity and human resources. For many years, Argentina has been a country with the promise of a developed economy, and a third-world monetary policy. The MMT recommendations have been followed for years. Some argue that dollarization is worse because it has already been attempted and has contributed to a crisis, but this statement is incorrect. Argentina did not dollarize, it conducted a subterfuge of the exchange rate by adding the Peso to the US dollar with a completely inflated exchange rate that contributed to the accumulation of imbalances.

Argentina's tax wedge is still the largest in the country, and one of the highest in the world for businesses. This relentless wealth expropriation by devaluation of currency, inflation, and taxes acts as a major barrier to foreign investment , development, and job creation. In Argentina one always hears that "tax revenue is low" and that taxes can not therefore be cut. Raising them, however, puts a lid on job creation, productive investment, and capital attraction, and even lower revenues.

Denying the depressive impact of extractive political expenditure in a public spending that already exceeds over 45 per cent of GDP is a problem for a high-potential economy. According to the Inter-American Development Bank, it is not only the largest public expenditure in the world but the most inefficient. Government investment in Argentina's inefficiency hits 7.2 per cent of GDP.

The historic volatility of economic growth and the accumulation of institutional hurdles impeded the development of the country. Human poverty remains high in Argentina, reaching 35.5% of the population, while child poverty falls to 52.3%. The nation has prioritized social spending through numerous schemes to cope with this crisis, including the Universal Child Benefit, a cash transfer system that covers nearly 4 million children and teenagers up to the age of 18, 9.3 percent of the population.

Financial instability in 2018 impacted the country and suggested a revision of the economic plan and the need for an International Monetary Fund ( IMF) programme. This started in 2018, at around US$ 57 billion, with the key goal of stabilizing public finances to reach a primary fiscal balance by the end of 2019.

For three years, the deterioration trend produced between 2012 and 2015 has been reduced but the challenges are significant. One of these is to remove the loopholes of anti-trade and protectionist policies imposed from the short-sighted view that protectionism would replace imports and strengthen the economy while printing money would stimulate production. There are still major recessions of that time that serve as a disincentive to growth and, above all, a message to foreign investors who choose to avoid long-term and capital-intensive investment in Argentina.

It is not easy to reverse the Kirchner era's wrong "neo-keynesian" policies without realizing the massive monetary and fiscal hole generated by the previous government, but if the changes aren't drastic and transparent, Argentina 's economy will remain unstable and more vulnerable to economic cycles than others. Argentina is a large nation with significant monetary and fiscal policies. With such development and job opportunities, it's worth being bold and putting an end to the remains of past misguided policies.