Amidst the political turmoil Brazil is going through and the serious crisis that has been dragging on for years in the Venezuela, another Latin American country calls for help: the Argentina.
because of the serious economic crisis in Argentina, the population is suffering important consequences, such as rising inflation, increasing poverty, high unemployment, closing companies and even looting supermarkets.
see more
Scientists use technology to unlock secrets in ancient Egyptian art…
Archaeologists discover stunning Bronze Age tombs in…
Although little discussed in Brazilian vehicles, the problem is serious and has already taken on large proportions. Fearing the impacts of this troubled scenario, important Brazilian companies are already including the risks related to the crisis in their balance sheets.
To understand why Argentina is in crisis, we did a survey of the last few years and the main factors that made the country reach the current situation.
In the midst of coups d'état and authoritarian military governments, for over 50 years Argentina has tried to establish the ideal economic model to be implemented in the country, which is one of the largest producers of world foods.
the conservative Mauricio Macri he was elected in 2015, especially with the mission of solving the country's economic problems. He is one of the richest entrepreneurs in Argentina and was a bet of the population that was unhappy with the position of previous governments.
However, from the beginning, this mission was not easy. He took over the state practically on the brink of recession. Four years ago, Argentina did not record growth, in addition to the fiscal deficit (expenses greater than revenues) and high inflation.
At that time, around 30% of Argentines lived in extreme poverty, unemployment rates were considerable and 40% of employed workers were in the informal market. Unable to put his actions into practice, most of the problems were credited to the former president, Cristina Kirchner.
One of the possibilities, according to the most critical sectors, is that Macri has not been able to deal with the historical reality of high economic spending. There was no improvement in macroeconomic indicators. On the contrary, they are worse off than in the past.
With an upward trend in relation to several currencies, including the real, the skyrocketing dollar is one of the factors that foments the crisis in the country. Since the beginning of the year, the Argentine peso has been seriously devalued.
As a result, in recent months the US currency has risen a lot, so that in May 2018, in a record number, it took 25 pesos to buy U$ 1. Some of the reasons for this to happen, in addition to external pressure, was the country's own economic insecurity, which motivates the increased demand for the dollar.
In August of the same year, in just two days, the Argentine peso accumulated a new historical devaluation against the dollar. In one year, the depreciation of the Argentine currency is already complete 50%.
To solve these problems it is necessary to take into account some points, all of which are extremely complicated. One of the questions is whether or not to maintain the historic fiscal deficit. If you try to put an end to this imbalance gradually, one of the risks is that inflation will get even higher.
On the other hand, if there is an immediate solution, cutting expenses, millions of Argentines will suffer with the measure, since Argentina is one of the most welfare countries in Latin America.
This uncertain scenario and the gradualism in the adjustments, contrary to what Macri expected, scared off investors even more and increased capital flight.
Another important element to understand the Argentine scenario is directly linked to the high dollar. In order to prevent the currency from leaving the country, in early May, in just two days, the Central Bank raised the interest rate twice.
In that period, the Argentine interest rate became the highest in the world, rose from 30.25% per year to 40%. However, that alone was not enough to make investors keep their money in the country. As there is no confidence in the country's economy, the exchange rate continues to skyrocket.
However, in the month of August a new measure was announced, this time raising the interest rate to an unimaginable and record level worldwide, 60% per annum.
In an attempt to contain the rise in the dollar, another measure taken by the Central Bank was the use of the international currency reserve. In practice, dollars were injected into the market because, with the increased availability of the currency, consequently its value over the peso would decrease.
Between March and May 2018, the reduction was almost 10% of the total reserve, around US$ 6 billion, leaving the amount of the Argentine reserve at US$ 56 billion.
The economic chaos meant that Argentina needed to take a drastic measure. A credit line of more than US$30 billion was requested from the International Monetary Fund (IMF).
In June, the country signed a contract with the Fund worth US$ 50 billion. The first installment, in the amount of US$ 15 billion, was released after the signature and the rest of the money was expected for the next three years.
However, at the end of August, the Argentine president announced the closing of an agreement with the IMF for an advance fund, seeking to guarantee compliance with the 2019 financial program.
In order to fulfill its commitments to the Fund, the country is following a rigid adjustment plan. The program, among other things, includes a fiscal deficit target of 2.7% of GDP in 2018 and 1.3% in 2019. This rate surpassed 6% at the end of 2015 and approached 4% at the end of 2017.
Because of all these problems, at the end of July, Macri announced that Argentina's inflation should close the year at 30%, double the forecast in December of last year. One of the purposes of this advance is precisely to reduce inflation, since the established targets are more realistic.
The Argentine economic scenario can cause extremely negative impacts in Brazil. That's because the neighboring country is one of our country's main economic partners.
Furthermore, Argentina is one of the biggest buyers of vehicles manufactured here. And it doesn't stop there, the country is the third largest importer of Brazilian products, behind only China and the United States. The reduction of commercial transactions, in fact, can affect our economy. The reduction of commercial transactions, in fact, can affect our economy.
Moreover, due to the context of crisis, many Argentines should stop looking for tourist destinations, including Brazilian beaches, which are much sought after by their neighbors. This should represent a significant drop in revenues from tourism in the Brazilian northeast.
On the other hand, taking into account this flight of investors from Argentina, foreign bets may find in Brazil and in other neighboring countries, such as Bolivia and Paraguay, new markets a more animator.
However, for this to be consolidated, it is necessary for Brazil to show greater confidence in relation to its economic capacity. Currently, Brazilian economic growth is low and unemployment is high. In addition, the dollar soared against the real, which could generate inflationary pressures.
Even so, the chances that Brazil will experience a crisis similar to Argentina's are very small. Mainly because of the low dollar value of the Brazilian debt and the good international reserves that the country has.
