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Thursday, May 13, 2021

‘We were left with nothing’: Argentina’s misery deepens in the pandemic

The global economic devastation that has accompanied COVID-19 has been especially stark in Argentina, a country that entered the pandemic deep in crisis. Its economy shrank by nearly 10% in 2020, marking the third straight year of recession.

By: New York Times |
Updated: April 21, 2021 12:17:52 pm
Pedestrians on a shopping street in Buenos Aires on April 12 2021. (Sarah Pabst/The New York Times)

Before the pandemic, Carla Huanca and her family were making modest but meaningful improvements to their cramped apartment in the slums of Buenos Aires, Argentina.

She was working as a hairstylist. Her partner was tending bar at a nightclub. Together, they were bringing home about 25,000 pesos (about $270) a week — enough to add a second story to their home, creating extra space for their three boys. They were about to plaster the walls.

“Then, everything closed,” said Huanca, 33. “We were left with nothing.”

Amid the lockdown, the family needed emergency handouts from the Argentine government to keep food on the table. They resigned themselves to rough walls. They shelled out for wireless internet service to allow their children to manage remote learning.

“We have spent all of our savings,” Huanca said.

The global economic devastation that has accompanied COVID-19 has been especially stark in Argentina, a country that entered the pandemic deep in crisis. Its economy shrank by nearly 10% in 2020, marking the third straight year of recession.

The pandemic has accelerated an exodus of foreign investment, which has pushed down the value of the Argentine peso. That has increased the costs of imports such as food and fertilizer, and kept the inflation rate above 40%. More than 40% of Argentines are mired in poverty.

Hanging over national life is an inevitable renegotiation later this year with the International Monetary Fund, an institution that Argentines widely detest for having imposed crippling budget austerity as part of a rescue package two decades ago.

With its public finances depleted by the pandemic, Argentina must work out a new repayment schedule on $45 billion in debts to the IMF. That burden is the result of the fund’s most recent bailout and the largest in the institution’s history — a $57 billion package of loans extended to Argentina in 2018.

Workers at a Texcom textile factory in Don Torcuato, near Buenos Aires, on April 13, 2021. The company makes fabric for international sporting goods brands, but since May has supplied material for protective gear like face masks. (Sarah Pabst/The New York Times)

Now under new management, the fund has lessened its traditional reverence for austerity, alleviating some of the usual anxiety. Even so, the negotiations are certain to be complex and politically tempestuous.

The Argentine government, led by President Alberto Fernández, is rife with discord before midterm elections in October. The administration faces a stiff challenge from the left, with Cristina Fernández de Kirchner — a former president and current vice president — demanding a more combative stance with the IMF.

Businesses vent that the government has failed to come up with a strategy that can generate sustained economic growth. Liberating Argentina from stagnation and inflation is an objective that has evaded the country’s leaders for decades. In a country that has defaulted on its sovereign debt no fewer than nine times, skepticism perpetually dogs national fortunes by limiting investment.

“There is no plan, there is no path forward,” said Miguel Kiguel, a former Argentine finance secretary who runs Econviews, a Buenos Aires-based consultant. “How can you get companies to invest? There is still no trust.”

The Fernández administration is banking on the merits of a more cooperative relationship with the IMF, seeking to secure a deal with the institution that spares the government punishing budget cuts and allows it to spend to promote economic growth.

Such hopes would have once been unrealistic. From Indonesia to Turkey to Argentina, the IMF has forced countries to slash spending in the midst of crises, removing fuel for economic growth, and punishing those dependent on public relief.

But today’s IMF, led for the past two years by Kristalina Georgieva, has moderated the institution’s traditional obsession with fiscal discipline. She has urged governments to levy wealth taxes to finance the costs of the pandemic — a measure that Argentina adopted late last year.

The fund’s analysis of Argentina’s debt picture, and its conclusion that the burden was not sustainable, set the groundwork for a settlement with international creditors last year. Investors ultimately agreed to write down the value of about $66 billion in bonds, overcoming the opposition of the world’s largest asset manager, BlackRock.

The Argentine government is proceeding on the assumption that it can secure a deal from the fund that will allow the country to significantly postpone its debts, providing relief from looming payments — $3.8 billion this year and more than $18 billion next year — without strict requirements that it cut spending.

“The IMF leadership has made clear that this is the framework,” said Joseph Stiglitz, a Nobel laureate economist at Columbia University in New York. The new arrangement will reflect “the new IMF,” he said, “recognizing that austerity doesn’t work, and recognizing their concerns about poverty.”

Soy beans are harvested from a field in San Pedro, outside Buenos Aires, on April 14, 2021. The Argentinian government has increased taxes on exports, including soybeans, angering cattle ranchers and farmers. (Sarah Pabst/The New York Times)

The IMF’s expected flexibility with Argentina reflects its deepening confidence in Fernández and his economy minister, Martin Guzmán, who studied with Stiglitz.

On the surface, their administration represents a return to the thinking that has animated Argentina’s public life since the 1940s under the leadership of Juan Domingo Perón. His presidency featured muscular state authority, public largesse for the poor and contempt for budgetary considerations.

Peronist politicians ever after have showered aid on struggling communities and spent into oblivion, paying the bills by printing pesos. That has frequently produced runaway inflation, crisis and desperation. Reformists have intermittently taken power with mandates to restore fiscal order by cutting public spending. That has enraged the poor, laying the ground for the next Peronist upsurge.

The previous president, Mauricio Macri, took office as the supposed solution to this cycle of booms and busts. International investors celebrated him as the vanguard of a new, technocratic approach to governance.

But Macri overdid it in exploiting his popularity with investors. He borrowed exuberantly, even as he antagonized the poor with cuts to government programs. His debt binge combined with another recession forced the country to submit to the ultimate humiliation — asking the IMF for a hand.

In elections two years ago, voters rejected Macri and installed Fernández, a Peronist. Some suggested that Fernández might stake out an acrimonious position with creditors, including the IMF. But the Fernández administration has proved pragmatic, winning the confidence of the IMF, while maintaining relief for the poor.

“We have to avoid following the patterns of the past that did so much damage,” Guzmán said in an interview. “We want to be constructive and resolve these problems in a way that works.”

The most pernicious problem remains inflation, a reality that assails businesses and households, adding to the strain on the poor through higher food prices.

In the slum in the southern reaches of Buenos Aires, Huanca’s partner had recently reclaimed his old job at the nightclub, but rising prices for food and fuel had effectively diminished their income.

Then came a surge of new COVID cases in their neighborhood. The government imposed new restrictions amid worries of variants spreading rapidly in neighboring Brazil. Her partner’s employer reduced his hours, cutting his pay in half.

“I’m scared about what could happen now,” she said. “Everyone is very worried.”

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