Before the pandemic, Carla Huanca and her family made modest but meaningful improvements to their cramped apartment in the Buenos Aires slums.
She worked as a hairdresser. Her partner ran the bar in a night club. Together, they brought home about 25,000 pesos ($ 270) a week – enough to add a second story to their home and make extra space for their three boys. They were just about to plaster the walls.
“Then everything closed up,” said Ms. Huanca, 33. “We had nothing left.”
Amid the lockdown, the family needed emergency handouts from the Argentine government to keep the food on the table. You have come to terms with rough walls. They have chosen to use wireless internet service so their children can manage distance learning.
“We have all spent our savings,” said Ms. Huanca.
The global economic devastation that has accompanied Covid-19 has been particularly severe in Argentina, a country that has entered the pandemic deep in crisis. The economy contracted by almost 10 percent in 2020, marking the third year in a row of the recession.
The pandemic has accelerated an exodus of foreign investment, which has depressed the value of the Argentine peso. This has increased the cost of imports such as food and fertilizers and kept the inflation rate above 40 percent. More than four in ten Argentines are plunged into poverty.
Hanging over national life is an inevitable renegotiation later this year with the International Monetary Fund, an institution Argentines widely loathe for bailing out crippling budget cuts two decades ago.
With public finances exhausted from the pandemic, Argentina must work out a new repayment plan for $ 45 billion in debt to the IMF. That burden is the result of the fund’s most recent bailout and the largest in the institute’s history – a $ 57 billion package of loans to Argentina extended in 2018.
Now under new management, the fund has diminished its traditional fear of austerity and alleviated some of the usual fears. Even so, the negotiations are sure to be complex and politically stormy.
The Argentine government, led by President Alberto Fernández, is deeply divided ahead of the mid-term elections in October. The government faces a major challenge from the left. A former president – and current vice president – Cristina Fernández de Kirchner calls for a more combative stance towards the IMF
Companies assume that the government has not developed a strategy that can generate sustainable economic growth. Liberating Argentina from stagnation and inflation is a goal that has eluded the country’s leaders for decades. In a country where its national debt has defaulted no less than nine times, skepticism continues to harm national wealth by limiting investment.
“There is no plan, there is no way forward,” said Miguel Kiguel, a former Argentine finance secretary who heads Econviews, a Buenos Aires-based advisor. “How can you get companies to invest? There is still no trust. “
The Fernandez government is taking advantage of a more cooperative relationship with the IMF and is trying to reach an agreement with the institution that will save the government from penalizing budget cuts and allow it to spend on economic growth.
Such hopes would once have been unrealistic. From Indonesia to Turkey to Argentina, the IMF has forced countries to cut spending amid crises, remove fuel for economic growth and punish those in need of public aid.
Today’s IMF, led by Kristalina Georgieva for the past two years, has eased the institution’s traditional obsession with budget discipline. She has called on governments to impose property taxes to help finance the cost of the pandemic – a measure Argentina passed late last year.
The Fund’s analysis of Argentina’s debt picture and the conclusion that the burden was unsustainable formed the basis for an agreement with international creditors last year. Investors eventually agreed to write down the value of approximately $ 66 billion worth of bonds to overcome opposition from the world’s largest wealth manager BlackRock.
The Argentine government believes it can close a deal from the fund that will allow the country to move its debt significantly and free up impending payments – $ 3.8 billion this year and more than $ 18 billion – dollars next year – with no strict requirements that it cut spending.
“The IMF leadership has made it clear that this is the framework,” said Joseph E. Stiglitz, Nobel Laureate from Columbia University in New York. The new regime will reflect “the new IMF,” he added, “recognizing that austerity measures are not working and recognizing their concerns about poverty. “
The expected flexibility of the IMF vis-à-vis Argentina reflects the increasing trust in President Fernández and his Minister of Economics, Martin Guzmán, who studied with Mr. Stiglitz.
April 19, 2021, 5:00 p.m. ET
On the surface, its management represents a return to the thinking that has animated public life in Argentina since the 1940s under the leadership of Juan Domingo Perón. His presidency was characterized by muscular state authority, public generosity for the poor, and contempt for budgetary considerations.
Peronist politicians have repeatedly showered aid to struggling communities and been forgotten by paying the bills in pesos. This has often led to runaway inflation, crisis and despair. Reformists have temporarily taken power with mandates to restore the financial regulation by cutting public spending. This made the poor angry and laid the foundation for the next upswing of the Peronists.
The last president, Mauricio Macri, took office as the supposed solution to this cycle of booms and busts. International investors celebrated him as a pioneer of a new, technocratic governance approach.
But Mr Macri went over the top by taking advantage of his popularity with investors. He borrowed profusely, despite fighting the poor by cutting government programs. Its debt frenzy, coupled with yet another recession, forced the country to submit to the ultimate humiliation and seek help from the IMF.
In the elections two years ago, voters rejected Mr. Macri and installed Mr. Fernandez – a Peronist. Some suggested that Mr Fernandez might take a tough stance on creditors, including the IMF. However, the Fernandez administration has shown itself to be pragmatic, gaining the trust of the IMF while maintaining aid to the poor.
“We have to avoid following the patterns of the past that have caused so much damage,” said Minister of Economic Affairs Guzmán in an interview. “We want to be constructive and solve these problems in a way that works.”
The most damaging problem remains inflation, a reality that is attacking businesses and households and adding to the burden of higher food prices on the poor.
In large economies like the United States, central banks traditionally respond to inflation by raising interest rates. However, this wipes out economic growth – not a tenable proposition in Argentina, where the central bank is already keeping interest rates at the stultifying level of 38 percent.
Instead, Mr Guzman has pressured unions to accept meager wage increases, arguing that smaller paychecks will go on if inflation can be tamed. He introduced price controls on food and urged other companies to maintain lower prices on their products.
The government has also raised taxes on exports, angering ranchers and farmers.
“They spend more time filling out government tables than producing,” complained Martín Palazón, a farmer who grows soybeans, corn and wheat and also raises cattle outside of Buenos Aires.
However, the lawsuits from Argentine companies and the mounting burdens on the poor coincide with the fact that the country’s prospects are already improving.
The Argentine economy is expected to grow nearly 7 percent this year as soybean exports generate growth while high commodity prices give the country a necessary source of hard currency.
Many Argentine companies remain doubtful that the recovery can gain momentum, especially as the central bank maintains high interest rates.
Edelflex, a company based outside of Buenos Aires, develops liquid management equipment used by breweries, food processors, and pharmaceutical manufacturers. High borrowing costs have prevented the company from making improvements to its assets that could lead to additional growth, said company president Miguel Harutiunian.
“We are inevitably short-term and we cannot invest in new technology,” said Harutiunian. “The ultimate goal of a company – or a country – cannot be just to survive.”
Texcom, a textile manufacturer with three plants in Argentina, produces fabrics for international sporting goods brands. The company stopped production amid a government-mandated quarantine last March. By May, Texcom had reopened and moved to an urgent need: it was supplying materials for protective equipment such as face masks needed by the frontline medical staff.
Even so, the company’s production is down in half compared to 2019 last year, and production is expected to reach just 70 percent of pre-dementic levels this year.
The company’s president, Javier Chornik, is now used to the fact that his wealth rises and falls with the constantly volatile fluctuations in the economy.
“Argentina has been in a maze for years and it can’t get out,” he said. “The country always seems to grow, then there is a crisis and we go back. We go and come back and we never get any further. “
In the slum in southern Buenos Aires, Ms. Huanca’s partner recently reclaimed his old nightclub job, but rising food and fuel prices had effectively reduced her income.
Then came a spate of new Covid cases in their neighborhood. The government imposed new restrictions amid concerns that variants could spread rapidly in neighboring Brazil. Her partner’s employer reduced his working hours and halved his salary.
“I’m scared of what might happen now,” she said. “Everyone is very concerned.”