78
Argentina The economy is in recession against the background of internal and external imbalances. Uncertainty about future policy priorities has triggered capital outflows and a strong currency depreciation. The resulting liquidity challenges have led to a re-profiling of short-term debt and the reinstatement of currency controls. Recent volatility is weighing on growth and increasing unemployment. Monetary policy will need to remain tight to reduce inflation, which currently exceeds 50%. Strengthening the independence of the central bank would make monetary policy more effective. Reducing the fiscal deficit will be key to lowering public debt, but preserving the real value of well-targeted social benefits remains important to cushion the impact of the recession on vulnerable groups. Reforms of taxes, regulations and administrative procedures could boost productivity. Lower trade barriers, including a phase-out of export taxes as scheduled, are key to foster a stronger integration into the global economy. The economy is in recession and policy uncertainty is high Following improvements in activity and a stabilisation of the exchange rate, policy uncertainty spiked after the August primary elections. Market demand for Argentine assets dropped sharply, triggering a currency depreciation that further added to high inflation. Access to new market funding dried up in late August and the authorities decided to change the payment schedule on some short-term public bonds. Public debt is highly sensitive to exchange rate movements as over 75% of it is denominated in foreign currency. Currency restrictions, which has been abolished in late 2015, have been reinstated and a parallel exchange market has emerged. Disruptions in payment chains have led to stalling investment, while rising inflation has reduced household purchasing power. Following general elections in October, a new administration will take over in early December. Unemployment has risen since mid-2018. Recent improvements in the current account are likely to continue.
Argentina Perceived risks of Argentinian assets have spiked
The currency has depreciated sharply
EMBI+ Argentina - blended spread¹
Inverted scale
Basis points 2600
ARS per USD 15
2400
20
2200
25
2000
30
1800 1600
35
1400
40
1200
45
1000
50
800
55
600
60
400 200
2018
2019
0
0
2018
2019
65
1. “EMBI + Argentina – blended spread” shows the yield difference over US Treasuries of a JPMorgan Argentina bond index (EMBI), including any credit enhancements such as principal and/or interest collateral. Source: INDEC; CEIC; and Refinitiv. StatLink 2 https://doi.org/10.1787/888934044974
OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 2: PRELIMINARY VERSION © OECD 2019