But the country’s economic problems run far deeper than circumstantial bad weather. Government interference in the private sector is considerable, in the form of taxes and other restrictions on imports and exports, and multiple exchange rate practices—in March this year the government announced a specific ‘Malbec dollar’ rate for wine and other agriculture products for instance.
This interference, coupled with the lack of an overarching, comprehensive structural reform blueprint—in 2020 the president said in an interview “Frankly, I don’t believe in economic plans”—has sapped investors’ confidence.
The combination of weak confidence in government policymaking and lower inflows of foreign currency due to drought have weighed on the peso in recent months; the official exchange rate is now over ARS 200 per US dollar, compared to just over ARS 100 per US dollar this time last year. The black-market peso is priced at a much higher ARS 460 per US dollar. As a result, inflation is in triple figures and rising. And the central bank has jacked interest rates up to 91% in response, heaping more misery on the economy.
The consensus forecast forewarns the GDP to contract 2% this year, and for inflation to end the year around 110%. These figures are already bad enough, but risks are still stacked to the downside. The drought could intensify. Social unrest may bubble over as economic conditions worsen. And as the October 2023 general election approaches, the government could enact populist measures in a bid to gain public support, putting the country’s IMF deal in jeopardy. Even if the opposition Together for Change coalition wins the elections as expected, recovery will be slow. Economic instability has been a feature of the Argentinian landscape for a century or more; it is likely to remain so for some time.
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