Argentina: Choosing with your wallet

By Diana Serros

This Sunday, Javier Milei became the president-elect of Argentina and, undoubtedly, the electorate voted with their wallets. This expression refers to the act of total and absolute desperation on the part of the population to get out of the unfavorable economic situation in which they live. This is in spite of the fact that many of Milei's proposals directly violate human rights. It is worth noting that in the last 15 years the Argentine economy has been a complete disaster and, in order to contextualize the situation for the subsequent economic analysis, the three main causes of this economic disaster are presented here (without oversimplifying the problem):

1. Significant fiscal deficits from 2009 to date: For at least 14 years, the populist left has spent irresponsibly, not only because it spends much more than it can finance through its own sources of income, but also because spending has not been accompanied by increases in productivity. In numerical terms, in the last six years the debt-to-income ratio has been around 80%, and over the last decade it has averaged close to 70%. 
2. Lack of commitment to debt restructuring: The Argentine authorities have not assumed the commitments established with their creditors to meet their obligations and, consequently, have had to declare insolvency on several occasions. As a result, the country's credibility has been highly impaired, which in turn has led to restricted access to the international capital market, lack of investment, low productivity and, consequently, practically zero growth and economic development rates. In line with the above, Argentina's relationship with the International Monetary Fund (IMF) has been extremely complex: throughout its history, Argentina has requested 22 support programs, has been the most indebted country to this organization for several years and has generally defaulted on its debt restructuring commitments with the IMF and has also been forced to suspend sovereign debt payments on nine occasions (default). 
3. Lack of autonomy of the Central Bank of Argentina (BCRA): The central bank in Argentina has been subordinated to the decisions and actions of the government, i.e., they have been engaged in printing money to finance excessive and unproductive government spending. Consequently, and unlike other Latin American countries, the BCRA has played a passive role with no real interference in terms of monetary and exchange rate policy.