We have written often about the hole Argentina has dug for itself, with its Peronist redistribution politics. Argentine economist Eduardo Levy Yeyati lays out the dimensions of that dysfunction, in the journal Americas Quarterly.
Argentina this week formally exited the ninth sovereign debt default in its history.
If by 2023 Argentina’s economy is still deteriorating (as it did in the 10 years prior to the pandemic) and the fiscal deficit remains chronic, steep refinancing costs may quickly push the country back into yet another restructuring, and perhaps default number 10.
Out of each 100 working-age people in Argentina, at the end of 2019 roughly 35 were inactive, meaning they weren’t looking for a job. Another six counted as unemployed, 15 labored in the informal sector, 14 were registered as self-employed (mostly subsidized and low-income workers), and 10 were public-sector workers. Only 20 of them were stable workers in private-sector jobs, contributing to a generous social spending and social security system that covers their own benefits as well as those of the remaining 80%.
Right now, the Argentine government is toying with wealth taxes that are in turn already pushing real investors and entrepreneurs to neighboring tax-friendly countries like Uruguay or Paraguay, taking a good number of high-skilled jobs abroad.
Would you invest in or loan money to a country with these characteristics? I would not.
Its demographics suggest a democratic government cannot do what is needed because the overwhelming majority of Argentinians are mostly or entirely reliant on government handouts. They will vote for those who dishonestly promise to magically deliver even more goodies from the already empty larder.
As a tourist in Argentina, I remember our local guide saying he insisted our tour company pay him in U.S. dollars. The local currency was made basically worthless by inflation if not spent immediately.
