Home Analysis Argentina’s recovery plans might get deranged

Argentina’s recovery plans might get deranged

by bojan

Although the percentage of the unemployment rate in Argentina is slightly down, the experts claim that it probably happened for the wrong reasons and that it’s still early to pop up the champagne bottle. The decline from 9.3% to 8.7% in the second quarter last year did not happen due to job creation. Argentina’s population statistics support this claim since it shows the drop in economically active population. But what does this all mean?
The term ‘economically active population’ implies the population holding a job and those actively looking for one. The ‘inactive’ population, on the other hand, is the one that is too young, or studying; it also includes the elderly and those discouraged to look for jobs, or simply extremely rich people. The unemployment rate is measured only in relation to the active population.

Despite the fact that there has been notified a low unemployment percentage, this is not good news. Although 60 000 people found a job in the last year, that’s only 1/5 of the population that’s covered in the urban areas. Recently, there has been opened the door for job report statistics’ analysis, and experts say that the results had been manipulated to make the results better than they really were. The report showed a growing gap between Buenos Aires City and Greater Buenos Aires. The situation on the outskirts showed the increase in the unemployment rate from 6.9% to 10.2% last year. The high unemployment rate was also recorded in Patagonia, Chubut, Comodoro Rivadavia and Rawson-Trelew. The government may expect to face attacks from the opposition and the unions if the economic crisis continues to deteriorate.

Argentina’s economy in 2018.

The most recent data show the stumble in economic recovery. Although the real sector data are generally positive, a surge in capital goods aggravated the trade deficit in January and fiscal deficit negatively reflected on the interest payments. Fiscal deficits and the current account could ruin Macri’s efforts to reform the economy. Another threatening factor to the shaken Argentinian economy is the untamed inflation that will increase the fiscal spending as well as the budget deficit. This situation would force the government to keep asking for external financing.

Despite all the negative factors, this year the economy is expected to grow due to private consumption and fixed investment. On the other hand, high inflation and weak currency present a serious risk to growth. The forecast for this year showed that it was going to grow by 2.8%, and the forecast for 2019. shows the increase to 3.1%.

Argentinian farmers hit hard by drought

The drought made a major blow to the third largest world exporter of soy and corn, and this, of course, reflects on the economic growth and raised numerous concerns. This damage caused not only psychical loss of the yield but also the loss of quality, that will certainly affect the product’s price. This is a great loss for the economy like Argentina’s, where farming is the economy’s main generator and such disasters might likely bust the government’s plans. Farmers expect the worst harvest in the last ten years and also the cut in economic growth. High inflation and fiscal deficit are expected to be even more shaken by the rise of inflation and fuel prices and transport and Argentina keeps losing its purchasing power.

The frustrating situation halts the government to convey its recovery plans. The consequences of the drought also hit meat and dairy industries, as well as silos, trucking, and shipping companies. The consumption of gas will be reduced this year, and a million fewer trucks will be used for transport of grains which implies $ 1 billion of losses. Argentina had been also facing droughts in the past, and farmers blame the government for not coming up with adequate measures to help the agricultural industry. Macri announced debt relief for the drought-hit farmers, as well as credits and loans with longer grace periods. But farmers want more – they demand insurance that will protect them when such unfavorable times repeat themselves.

The biggest stock market boom in the world

Despite the latest situation with the drought and other uncertainties and downsides, Argentina is becoming a rising star in the South American region. Its stock index increased 77% last year due to a range of reforms that turn Argentina’s economy towards the free market. The traditional strength in agriculture has been overshadowed by energy companies and smaller technologies. When Macri took the office, the economy was getting into recession, but MERVAL jumped with Macri’s plans for the economic reform. Ditching off populist measures related to food and gasoline, and the settling of hedge funds dispute in 2016. also attracted investors and foreign lenders. IMF is coming up with more structural changes for this country like tax reform bill that is expected to decrease income taxes and social security contributions. In return, IMF expects a low level of corruption and a substantial change in the labor market. With these changes, there can be expected a long-term progress and productivity. Reforms must be felt in all sectors of society if the authorities want to get rid of poverty and improve job equality and the quality of life in general (especially among the vulnerable groups).

Also, the latest statistics show that Argentina’s stock market has become more diversified – financial, oil and gas, infrastructure tech and utility companies and industries are coming in. Although Argentina started expanding its opportunities, it still has a lot to prove to become stable and to broaden the range of investors. What is important is that it has room to grow.

Still, the government has to be cautious because there are credible doubts about the sustainability of Macri’s policies. Although there are no evident signs of major crisis, the current level of debt threatens to start another debt crisis in the future, so the government must be aware of the approaching storm clouds.

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