Argentina's Economic Dilemma

On May 13, 2024, the IMF agreed to pay another large bailout to the country of Argentina, a nation submersed within its largest economic crisis in two decades. In March, Argentina’s annual inflation rate reached 287%, one of the highest in the world, deepening poverty amongst its citizens and spurring strikes and protests nationwide. The IMF, however, praised the actions taken recently by President Javier Milei’s libertarian government, as the nation celebrated its first quarterly fiscal surplus in 16 years, falling monthly inflation rates, and surging bond prices. However, the seemingly positive macroeconomic moves made by Milei and his government have come at a cost to the people. In order to reduce government spending, Milei sharply cut down on subsidizing, laid off thousands of government workers, froze public works projects, and cut public wages. Milei’s aim is to bring about an economic catharsis, and allow the new, investor-friendly environment to jumpstart the economy. This sort of behavior from an Argentine government is a welcome change for the IMF, as governments of years past have merely brushed aside agreed upon rules and regulation for the Fund’s money. Previous governments had disregarded the Fund and printed money from the country’s treasury, putting off the problem further and worsening inflation. The IMF is deeply disliked in Argentina, and the public blames the Fund for an economic implosion and debt devalue that occurred in 2001. Milei’s policies and layoffs have also caught the ire of some of the countries largest labor unions, with a 24-hour nationwide strike taking place on May 18. Additionally, protests against budget cuts to public universities have brought out hundreds of thousands in protest. However, some Argentine people seem to be willing to weather the storm Milei is proposing. In 2023, Argentines elected the libertarian economist with 56% of the vote. Even with these measures and support, the near term economic forecast for the country is looking grim. In order to enhance economic stability further down the line, Milei has decided to slash the value of their currency by half, which has spurred prices in Argentina to skyrocket. This act, along with the reduction in subsidies mentioned before, makes a perfect storm for the Argentine consumer, as electric and housing bills will be higher along with the cost of groceries and other household items. The Argentinian economy is also expected to endure a recession this year, with projections estimating that the nation’s economy will shrink by 1.6%. Analysts believe, however, that the action being taken now is the best possible option for the nation. “It was a good start,” said Ivan Werning, an economics professor at MIT. “If the economy were a house, it is already burning.”

The IMF’s influence in Argentina has not only impacted the financial decisions of the government, but also its banks as well. Due to Argentina’s reliance on the IMF, nationwide banks have curtailed their cryptocurrency services over the past year at the request of the Fund. The IMF possesses a very negative stance on cryptocurrency, with its reports calling it volatile and dangerous to consumers due to its lack of regulation. It is important to consider as well that the IMF is one of the largest financial institutions in the world, and that cryptocurrency is inherently an antithesis to their entire existence. Crypto itself is in the realm of decentralized finance, a sector where its leaders dream of a world without large global financial institutions like the Fund. What does this mean for Argentines? It means that while their president “cleans house” and wipes their economy clean while devaluing their own currency, they have nowhere else to go. While the IMF would argue that there is no other way, it is in their benefit to do so, as the only other way Argentines could go would be to their detriment. This leaves the people of Argentina in a tough spot. With no off ramp or alternative route to take through their troubles, they will be forced to weather the storm head on.