Argentina is facing one of the worst financial crises of its recent history, and memories of the brutal recession of 2001 and the famous ‘corralito’ (when people were unable to access their savings for a year) are still fresh.

Meanwhile, the government of president Macri announced a drastic fiscal adjustment that almost reduced half of his government. This is one of the necessary measures to be taken in order to comply with the conditions of a 50,000 million dollar loan from the IMF.

While speculation regarding markets is accelerating, interest rates shoot up to 60%, those who have debts are left unsure about their ability to repay, and the stampede of savers switching to the US dollar has caused a depreciation of 35% of the Argentine peso in the last 3 months. The situation has left little room for manoeuvre on issues such as unemployment and poverty.

The situation, which has been considered a financial emergency, has a historical and economic context explained in the following 3 points:

-       Argentina: a complex financial history

With an overvalued currency, debt denominated in dollars and high inflation rates during the last decades, Argentina, an immense country rich in natural resources, never made the most of its prosperity.

Public spending failed to align with deficit control policies, which can be added to other diverse negative causes that provoked a severe recession.

The lives of Argentines are becoming more expensive with each passing day. With the second highest inflation rate of the region after Venezuela and a monetary devaluation of 35%, this crisis contains all the ingredients to provoke a profound recession.

The fall in value of raw materials on the international market, the devaluation of the Brazilian real, a cooling-off of foreign capital availability to invest in emerging markets, and a dollar that is increasingly strong against the peso whilst Argentine debt is in dollars, have all been constant factors that have left the country on an economic tightrope. 

Now, the reduction of the fiscal deficit appears to be the only recipe that the government can whip up, following the decrees of the IMF. Only time will tell how this will interact alongside markets that are wary of the effects of this extreme fiscal adjustment, as well as the Argentine peso.

-       The Argentine peso at its weakest point 

The lives of Argentines are becoming more expensive with each passing day. With the second highest inflation rate of the region after Venezuela and a monetary devaluation of 35%, this crisis contains all the ingredients to provoke a profound recession.

The unstoppable spiral of uncertainty is leading to an increase in poverty and unemployment. Without a real deterrent, it is highly likely that inflation and the deficit will continue rising, which could create significant rifts for Argentines with less resources, who are still suffering from previous crises. 

-       The biggest loan from the IMF in Argentine history

This financial crisis leaves recovery and stability in the hands of the IMF, and in the long term international financial markets. With the future of the country mortgaged on a loan of 50 thousand million dollars over the next three years, the gravity of this crisis of faith in the Argentine economy is immeasurable and nobody knows with certainty if this will help bring the country out of recession or not.

Previous experience with the IMF that ended in a default of the loan was devastating for the economic reputation of the country. 

The relationship of dependency with the IMF implies complex negotiations, that put at risk the future of the country. The adjustment measures and the cuts that the IMF has demanded to control the deficit include reforms to the pension system and limitations on salary increases that disproportionately affect the poorest. 

It is not the first time Argentina is in this situation. The country has had to deal with several economic setbacks historically, and has had to overcome massive revolts as a result of the corralito in 2001-2002, during which the Argentine population had no access to their savings or money freely, creating unprecedented social, political and economic instability. 

Meanwhile the current crisis has swept over Argentina and threatens to infect other countries in the region, the impact on the everyday lives of citizens is the most devastating effect to date in a country which has become used to experiencing economic uncertainty, a strong distrust of its institutions, and a dread of the IMF.