Why Argentina Experiencing A New Economic Crisis
Why Argentina Experiencing a New Economic Crisis
The economic crisis is a situation in which there is a sudden shutdown of major economic activities of a country as a result of a financial crisis. This crisis is characterized by a decline in the country’s GDP, an increase of prices and drying up of liquidity and amount of money available for investment. The new economy of Argentina looks to be headed for another economic storm as the prices of most products are rising rapidly, whereas, there is a significant drop in the Argentina peso. Further, there is overvalued currency in Argentina and debts are primarily denominated in dollar. As such, this paper highlights the causes of the new economic crisis in Argentina.
Primarily, an economic crisis is caused by loss of business and consumer confidence. Argentina's new economy is headed towards another economic storm as characterized by irrational exuberance of its business cycle. There is high-interest rates among the majority of Argentina's financial institutions and credit lending facilities limiting the amount of money available for investment CITATION Chr16 \l 1033 (Daseking & Ghosh, 2016). For instance, a 40 percent hike of Argentina’s central bank has dried up the liquidity of the country and lowered the purchasing power of the Argentines.
Currency fluctuations is another critical factor regarding Argentina's new economic crisis. There is a significant fluctuation of Argentine peso when compared to other currencies in the global environment, and this creates more economic issues. For instance, the value of the peso has declined by more than 20 percent against the U.S dollar CITATION Pad15 \l 1033 (Desai, 2015). This is due to the current economic and monetary policies of Argentina as well as hyperinflation making the peso lose its value. Consequently, majority of foreign investors, local companies, and residents have converted their savings into foreign currencies such as the U.S dollar and the euro.
In addition, stock market issues and foreign debts is another factor crippling the new economy of Argentina. A crush on the nation's stock market has resulted in the loss of confidence of local companies, residents and foreign companies in investing, and this has drained a lot of capital out of businesses. Similarly, foreign debts of Argentina are worrying and presently it’s government is burdened by a foreign debt of US$ 252.9 billion, translating to close to 70 percent of its GDP CITATION Pad15 \l 1033 (Desai, 2015). On the other hand, the fiscal deficit of Argentina has exceeded 5 percent of the Gross Domestic Product.
Lack of sufficient economic reforms has also played a role in worsening the global corporate environment for Argentina complicating the economic issues of the country. For instance, fiscal reforms of Argentina were over-dependent on access to external financing CITATION Vit18 \l 1033 (Tanzi, 2018). However, in an environment where there the value of the US dollar is strong with tighter global liquidity, the assurance of external financing is limited. As such, the solid value of the dollar over the last weeks has negatively affected emerging markets in Argentina. This is because the value of Argentina peso is not competitive enough resulting in the debt pile.
Finally, the overreliance of Argentina on agriculture has worsened trade deficits of the country resu...