Argentina’s Economy could be going Off the Rails Soon
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Argentina’s government has begun to increase their intervention in an attempt to bolster the economy. They are hoping to prevent new debt defaults which could initiate a crisis. The policies, however bright and sunny their intentions may be, are also destroying business confidence, potentially leading to a deeper recession.
It is amazing how many governments cannot figure out that lower taxes and regulations will lead to brighter horizons for all.
Argentina’s government has begun to increase their intervention in an attempt to bolster the economy. They are hoping to prevent new debt defaults which could initiate a crisis. The policies, however bright and sunny their intentions may be, are also destroying business confidence, potentially leading to a deeper recession.
It is amazing how many governments cannot figure out that lower taxes and regulations will lead to brighter horizons for all.
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Socialists are Ruining Another Country
The choke that has been placed on imports along Santa Fe’s shopping boulevard, combined with a decline in consumer spending, have forced shops to close their doors. Although the leftist government’s measures have been intended to shore up foreign reserves to prevent the economy from contracting further, there have been no signs of a deal emerging. With nothing positive coming through, and no prospect of a return to global debt markets, capital flight has increased, leading to a record currency low.
Currently, the reserves of Argentina are suffering the lowest number in eight years while sitting at $28.4 billion. The central bank cannot continue using currency savings in an effort to defend the peso.
Bad News for Argentina
Exports have been found to be rapidly falling in the last few months, meaning that the government may have to drain its reserves to pay its energy bills. An economist named Siobhan Morden has estimated that by the end of 2015, Argentina will owe approximately $14 billion in debt (not as high as the debt of Illinois and California which are much worse off but Argentina does have serious issues no doubt). There are also suggestions that reserves could fall to as low as $7 billion by this time next year.
The statistics have left behind few options for policymakers, besides simply fighting to keep the trade surplus. This has led the central bank to restrict the dollars that are available to importers. Furthermore, importers are complaining that the weak economy and debt default have undermined the overall confidence in Argentina’s firms’ abilities to pay its bills.
The Bureaucrats have all the Answers
In a desperate attempt to reduce the number of job losses taking place within Argentina, and keep the production lines running, the government is threatening to take action. They suggest that they may need to intervene in the production decisions of bigger companies (again, the government has all the solutions), and boost subsidies within various industries in a bid to encourage growth. So the bureaucrats who put Argentina in this position believe they know business better than the business owners?
The ‘supply law’, which is currently passing rather smoothly through the various levels of congress, would permit the government to set profit margins, cap prices, and determine the level of production. What?! That sounds like Cuba! Others believe this type of micromanaging from the top will only devastate the economy even more. Obviously and moreover, this proposal has already begun to increase the anxiety in the business community.
Various leaders from the banking, retail, and industry sectors have joined forces to push legal action against these central planners who believe they know business better than the private sector leaders themselves.
The more the economic outlook continues to deteriorate, the more Argentineans are being forced to seek shelter in dollars, and the margin that exists between the current official exchange rate and the black market rate. In an attempt to remove some of the weight from the peso, the central bank has recently increased the monthly minimum rate that has been required for Argentina to purchase dollars. The amount of hard currency that commercial banks are permitted to hold has also been reduced.
