the drought The unprecedented shock affecting Argentina is exacerbating inflation and pushing the peso to new lows, thus weakening the ruling party ahead of October’s presidential elections, which could herald a drastic change in the country’s political direction.
he International Monetary Fund On Tuesday, it cut its growth forecast for South America’s second-largest economy, as private analysts warned that drought would lead to a deep recession. Millions of hectares of corn, wheat and soybeans, Argentina’s main exports and main driver of employment and tax revenue, will be lost this year, costing the economy about $19 billion, a consulting firm estimates.
Drought is exacerbating an already unsustainable economic situation. in the middle of fasting money issuePolitical infighting and the government’s inability to control inability, the annual inflation rate rose above 100%. The peso has lost two-thirds of its value since the start of the pandemic, even in the face of intense currency controls.
The economic impact of the crop failure is likely to be felt far beyond Argentina, from the feedlots of the world, where pigs eat more Argentine soybeans than in any other country, to the grain markets in Chicago. in Argentina , Dollar shortage The resulting outcome is likely to limit factory imports, require new currency controls, and further fuel inflation through higher food prices (the cost of meat rose more than 30% in February compared to the previous month). The country’s foreign debt trades at around 25 cents to the dollar, a level considered to be distressing.
The disaster fueled expectations of political upheaval. Independent candidate Javier Milly It is leading in opinion polls as voters grow increasingly frustrated with traditional parties, particularly the ruling Peronist coalition, ahead of the presidential elections. vice president, Christina Fernandez de KirchnerWho ruled the country twice and his eternal conservative rival Mauricio MacriThey have announced that they will not be candidates. current president, Alberto FernandezHe did not say if he would run for a second term, but if he did, he was unlikely to win.
Fernandez’s government responded to the economic disaster with Desperate maneuvers To prevent implosion, such as forced bond swaps and the establishment of multiple exchange rates. Analysts warn that the strategy will lead to problems in the future, raising the risk of a major currency depreciation that would lead to higher inflation and an increase in poverty.
He said: “In fact, the problem is not launched later.” Alberto RamosDirector of Research for Latin America at Goldman Sachs Group Inc. “Fingers of dynamite are being thrown. It’s a very dangerous game.”
Argentina’s Economy Ministry declined to comment.
Ariel Striglio, 57 years old, suffers from dehydration firsthand. It leases 700 hectares of soybean fields near Chabás, northwest of Buenos Aires. Normal annual production is estimated at 4.5 metric tons of soybeans per hectare, but this month the yield will be less than half. With lower income, it will be more difficult for you to pay off your bank loan and landlord.
Striglio, who has been a farmer for 25 years, says he has never experienced a drought like this. He is heavily in debt because the landlord wants him and the bank to pay it and his family to live.
Striglio is right: These are unprecedented times in Argentina, the world’s largest exporter of soybean flour and oil. On March 29, Fernandez told the President of the United States at the White House, Joe BidenIt is the worst drought in Argentina since official records began in 1929.
According to the Buenos Aires Grain Exchange, this year’s soybean harvest of 25 million metric tons will be the worst in history. At the beginning of the season, the fields planted with soybeans were capable of producing 48 million tons.
The scale of devastation is devastating in the vast plains known as the Pampas, a fertile 800,000 square kilometer stretch that stretches from the Atlantic Ocean to the semi-arid plains in the west. Earlier this year, local media showed images of the bloated and decomposing carcasses of cattle that had died from dehydration. The irrigation canals have dried up, the lakes are empty, and the parched fields lack any kind of vegetation.
With consumer prices soaring and the central bank spending its precious currencies to prop up the peso, its cash reserves stood at just $2.7 billion at the end of March, about $6 billion less than the start of the year. Central bank coffers usually get a boost from soybean exports at harvest time, but this year revenue will fall as production falls.
This will test the government’s ability to service its $44 billion in debt International Monetary Fund. On Tuesday, the bank lowered its forecast for growth in Argentina in 2023 from 2% to 0.2%, while private economists in Buenos Aires expect the economy to contract by about 4%.
“The economic situation has become more challenging since the beginning of this year in light of the increasingly severe drought and policy setbacks,” said the IMF’s First Deputy Managing Director. Gita Gopinath, in a statement released on April 1. Monetary policy ‘adjustments’ and tighter monetary policy may be needed to protect macroeconomic stability.
Minister of Economy , Sergio Massa, resorting to complex and complex measures to avoid the collapse of the peso, including multiple temporary exchange rates. Currently, soybean exporters can sell their products at an exchange rate of 300 pesos to the dollar, much better than the official rate of 211 to the dollar that is subject to currency controls. Better conditions should be an incentive to increase exports.
On debt, Massa said he would force public companies to sell their dollar-denominated bonds for pesos, a move that would give the government some short-term firepower to curb Argentina’s exchange rate volatility.
In addition, Masa replaced 4.3 trillion pesos (US$21.7 billion) of outstanding debt to give the government more freedom, forcing Argentine public companies to participate. The involuntary nature of the swap led ratings agency Standard & Poor’s to declare Argentina a default on its domestic debt. Massa also linked interest rates on bonds to inflation, which is likely to drive up the debt burden in the future.
This could be a drag for one of the candidates who are gaining traction ahead of the October elections. Miley, who defines himself as a liberal, is leading in opinion polls thanks to angry rhetoric that includes a plan to replace the peso with the US dollar as Argentina’s official currency. Patricia BullrichThe most conservative candidate in the opposition coalition proposes a pro-corporate message and a strong hand against crime.
Augustus McCarthy, a fourth-generation farmer, is considering voting out Millie or Bullrich. He wants the next government to solve structural problems, such as high public spending, and help farmers.
Until then, McCarthy, 39, had been dealing with the effects of dehydration. He sold about 200 of his 800 cattle this year because there wasn’t enough grass to feed them. Some of his soybeans are in such bad shape that he doesn’t even want to harvest them. Instead, he let his cattle roam the fields to eat what was left of the withered plants. According to McCarthy, many farmers would not be able to survive this drought as the water was nowhere to be seen.