How and why the Argentine economy is losing weight in the region

years of Exchange instability, economic crises and inflation It negatively affected Argentina and also set a relative setback in the Latin American region. While other countries benefited from periods of external prosperity, our country remained trapped in their own imbalances, That arose in a decade, another decade, of stagnation and rising inflation.

What distinguishes Argentina compared to other countries is its Macroeconomic instability, which is repeated outside the type of management and political orientation. This is the main explanation for why its performance is worse than that of other countries,” says Juan Carlos Barber, PhD in economics from Harvard University who specializes in foreign trade and productive development.

“GDP growth, exports or productivity, everything has been slower. There is a loss in the relative ground. Argentina was a leader in indicators such as GDP per capita, and was among the countries with the best indicators in terms of inequality, and today this is not the case. In absolute numbers You see stagnation while others are growing and improving. “We’re getting worse in relative terms in Latin America and it’s all endogenous,” says Hallaq, an IIEP-UBA researcher.

Although each parse will be able to specify a date and an argument for determining the time of the break, The trend shows a deterioration in the economy and social indicators For a country that has not grown in absolute numbers for more than a decade and has lived with double-digit inflation for 16 years.

An analysis by Abeceb, the consultancy run by former production minister Dante Sica, shows that since 1983, Argentina’s GDP per capita grew by 37% (measured in 2017 dollars at purchasing power parity, PPA), It is the poorest record in the region after Venezuela and Mexico (20%). In this section, Argentina has been surpassed by countries such as Brazil (cumulative growth 40.6%), Bolivia (60.6%), Peru (72.2%), Colombia (120.3%), Uruguay (125.7%) and Chile (222%).

“In Argentina we are experiencing a recession while other countries in the region are growing and improving; we are getting worse in relative terms and due to internal causes (Juan Carlos Hallak, IIEP-UBA)

Although there are nuances, the region has always had the same political and economic cycles, but Argentina has performed weaker. The courses are common, but there is an important difference in terms of results. This is due to the frequent emergence of the macroeconomic crisis and it has to do with the internal and external balance”, confirms Soledad Pérez Duhalde, Director of Operations at Absip, referring to the problems related to financing the fiscal deficit and balance of payments crises, payments that Argentina has experienced in recent decades.

In terms of inflation, Argentina has the worst record after Venezuela And his latest series of hyperinflation. From 1983 to date, the country has shown the worst record, with an annual average of 71% and values ​​that have accelerated in recent years. Inflation is an endemic disease and the causes are varied. But the cycle of fiscal deficits, issue financing and currency devaluations is what happens most frequently, and that has an impact on prices. The economist adds that it involves costs in the level of activity, job creation and poverty.

The gap between the Argentine economic context and the rest of the countries in the region is evident in “Danger country”, The index, prepared by JP Morgan, measures the risk differential that sovereign debt securities pose with respect to US bonds. The figure shows the degree of distrust or aversion to international financial markets toward each country. Argentina is in the worst place in the region, without considering the state of Venezuela and its socio-economic collapse (the risk of her country exceeds 40,000 basis points).

“Although there are nuances, the region has always had the same political and economic cycles, but the Argentine performance has been meager” (Soledad Pérez Duhalde, Absip)

With over 2,700 diagonal risk points, Argentina nearly quadrupled the average of Latin American economies (501) and outperforms El Salvador (2,326), Ecuador (1,351), Honduras (848) and Bolivia (634). On the other hand, the countries with the best record are Uruguay (148 points), Chile (197), Peru (256) and Paraguay (313).

Latin America has moved on the rhythm of what happened with the development of the international economy, as a result of the growth of China. Argentina had low inflation rates due to transfer inertia until 2006, and From there it started to rise while the dual surpluses (financial and external) fell. This total disease is not in the rest of the countries,” says Ricardo Carsovy, former director of the Islamic Development Bank’s Institute for Latin American and Caribbean Integration (Intal) (2005-2013).

“There was low inflation until 2006; then it started to rise and the double surplus went down. This aggregate disease is not in other countries” (Ricardo Karsovy, Economist)

There is another section where a relative loss is observed in the area foreign trade. With the successive fluctuations in economic policies and the urgency of their macro crises, Argentina promoted an economic plan that tended to isolate itself in terms of global exchange and led to a “loss of relative participation” in the exchange of goods and services, says Marcelo Elizondo, director of DNI Consulting. The analyst warns that between 1980 and 2020 (before the pandemic), Argentina lost 30% of global exports. At the start of that period, the country represented 8% of the goods and services that Latin America sold to the world, and that share dropped to 5.29% in 2020.

It’s a long process of regression that has nothing to do with a year or two. Thinking about the future, you have different difficulties and there is one problem, in addition to understanding it correctly along the way, It will take time to get out of this predicament And steps without immediate results. Elizondo warns that improving the investment rate and generating a leap in competitiveness takes time to mature.

“Argentina’s potential GDP is low, because it is very difficult to get resources to recover. The rate of investment and stock of physical capital is low, and the ability of people to participate in the production process is low because human capital formation has also declined. At that point, he noted, The flow of foreign direct investment received in Argentina was stagnant between 2010 and 2020 (about 85,000 million US dollars), while the total amount mobilized worldwide doubled, even with a slowdown in recent years, According to data from the United Nations Conference on Trade and Development. Thus, Argentina’s share of the global FDI inflow decreased from 0.9% in 2000 to 0.4% in 2010 and 0.2% in 2020. Among those that reached Latin America, its share decreased from 5.5% in 2010 to 3.8% in year 2020.

There is a long path of decline, not a year or two; Getting out of the slump will take time and take steps that will not have immediate results” (Marcelo Elizondo, DNI Consultant)

While within the borders the context of imbalance in public accounts, exchange rate instability, economic stagnation and deterioration of social variables, leading to episodes such as the reclassification of the state in the state continues. “Stand-alone” category by MSCI, Colombia gained admission to the Organization for Economic Co-operation and Development in 2020, Paraguay had an improvement in its credit rating and was one step closer to receiving an “investment grade” from Moody’s.

The step backwards from an economic point of view was accompanied by poor educational performance With a growing gap between students with low and high socio-economic resources. “To understand the stagnation of formal employment in Argentina, the issue of education is one of the possible causes,” says economist Luca Sartorio, a researcher associated with CEPE at Universidad de Tella.

“To understand the stagnation of formal employment in Argentina, we must look at the issue of education as one of the possible causes” (Luca Sartorio, CEPA-UTDT)

In a comparative analysis of Argentina with other countries in the region (Uruguay, Chile, Mexico, Brazil, Peru and Colombia), warns The “bottleneck” in access to higher education. In this sense, he identified that, among people aged 25-34, Argentina has a lower proportion of tertiary or university graduates than Chile, Peru, Mexico, Brazil and Uruguay. Among the older age groups (55 to 64; 45 to 54; 35 to 44), Argentina ranks first or second regionally. In Sartorio’s words, the country lost “performance” and “educational leadership” in the region. “The problem is worrying, because Argentina somehow lives on the success of its past in terms of educational coverage,” The analyst concludes.