Old Cycles and New Vulnerabilities: Financial Deregulation and the Argentine Crisis

Abstract

After returning to financial markets in 2016, Argentina asked for IMF financing in 2018 and defaulted on its peso-denominated short-term debt in 2019. This article describes this latest short-lived cycle of external indebtedness and default. The Macri administration that came into power in December 2015 embarked on a path of financial liberalization, external indebtedness, rising public utility tariffs and increased profitability in the agricultural sector, with the aim of lowering inflation, attracting foreign direct investment and promoting economic growth. Vulnerabilities arose because of the combination of financial deregulation, external indebtedness in foreign currency, inflows of volatile short-term financial capital, capital flight by domestic residents, and the government's flawed reaction to a currency crisis in 2018. The IMF programme failed to attack the causes of the crisis, while plunging the country into a severe recession and a debt default. Notwithstanding the successful renegotiation of external debt with private creditors in 2020, the new Argentinian administration still faces serious challenges if it is to lift the economy out of stagnation.