Argentina's difficult problem of escaping economic crisis

A large number of Argentinians responded to a nationwide general strike launched by the General Confederation of Labour (CGT) against austerity measures of President Javier Milei's government . The strike took place in the context that the third largest economy in Latin America has fallen into a serious crisis with growth and foreign currency reserves both at negative levels amidst a record increase in inflation.

Argentina's economy is in an extremely difficult situation. According to the World Bank (WB), Argentina's economy declined by 2.5% in 2023 while inflation was more than 211%, the highest level in Latin America. Its foreign currency reserves were also negative.

Argentina’s National Institute of Statistics and Census (INDEC) said the country's trade deficit amounted to 6.926 billion USD last year due to a sharp decline in exports. With the most severe drought in the past century, Argentina's exports of key agricultural products such as soybeans, corn and wheat dropped by as much as 40%.

Soybeans and soybean products are Argentina's most important sources of foreign exchange earnings, accounting for nearly 30% of total export turnover in 2020. In 2022, this commodity group helped Argentina more than 14.8 billion USD. Argentina is also an important wheat producer in the world, but last year, the government had to limit wheat exports to ensure food security. According to the International Monetary Fund (IMF), Argentina's budget deficit is forecast to be equivalent to 3.99% of GDP in 2023 and 3.73% in 2024.

Immediately after its establishment in early December 2023, the President Milei’s government announced that they would devalue the peso by 50%, not renew labour contracts, promote plans to lay off thousands of workers in the public sector, cut subsidies on basic necessities, abolish price ceilings on some supermarket items to stabilise the market and curb inflation, and remove subsidies for public transportation and petroleum as well as many social benefits and public health services. In addition, the government advocates maximum opening of the economy for market regulation, with the goal of boosting production and export activities while strongly promoting privatisation.

In pursuit of minimising the budget deficit, President Milei's government has abolished many regulations and urged the National Congress of Argentina to pass a bill to maximally open the economy. Aiming to completely eliminate the budget deficit, the government has reduced the structure from 18 ministries to just 9 ministries. According to the draft law that is being considered by parliamentarians, the government has the supreme authority to run the country for two years and may continue to extend, while promoting the privatisation process of major state-owned corporations.

Among the solutions to boost Argentina's macro economy are the abolition of regulations related to the labour market, such as allowing irregular labour contracts and increasing probationary periods for workers (currently at 3 months) along with restrictions on the right to strike. This policy has significantly affected the lives of Argentine workers. This is also part of the reason why workers and representatives of many Argentine civil and political organisations and trade unions in the capital city of Buenos Aires and many other localities have responded to the CGT's call to take to the streets to protest the government's solutions and call on the National Congress not to pass new economic policies. The first general strike took place just 45 days after President Milei took office.

President Milei affirmed that he will continue to pursue the goal of "no budget deficit" and that the government will not negotiate on this issue. He urged the National Congress to support the government's reform policy to stabilise the macroeconomy and emphasised that the budget deficit is the root of the crisis in the South American country.

However, the fierce workers protests made the situation more difficult. The task of bringing the economy out of crisis is a difficult problem for the current Government of Argentina.

NDO