Crédito y Caución predicts that Argentina's economic contraction, marked by the monetary crisis and high inflation, will continue at least until the end of 2019.
In 2016, Argentina negotiated an agreement that allowed it to regain access to international capital markets. After a brief recovery in 2017, the country's high vulnerability to the normalization of US monetary policy became evident from 2018 onwards.
Capital flight by domestic and foreign investors caused a 50% devaluation of the currency in 2018 and a significant decrease in state reserves. Attempts to stem capital flows by raising interest rates above 60% were unsuccessful due to fears of default. The expansion of credit lines from the International Monetary Fund reduced concerns about the likelihood of default, but, in return, the Argentine government had to accept significant austerity measures. “ An economic recovery is not expected until the end of 2019, at best driven mainly by the advantages of a weak peso and the normalization of harvests. An increase in exports of agricultural products, which represent 50% of the total, would provide an inflow of foreign currency that, together with a fall in imports, would reduce the current account deficit. Inflation is expected to decrease throughout the year, as the effects of the extremely tight monetary policy are felt ,” the report states.
Along with high interest rates, austerity measures will deepen and prolong the economic contraction in 2019. As a result of the sharp devaluation recorded in 2018, inflation is over 50% and unemployment is rising, intensifying social unrest in the country.
