On Mar. 31, a transit strike shut down Buenos Aires as transit workers voiced their frustration with the government of Christina Fernandez de Kirchner over the economy. The transit workers complain that their pay is not keeping up with inflation. While the government did offer them a raise, the workers claim the raise has put them into a higher tax bracket and therefore continues to reduce their income.
This is just one of many signs of Argentina’s worsening economic troubles. The government is accused of falsifying economic indicators and few economists trust the official statistics. While the Argentine government claims the economy grew by .5 percent in 2014, most economists believe it contracted by two to 2.6 percent. Economists expect it to contract by around .5 percent this year.
The government’s figures claim the inflation rate is about 25 percent, but economists are also skeptical of this number. Most think the real inflation rate is around 40 percent, which is worse than both Greece and Ukraine. The peso is overvalued and while the official exchange rate is 8.4 to a dollar, the black market exchange rate is almost 15 to a dollar.
A combination of lower commodity prices, worsening economies in Brazil and Venezuela and an ongoing debt dispute with U.S. hedge funds are the primary causes of the economic downturn. Argentina is no stranger to economic downturns and has been on what many call an “economic roller coaster” for almost a century. In 2001 it defaulted on $100 billion worth of debt, the largest default on record.
So despite the frustration, Argentinians are familiar with this type of situation. Many people keep money under mattresses and elsewhere around the house as the banking system has been viewed as unstable ever since the 2001 crisis. Many others put their money in overseas bank accounts. Since 2011 the country’s bank reserves have fallen from $52 billion to $28 billion.
Commodity prices are rising rapidly. The prices of many essential goods have nearly doubled in the past year and supply has become intermittent. Many landlords have started adjusting the cost of rent every couple of months in an effort to keep up with inflation.
There has also been an increased exodus as more Argentinians leave the country for Europe and North America. This has been another common trend as waves of Argentinians have left the country to escape economic instability. Elections are due this fall and President Kirchner is stepping down. The future of Argentina’s economy will be up to the next government.
– Matt Lesso