Argentina

Argentina's history has been marked by political and economic instability. In recent years, it has faced significant policy shifts with profound macroeconomic implications, characterized by high economic and currency volatility, persistent inflation, recurrent debt crises and social unrest. Following a deep recession during the pandemic, coupled with a debt default, Argentina experienced a robust rebound in 2021 (+10.3%), driven by increased agricultural exports and the gradual economic reopening. However, an unprecedented drought in 2023, compounded by macroeconomic imbalances, led the country into recession. In 2024, Argentina is projected to remain in recession (estimated contraction of around -3%) due to government measures aimed at rebalancing the macroeconomic landscape, including fiscal austerity amid soaring inflation, triggered by significant currency devaluation.
 
Argentina grapples with escalating and widespread inflation, which surged from 48.1% y/y on average in 2021 to 211% y/y in 2023, alongside critically low international reserves, continued public debt financing by the Banco Central de Républica Argentina (BCRA) and a significant gap between official and parallel exchange rates. The official USD:ARS exchange rate has doubled since early 2023, reaching AR350 per USD by mid-August 2023 before being devalued to ARS800 per USD by the new administration, which has enhanced competitiveness as the depreciation outpaced inflation. The inflation outlook remains uncertain, with projections surpassing 200% for the first half of 2024. Further peso depreciation and government disengagement, particularly subsidy reductions, are poised to exacerbate inflationary pressures before orthodox economic policies gradually mitigate them. Stabilizing inflation at lower levels is anticipated to be a multi-year endeavor, with projections indicating 70.0% y/y by end-2025 and 40.0% y/y by end-2026.

The business environment in Argentina is quite poor. Capital controls are quite stringent and extremely sensitive to the country’s external position and the track record of expropriation, although current risks are lower. Argentina ranks 144 out of 177 worldwide in the 2022 Heritage Foundation Index of Economic Freedom’s survey and 27 regionally. The country has low rankings in terms of property rights and monetary freedom and even ranks comparatively poorly regarding its strengths. The Worldwide Governance Indicators survey of 2022 points out a degradation of the country’s position, especially in control of corruption and regulatory quality. The accession to power of Javier Milei could turn the tables, because his ultraliberal stance, will for fiscal consolidation and privatization could attract investors. But on another front, weaknesses also appear, as shown by our proprietary Environmental Sustainability Indicators of 2023: Argentina has a very poor recycling rate, as well as renewable electricity output. It is not really vulnerable to climate change, but is poorly placed in the race for the green transition. It is overall ranked 105 out 202 for sustainability, upheld by its low water stress levels.
 
Milei advocates for a drastic reduction of expenses (-15% of GDP), large-scale privatization of the health and education systems, a redesign of more than half of the ministries, a gradual dollarization of the economy and suppression of the BCRA. Whether Milei will implement his “shock therapy” as strictly is still to be determined because he enjoys relatively low support in the lower house of Argentina (38/257 seats) and in the upper house (7/72 seats), and because popular opposition to his anti-social reforms is likely to be elevated. Risks to governability of the country are therefore likely to arise as time passes and as Milei’s political capital fades. Having stood out as anti-system during the campaign, Milei now has to prove himself to consolidate his position in the 2025 mid-term legislative elections.