Argentina : economic challenges in an adverse international setting

Abstract

The Argentine economy is in a complicated transition phase. To correct the major fiscal and inflationary imbalances built up in the previous decade, the new government that took office in December 2015 opted for a gradual fiscal adjustment, supported by a situation of abundant international liquidity. In parallel, the Argentine central bank assumed ambitious inflation-reducing objectives. However, in 2018 the lack of progress on the inflation front, the tightening of international financial conditions and a severe drought placed Argentina under the market’s gaze and prevented it from pursuing the financing of this gradual adjustment

accordingly, the government decided to apply for IMF financial assistance. The agreement with the Fund, approved in June and amended in October 2018, plans for a rapid fiscal and monetary adjustment that will provide for a reduction in its twin deficits (fiscal and external alike) and an effective decline in inflation, moving the economy onto a stable growth path. The success of the programme, to which the Argentine authorities have made a clear commitment, is nonetheless subject to internal and external risks, and poses a significant challenge for the country