Coronavirus risks critical blow to Argentina’s ailing economy

Coronavirus risks critical blow to Argentina’s ailing economy

La Flor de Barracas, an well-known bar in Buenos Aires, has withstood the ups and downs of Argentina’s combustible economy for more than a century since it opened during the country’s heyday in 1906.

Then came coronavirus. Carlos Cantini, who kept the historic neighbourhood meeting place alive despite a decade without economic growth in Argentina, said months into the lockdown in Buenos Aires he had no option but to close the doors for good.

“I said that’s enough, chao. It was the final blow after four very bad years,” lamented Mr Cantini, who explained that high inflation and punitive tax rates already had the business on the ropes.

“It is gloomy, but what can you do . . . I fear that once this [lockdown] is over, Buenos Aires will have lost much of its character and its history.”

Despite one of the world’s longest and strictest lockdowns, the death toll in Argentina keeps rising. The increase in daily deaths from Covid-19 is the sixth highest in the world. More than 10,000 people have died so far.

Argentina’s rate of about 234 deaths per million is still lower than its big neighbours — in Brazil and Chile, that rate exceeds 600 deaths per million — but the economic consequences of its lockdown have been especially dire.

Andrés Borenstein, an economist at Econviews, a consultancy in Buenos Aires, said Argentina’s economy had been hit twice as hard as its neighbours. The gross domestic products of Brazil and Chile are forecast to decline between 5 per cent and 6 per cent this year, while Argentina’s is expected to shrink as much as 12 per cent, according to a central bank survey.

Meanwhile, sales in August are 27 per cent lower in Argentina than in February, before the pandemic hit, with average sales this year 10.5 per cent lower than last year. In Brazil core retail sales are already above pre-pandemic levels.

Argentina began its lockdown in March and has extended it until at least September 20. The restrictions — which include a ban on flights and social gatherings and the continued closure of tourist venues, restaurants and bars — are the toughest in Latin America. The Google Mobility Index, which uses data from apps to track the impact of coronavirus on peoples’ movements around the world, has shown Argentina to have the world’s most restricted mobility.

Argentina also entered the coronavirus crisis with at least one significant disadvantage. After a decade of economic stagnation and a currency crisis in 2018 that led to a sovereign debt default in May, “the government had no resources to fight the crisis except [printing money]”, said Mr Borenstein. A new and inexperienced government that took power just three months before the pandemic hit Argentina in March amounted to a “double whammy”, he added.

Complicating matters, the government aims to reduce the primary fiscal deficit from about 7 per cent this year to 4.5 per cent in 2021. “What kind of [market] confidence can you build like that . . . you’re effectively telling people you’re going to print a lot of money again next year. If one of the problems in Argentina is currency stability, you’re not giving off the right signals,” said Mr Borenstein, who expected inflation to rise above 50 per cent next year. 

Fernando Polack, an infectious disease specialist, questioned whether lockdowns were the right approach for Argentina. “At the time when Argentina had to make decisions [about how to combat coronavirus] the logical thing to do was to mimic the Asian model as much as possible,” he said, referring to lockdowns.

However, he said, “eventually, the tensions between the economic and psychological consequences of quarantines versus the public health threat became difficult to resolve”.

Eduardo Levy Yeyati, dean of the school of government at Torcuato Di Tella university in Buenos Aires, concluded in a recent study of 120 countries that poorer economies have not only seen weaker compliance with lockdowns but adherence also declines over time. 

Obeying lockdown rules in the vast and impoverished suburbs of Buenos Aires is a particular problem: more than a third of Argentines who work in the informal sector are concentrated there, and also live in cramped conditions that complicate staying at home. Moreover, state subsidies are often insufficient to cover living costs for many families.

President Alberto Fernández, who periodically threatens to press the “red button” and return to the strictest phase of Argentina’s lockdown given the continuing threat posed by the pandemic, now insists the country is no longer in lockdown.

“If you go out on to the streets, it is clear there is a serious drop in economic activity. One thing is political discourse, another thing is the reality,” said Pedro Cascales, spokesman for CAME, a business federation for small and medium-sized enterprises in Argentina. He said 10 per cent of the federation’s members — about 60,000 companies nationwide — were in a critical position, about to close or have already shut down.

“If SMEs collapse, the whole economy collapses,” said Mr Cascales, pointing out that SMEs provide 70 per cent of jobs in Argentina and represent 45 per cent of GDP.

“The decisions about the lockdown were always made with the advice of doctors, epidemiologists and [infectious diseases experts], but never with SMEs, big business or workers. We could have contributed ideas . . . to prevent an economic collapse,” he said.