Argentina struggling again with Inflation

(Image source: http://www.economist.com/node/21548229) 

Interestingly, Buenos Aires ran-out of Ketchup for days in the recent weeks. All credit to the rigid foreign exchange policies of the current government and stringent import/export policies.

Simple plain yogurt that used to cost 2 Pesos a few months back is now considered luxury. It now costs roughly 7.5 Pesos – a price increase of 260% - something that can get inflation experts dizzy.

New monetary policies and revamped trade regulations are the need of the hour for Argentineans.

(This blog was written as part of the McCombs MBA Global Trip NEWS Round-up effort)

-        By Jayanth Rangaraju

Argentinian Peso Falters again

(Image Source - http://www.uncorkingargentina.com/blog/tag/travel-argentina/)

Argentines are back in the crisis mode with Argentinian Peso continuing to falter over the last few weeks. The question that is being asked again and again is – what is the Argentinian Central Bank planning to do to counter this slide?

President Cristina Fernández has not been accessible to the public and press and has done just one public meeting in the last six weeks. This has signaled a global concern over the fragility of developing economies similar to Argentina.

The Peso has plunged 15% on January 22dn and 23^rd of 2014, slipping from 6.9 pesos per dollar to 8 pesos per dollar. Roughly it has lost about 19% in just January. It’s still to be seen if President Cristina does anything to stop the Peso from continuing to plunge.

(This blog was written as part of the McCombs MBA Global Trip NEWS Round-up effort)

-        By Jayanth Rangaraju

Economy Landscape of Argentina over the last century

A CENTURY ago, when Harrods decided to set up its first overseas emporium, it chose Buenos Aires. In 1914 Argentina stood out as the country of the future. Its economy had grown faster than America’s over the previous four decades. Its GDP per head was higher than Germany’s, France’s or Italy’s. It boasted wonderfully fertile agricultural land, a sunny climate, a new democracy (universal male suffrage was introduced in 1912), an educated population and the world’s most erotic dance. Immigrants tangoed in from everywhere. For the young and ambitious, the choice between Argentina and California was a hard one.[1]

From 1980 to 1905 were the years when the GDP grew at 8% year-over-year resulting in putting Argentina at the top of the list as a country of the future. But unfortunately for Argentina, it could not sustain this growth for long. Argentina remained neutral during the First World War. Starting early 1920s the growth stated to slow down and eventually the GDB fell by a fourth between 1929 and 1932 due to the effects from great depressions. Modest growth resumed around the Second World War as the exports started to grow by the late 1930s. Until the 1940s the primary contributor the growth was Agriculture but starting the late 1940s the Manufacturing sector overtook the Agriculture sector for the first time.

Graph comparing the GDP growth rate of US and Argentina

(source: https://www.google.com/publicdata/directory)

From the 40s to the 70s the economy grew almost five folds and the population doubled but at the same time Argentina suffered from the chronic inflation (averaged around 26% annually). From 1976 to 1983 the economy started to decline under military rule and finally led to economic in-stabilization that ended with about 400,000 companies of all sizes going in bankruptcy. The economic policies from 1983 to 2001 have failed to reverse the situation.  Attempting a remedy, Argentina pegged Argentinian Peso to US Dollar in 1991 this resulted in limited money supply and hence limited growth. But economic shock and failure of the system eventually led to the collapse ($100 Billion of bond defaults) – The Argentinian Default of 2001.

Graph comparing the GDP of US and Argentina

(source: https://www.google.com/publicdata/directory)

Starting 2003 the Argentinian economy is back on the growth path – growing at a steady pace of ~7% year over year and thus has been considered an emerging economy. Board based recoveries in agriculture,, construction, automotive, and energy sectors has promised better prospects for Argentina in the 21^st century. Fast-forward today, Argentina is in the forefront for of an emerging market crisis mainly due to its politics, corruption, unfavorable socio-economic policies by its current government and more.  Overall, it’s expected that in the upcoming elections the populist sentiments in the general public will lead to the over throwing of the current “Justicialist Party” leading to reforms of the socio-economic policies and hence lead to bullish growth of the Argentinian economy.

(This blog was written as part of the McCombs MBA Global Trip NEWS Round-up effort)

-        By Jayanth Rangaraju

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[1] From cover article on “The Economist” – Feb 15^th 2014 “The parable of Argentina”