Agenda
Argentina uses all possibilities to strengthen its economy, and a key political tool is an expansionary monetary policy. The government has received control of The Central Bank of Argentina, which in western countries is unusual, and has despite a high inflation rate accomplished remarkable results regarding a significant growth in gross domestic product.
Institutional Structure
Monetary policies are normally controlled by the Central Bank, which usually is independent from government influence. President Christina Fernandez de Kirchner’s government took an unusual step, when replacing the head of the Central Bank, who refused to use foreign currency reserves to service the country’s external debt. It gave some policy space for the government. Ms. Del Pont is the current governor of BCRA.
Central Bank
The Central Bank of Argentina was founded as a result of major banking and monetary reforms, which resulted in the six Acts of Congress in 1935. The initiative came from the economist, Niemeyer and was developed by Prebisch who embodied the Keynesian ideas in Argentina to overcome the crisis in the 1930’s. Today the bank is influenced by President Fernández's government and the autonomy of the institution is decreased.
History
The people of Argentina have been used to an unstable currency during the history. Argentina was a rich country in the beginning of the 20th century, but it struggled with economic crisis, high inflation, high debt and heavy political changes in the rest of the century. Argentina tied their currency to the U.S. dollar in the 1990’s, but it was unsustainable in the long run. The economy collapsed completely in 2001.
Current Status
“The government seems willing to live with double-digit inflation for some time as a tradeoff for the rapid real growth of the economy and its enormous positive impact on poverty, employment, and income distribution.” – Weisbrot and Sandoval. But Argentina is under pressure from the IMF, who are ready to expel the country if they do not change its doubtful statistics on inflation and GDP.
Key Policies
The government has to finance its budget taken control of reserves of the Central Bank, national pension funds and nationalized the Spanish oil company, YPF. The government’s main goal is to secure a low unemployment and raise the living standards of the middle class by social welfare projects.
Domestic Policies
In an attempt to fight the inflation President Fernandez’s government has frozen the prices on products sold in all major supermarkets until April 2013. Opponents believe it would lead to bigger problems with inflation after the period ends and increasing trade on the black market. Others criticize increasing government control with the medias has damaged the freedom to speech in Argentina.
External Policies
Argentina has heavy problems with the IMF. IMF is threatening to exclude Argentina from the organization, if they do not change their statistics on inflation and GDP growth, which they believe are untrue. Argentina denies this.
Argentina has been sued by funds in USA, who believes Argentina still owes them money after the country defaulted in 2001. Argentina sees these funds as vulture funds.
Key Figures
Differences in the inflation statistics
The most significant numbers are shown by Carnegie professor Joseph B. Kadane, who shows the difference between the inflation pronounced by Argentina’s bureau of statistics, INDEC, and the reel inflation measured by independent statisticians. The statistic from ECLAC show the GDP growth is falling in Argentina, which will negative consequences for the economy in Argentina.
Challenges
The main challenge for Argentina is the galloping inflation. Many other problems are derived by the inflation like pension payments, which have fallen in real value as a consequence of the inflation and increasing crime.
“The government also faces challenges in maintaining a sufficient supply of energy to fuel continued high growth rates.” – Mark Weisbrot.
Pluses and minuses
Expansionary monetary policies
President Christina Fernandez de Kirchner had success with an expansionary monetary policy, when she replaced her husband, Nestor Kirchner, in 2007. The plusses with the expansionary monetary policies are the growth of the economy caused by government spending, which benefits the poor and keep unemployment historical low. Minuses are the inflation and increasing debt, which often follows by heavy government spending.
Miscellaneous
President Christina Fernandez has recently shown nationalistic tendencies in her public claim on the Falkland Islands. This political approach has been analyzed as a way of showing her Argentinian voters that Argentina and the rest of Latin America can compete with Europe and the Western countries, or simply as a way to change focus from the inflation rate.
Transition to Globalisation
The Argentine government is furious with the international hedge funds, which are believed to speculate in a technical default during Argentina’s financial crisis in the beginning of the new millennium. Hedge fund speculations have also been seen as a negative factor in Greece and southern Europe during the financial crisis in Europe in the recent years.
Globalisation - Hedge Funds
Transition to Political Tools
Argentina is a big agricultural country and they have a big trade agreement with China, which is very important for the Argentine economy. Furthermore the European Union has tried to sign a trade deal with South America’s trade bloc, Mercosur, but it failed at the summit which ended in Chile in the end of January, 2013.
Transition to Political Actors
The free press is seen as an essential part of a true democracy. President Fernandez’s government has battled with the major media concern Grupo Clarin. The government is trying to decrease Grupo Clarin’s influence in Argentina and Latin America, which the government believes is too big. They are claiming there are not only plusses with a dominant media concern like Grupo Clarin.
