Argentina’s Covid Miracle

Although Covid-19 has been hard on everyone, it has not been an "equal opportunity" disease. The virus poses a greater threat to those who are already in poor health, many of whom are concentrated in poor countries with weak public health systems. Moreover, not every country can spend one quarter of its GDP to protect its economy—as the US did. Developing and emerging economies have faced hard financial and fiscal constraints. And because of vaccine nationalism (hoarding by rich countries), they have had to scrounge for whatever doses they can get.

When countries suffer such acute pain, officeholders tend to receive more blame than they deserve. Often, the result is a more fractious politics that makes addressing real problems even harder. But even with the deck stacked against them, some countries have managed to deliver strong recoveries.

Consider Argentina, which was already in a recession when the pandemic hit, owing to a large extent to former President Mauricio Macri's economic mismanagement. Everyone had seen this movie before. A right-wing, business-friendly government had won the confidence of international financial markets, which duly poured in money. But the administration's policies turned out to be more ideological than pragmatic, serving the rich rather than ordinary citizens.

When those policies inevitably failed, Argentinians elected a centre-left government that would spend most of its energy cleaning up the mess, rather than pursuing its own agenda. The resulting disappointment would then set the stage for the election of another right-wing government. Regrettably, a pattern repeated over and over.

But there are important differences in the current cycle. The Macri government, elected in 2015, inherited relatively little foreign debt, owing to the restructuring that had already occurred. International financial markets were thus even more enthusiastic than usual, lending the government tens of billions of dollars, despite the absence of a credible economic programme.

Then, when things went awry—as many observers had anticipated—the International Monetary Fund (IMF) stepped in with its largest-ever rescue package: a USD 57 billion programme, of which USD 44 billion was quickly dispersed in what many saw as a naked attempt by the IMF, under pressure from US President Donald Trump's administration, to sustain a right-wing government.

What followed is typical of such political loans. Domestic and foreign financiers were given time to take their money out of the country, leaving Argentinian taxpayers holding the bag. Once again, the country was heavily indebted with nothing to show for it. And, once again, the IMF "programme" failed, plunging the economy into a deep downturn, and a new government was elected.

Given the mess that Argentinian President Alberto Fernandez's government inherited in late 2019, it appears to have achieved an economic miracle. From the third quarter of 2020 to the third quarter of 2021, GDP growth reached 11.9 percent, and is now estimated to have been 10 percent for 2021 while employment and investment have recovered to levels above those when Fernandez took office. The country's public finances have also improved. There has been significant growth in exports too, following the implementation of development policies designed to foster growth in the tradable sector.

Despite this significant progress in the real economy, the financial media has chosen to focus wholly on issues such as country risk and the exchange-rate gap. But those problems are hardly surprising. Financial markets are looking at the mountain of IMF-furnished debt coming due. Given the enormous size of the loan that needs to be refinanced, an agreement that merely extends the amortisation timeline from 4.5 to 10 years is hardly sufficient to alleviate Argentina's debt worries.

Cleaning up the previous government's financial mess will take years. The next big challenge is to reach an agreement with the IMF over the Macri-era debt. The Fernandez government has signalled that it is open to any programme that does not undermine economic recovery and increases poverty. Though everyone should know by now that austerity is counterproductive, some influential IMF member states may still push for it.

The irony is that the same countries that always insist on the need for "confidence" could undermine confidence in Argentina's recovery. Will they be willing to go along with a programme that does not entail austerity? In a world still battling Covid-19, no democratic government can or should accept such conditions.

Joseph E Stiglitz, a Nobel laureate in economics, is professor at Columbia University and a member of the Independent Commission for the Reform of International Corporate Taxation.