Argentina noted a very significant contraction in the second quarter in its gross domestic product following huge losses to its agriculture sector because of a severe and long lasting drought this year. The situation was so severe that the country had to approach the International Monetary Fund for money to manage the crisis.
According to the latest report from the national statistics agency, there was a contraction of 4.2 per cent in the gross domestic product of the country in the quarter between April and June compared to the figure from the same period a year earlier. This contraction marked the first contraction in the country’s economy in more than a year. The country experienced a steep decline in exports – primarily in agricultural products because of one of the worst droughts in years. The country suffered in its export of soy beans – of which it is amongst the best largest exporters in the world, and corn.
According to Indec’s seasonally adjusted figures, there was a drop by over 14 per cent in the exports of the country during the first three months of the year. There was also a decline of 1 per cent in private consumption.
“The economy will contract further in upcoming months amid tightening monetary and fiscal conditions, though the expected rebound in agricultural output will prevent a deeper contraction,” the ratings agency Moody’s said in a statement.
Last month, the International Monetary Fund was requested by Argentine President Mauricio Macri to make an early release of parts of the funds that it is scheduled to receive from the Fund as a part of the historic bailout program for the country. The factors that were put before the Fund to make the early release by Macri include the worsening economy that has made the financial position of the government critical and has doubts were being expressed about the ability of the government to meet its financial commitments.
So far this year, the IMF has released about $15 billion as aid to the country and it is expected that a further $3 billion would be handed over to the government in Argentina in September.
However, the country noted a sharp decline in the primary fiscal deficit which was at $572.1 million in August, a decrease of 58 per cent compared opt the same month a year earlier, according to the Economy Ministry on Wednesday.
The Argentine government has been implementing wide ranging and strict austerity measures to prop up public finances. Earlier this month, a range of economic reforms which included increasing of export taxes and a large cut on government spending was declared by President Mauricio Macri and Finance Minister Nicolas Dujovne.
The benchmark interest rate was raised to 60 per cent by the central bank of the country in August following the continued sell off of its currency – the peso. So far this year, the peso has been the worst performing emerging market currency and has lost about half of its value.
It has been predicted that there would be a 2.4 per cent drop in the gross domestic product of the country, according to a government official this week.
(Adapted from BBC.com & BusinessInsider.com)