According to the International Monetary Fund, the recession in the Argentine economy would bottom out by the first three months of next year and a recovery in the economy would be initiated in the second quarter of 2019.
The IMF has already increased the amount that it has kept as a standby for the country to $56.3 billion following ratification of stricter fiscal measures by Argentina, some of which has already been implemented by the President Mauricio Macri and which has reportedly dented his popularity just before the presidential election in the country scheduled for 2019.
“The bottom of the recession, the floor, will be hit the first quarter of 2019, and in the second quarter we are going to see a recuperation,” IMF mission chief for Argentina Roberto Cardarelli told reporters at a press briefing in Buenos Aires.
The new strict fiscal measures as has been negotiated between the IMF and the Argentine government mandate the Macri government to further reduce government spending and increase taxes further so that the country is able to get down its primary fiscal deficit – the target for which has been fixed at zero per cent of gross domestic product for next year compared to the projection of 2.7 per cent for the current year.
It is highly uncustomary for Argentine governments to implementing strict spending cuts in an election year. Government spending is what millions of people in the country depend on to get benefits of welfare programs and subsidies. This was the strategy that was adopted back in the time of the 2002 recession in the country which had downgraded millions of middle income people of the country into poverty.
The cuts in government spending has been exaggerated by the current ongoing economic recession in Argentina which started earlier in the year following a prolonged drought which brought down production and exports of soya beans – the main cash crop of the country and one of the more important export components.
The IMF anticipates a contraction of 2.8 per cent for the Argentine economy this year which would slow down to 1.7 per cent next year.
“Average growth for the year will be negative, particularly because the end of this year will be negative. There will be a ‘carry over’ effect,” Cardarelli said.
Further it is also anticipated that the average rate of inflation for 2018 would be about 47.5 per cent and there has been a 50 per cent drop in the value of the country’s currency – the peso.
“Current fiscal and monetary policy is a policy of stabilization. Macro-economic stabilization has a cost. We believe this cost will be paid over the short term, and that the recession will not last long,” Cardarelli said. “It should last two or three quarters and in the second quarter of next year we should see a recuperation of economic activity.”
(Adapted from Reuters.com)