Argentina’s Economic Downfall : Which Party Will Save the Citizens?

Argentina’s Economic Downfall : Which Party Will Save the Citizens?

. 7 min read

Argentina is going to the polls later this year, and citizens seem conflicted about which direction the country should go. A third of the population support Frente de Todos (Everyone’s Front), a populist-leftist alliance, another third support Juntos por el Cambio (Together for Change), a liberal-conservative alliance, and the final third would prefer a candidate who does not belong to either coalition. Despite disagreeing about who should take office, the citizens seem to unanimously agree that the economic state of the country is the number one concern for the upcoming election. With inflation rising at a constant rate for over two decades now, Argentines are unable to come to a clear consensus on who could finally alleviate their economic problems. Some citizens believe that change may just make matters worse and that the current government is their best option for improvement, while others see the current government as the leading problem for their country’s disastrous economic situation.

How Did the Economy Get This Bad?

Serious financial problems arose for the country in the 1980s when markets collapsed, prices rose, currency depreciated, and wealthier citizens fled to more stable countries. During this debt crisis, the government turned to the central bank for financial assistance, leading to rapid inflation because of the increasing money in circulation and decreasing interest rate for borrowing. Since this initial problem, the country has been unable to recover. With the COVID pandemic, shrinking global food supplies, and tighter energy markets, massive inflation has continued to increase in the Latin American nation.

On top of the external international pressures that have resulted in record-breaking inflation, the government has been implementing programs that it is unable to financially sustain; Argentina has deeply subsidized healthcare, energy, universities, and public transportation for its citizens, all of which the government can only afford to fund through the printing of more pesos. Accounting for all these unprecedented global problems and poorly planned government programs, prices have increased massively since 2021 with the country hitting a 90 percent inflation rate (meaning a 90% year-to-year increase in prices) at the end of 2022.

International tensions have complicated Argentina’s economic recovery even more, as foreign nations continue to withdraw their financial support in light of Argentina’s ongoing political and economic challenges. Argentina’s largest default was in 2001 when the government decided to retract close to US $93 billion in loans, causing the nation to lose access to international debt markets, and a similar default happened in 2018. When the pandemic hit in 2020, foreign investors were even more hesitant to assist a country with an unstable financial history due to economic declines in countries across the globe. Therefore, in 2021, foreign investment stood at US $4.1 billion, which is 38 percent lower than the previous year. The national debt now stands at US $382 billion as of September 2022, which amounts to nearly 90 percent of Argentina’s GDP.

Currency Exchange and USD Dominance

The Argentine peso loses value almost daily, despite the government instituting an exchange rate that makes the currency seem more valuable than it really is. With national debt issues and growing inflation, citizens have turned towards an underground exchange rate. This “blue” market currency is often used by locals and tourists who have done their research. The unofficial currency market gives foreigners almost double the amount of pesos that the official exchange rate would give. For example, the official exchange rate equates US $1 to 140 Argentine pesos, but the “blue” market values US $1 at 290 Argentine pesos. This is beneficial for both citizens and tourists because the government has strict restrictions on exchanging and withdrawing large sums of USD from official channels such as banks. Therefore, most people avoid paying with bank cards or using ATMs and try to utilize electronic money transfer services such as Western Union or WorldRemit.

With the multiple exchange rates and low value of the Argentine currency, many citizens make larger purchases, such as cars and homes, using US dollars. Argentina has some of the most US currency outside of the United States, amounting to almost US $230 billion. Argentines keep American bills hidden throughout their households to save for larger purchases because USD is not one of the official currencies of the nation, meaning that citizens are not officially allowed to use them for purchases. It has become the norm to engage in currency exchanges via the “blue” market because that is the only place where individuals can avoid government restrictions on buying USD.

The wealthier populations are able to keep up with the inflation rates because, while rents rise at nearly 50 percent a year, so do their wages. For the richer population, inflation is manageable, but the same does not apply to lower income citizens. This is because the jobs of poor Argentinians typically do not have automatic wage increases to keep up with inflation, and they are unable to buy U.S. dollars. Consequently, the poor population is subject to an extremely small income in comparison to the wealthier population while the prices for every type of good and service increases around them. As of 2020, 40 percent of Argentina’s population lives below the national poverty line. 70 percent of children in the area surrounding Buenos Aires live below the poverty line. With pesos' value falling so rapidly, poorer people are unable to afford food and goods. Many suburbs across the nation have turned towards “trueque” clubs where people, most of whom are women, exchange goods and food for other necessities. These clubs are bartering centers where citizens may obtain any necessities they are unable to afford by means of real currency. With financial situations becoming this severe, citizens are seriously debating which political party will be able to pull them out of the worsening economic crisis.

Political Parties and Polarization

The leading coalitions in the nation are Frente de Todos and Juntos por el Cambio. Frente de Todos is a populist-leftist alliance that encompasses the Peronist perspective on government, meaning they advocate for social justice, political sovereignty, and economic independence. Under this unique ideology, the party does not align with the economic stances of capitalism or communism, but, rather, takes a more populist approach that advocates for the working class. The state advocates for working citizens by taking on the role as the negotiator in times of conflict between management and workers. Therefore, the main supporters consist of those who are in labor intensive jobs and in the poorest socioeconomic standing relative to other citizens. This coalition upholds the main ideals of Peronism and is currently in control of the presidency, with both President Alberto Fernández and Vice President Cristina Fernández de Kirchner (no relation) being proud members. While in office, the presidential administration has increased taxes on exports and high-income households, lowered interest rates, and raised the minimum wage.

The opposing party, Juntos por el Cambio, functions as a liberal-conservative alliance that was established by the UCR (Radical Civil Union) party and the PRO (Republican Proposal) party. This centrist progressive party is in favor of limited spending to reduce the national debt, judicial system reform, and promotion of human rights. This coalition has won the presidency nearly ten times over the past 100 years, including electing President Mauricio Macri in 2015, but it has not held the executive office since then. Despite their absence in the presidential office, the coalition currently holds the congressional majority.

With the growing economic issues in the country, there has also been an increase in political polarization. The tension between the current Frente de Todos presidential administration and former president Mauricio Macri, a member of the Juntos por el Cambio, has helped build strong connections between core supporters of each coalition and their respective leaders. This is because, in the last election, the alliances accounted for nearly 90 percent of the votes. Some of the strength is due to the fact that Argentina has never allowed independent candidates, and there is a law that mandates primary elections and encourages competition within coalitions. However, the main reason for the coalition strength lately is due to the parties’ complete opposition on important issues for the nation. The debate always boils down to the Peronist government vs. anti-Peronist opposition, which helps uphold the coalitional nature of the Argentine political system.

The Current Administration and Upcoming Elections

The nation has been wondering which party will be the one to pull them out of their current economic nightmare. President Fernández has rejected a decision by the Supreme Court to allocate more state funds towards the city of Buenos Aires and claims that former-president Macri is responsible for the economic downfall of the country. On top of the administration's perspective on the nation's economic situation, Fernández has denounced the recognition of Juan Guaido as Venezuela’s interim president and de Kirchner has expressed support for Maduro. The presidency has also withdrawn from a group of Latin American countries created to restore democracy in Venezuela, which hints at some international relation tensions within the administration.

At the discretion of the presidency, Argentina has gone through multiple economic ministers during the past four years, with three different ministers serving in one month alone as of 2022. Vice President Kirchner created some tension between the President and herself after forcing out the first economic minister, Martin Guzman, after he attempted to make a deal with the IMF that would give stricter control of money to the central bank. Recently, the presidential administration has appointed Sergio Massa as a new “super minister” of economy, production and agriculture. Massa aims to reduce public spending and boost foreign reserves with the US$3.8 billion he was given by the IMF.

With elections approaching, the nation is noticeably divided on who they would prefer to see controlling the government. Frente de Todos has support from about 25 percent of the population considering that President Fernández is seeking re-election. Juntos por el Cambio has about five different contenders for the presidency and about 35 percent of the population would be in favor of their control. Another 38 percent of citizens admitted that they were open to a new “political party governing.” Despite these varying percentages, some who stated that they were in favor of opposing parties to the current government also claimed that the incumbent might have the best chance at winning the 2023 election. The leading concerns for citizens in this upcoming election are economic outlook, inflation, and corruption of the government.

Throughout the nation's history all three of these concerns have plagued the government. Every attempt at change in the government and their economic standing has left voters discontent in the past. Leading up to the previous election in 2019, almost two thirds of the population had reported dissatisfaction with the nation's democracy, which has been a common trend since 1983. However, the consensus that change in government has dissatisfied voters in the past may not apply to the upcoming election. Since nearly 75 percent of citizens believe that anyone except the incumbent government could do a better job, this election may be the first time in decades that the Argentine population is satisfied with a change in government control.

In the eyes of Peronists, ensuring that a large change doesn't happen at the end of this year seems to be the most feasible way to prevent problems from worsening. Some citizens are starting to believe that a familiar political force may be needed to solve this crisis, despite them being at the forefront of the current economic situation and instigators of political tension. On the other hand, supporters of Juntos Por el Cambio believe that a change in government is the only way to combat this economic crisis. With large divisions among the nation on who to support, the upcoming election will ultimately answer which coalition the nation believes can save their economy.