Argentina has been “printing money for the people” MMT-style for many years. Its wrongly-called “inclusive monetary policy” of the past - print money to finance massive government spending - has driven the country to massive inflation and depression.
This is the main reason why a country with an excellent education, human capital, and high economic potential has third-world inflation rates.
Argentina inflation rose to 54% annualized this week. Bonds spreads soared to 854 Bps, the two-year Credit Default Swap (CDS) is at 1094 bps; and the five-year at 948 Bps. But the country’s governments blame inflation on anything except its insane monetary policy
The Argentine economy is more fragile and vulnerable than similar ones. However, Argentina is also one of the countries with the highest economic potential. There are five essential factors to understand the weakness of the economy:
It is true that some measures have been taken to reverse these elements of fragility, but reforms must be more courageous to prevent the economy from falling further in 2019 and 2020.
It is not easy to change wrong “neo Keynesian” policies of the Kirchner era without recognizing the enormous monetary and fiscal hole created by the previous administration, but if the reforms are not decisive and clear, the Argentine economy will continue to be fragile and more vulnerable to economic cycles than other similar ones. Argentina is a great country with terrible monetary and fiscal policies. With such potential for growth and employment, it is worthwhile to be brave and put an end to the remnants of past wrong policies.
A version of this article first appeared here.
Daniel Lacalle is one the most influential economists in the world. He is Chief Economist at Tressis SV, Fund Manager at Adriza International Opportunities, Member of the advisory board of the Rafael del Pino foundation, Commissioner of the Community of Madrid in London, President of Instituto Mises Hispano and Professor at IE Business School, London School of Economics, IEB and UNED. Mr. Lacalle has presented and given keynote speeches at the most prestigious forums globally including the Federal Reserve in Houston, the Heritage Foundation in Washington, London School of Economics, Funds Society Forum in Miami, World Economic Forum, Forecast Summit in Peru, Mining Show in Dubai, Our Crowd in Jerusalem, Nordea Investor Summit in Oslo, and many others. Mr Lacalle has more than 24 years of experience in the energy and finance sectors, including experience in North Africa, Latin America and the Middle East. He is currently a fund manager overseeing equities, bonds and commodities. He was voted Top 3 Generalist and Number 1 Pan-European Buyside Individual in Oil & Gas in Thomson Reuters’ Extel Survey in 2011, the leading survey among companies and financial institutions. He is also author of the best-selling books: “Life In The Financial Markets” (Wiley, 2014), translated to Portuguese and Spanish ; “The Energy World Is Flat” (Wiley, 2014, with Diego Parrilla), translated to Portuguese and Chinese ; “Escape from the Central Bank Trap” (2017, BEP), translated to Spanish. Mr Lacalle also contributes at CNBC, World Economic Forum, Epoch Times, Mises Institute, Hedgeye, Zero Hedge, Focus Economics, Seeking Alpha, El Español, The Commentator, and The Wall Street Journal. He holds a PhD in Economics, CIIA financial analyst title, with a post graduate degree in IESE and a master’s degree in economic investigation (UCV).