Please enable JavaScript.
Coggle requires JavaScript to display documents.
Institutional Factors Affecting Development (Argentina) - Coggle Diagram
Institutional Factors Affecting Development (Argentina)
Argentina’s Honeymoon with the IMF
Argentina’s honeymoon with the IMF will be tested as they look to update their $57b dollar agreement to try and combat economic recession in the country.
The argentinian government has defaulted in the past, which means the IMF will want serious guarantees in terms of debt sustainability.
Austerity by the government amidst the coronavirus pandemic poses a threat to president Alberto Fernandez ahead of mid term elections in the coming year.
The IMF is seen by many in Argentina as having triggered the country's most recent economic crisis.
The 10th default?
Deputy director of IMF Julie Kozack says that the funds initial purpose was to “strengthen macroeconomic stability” as well as to “reduce poverty and unemployment”
Many believe that Argentina’s economy will be more difficult to fix than hoped for, due to foreign reserves dwindling, and capital control hurting businesses.
Is Anything being done to aid the crisis?
Agreed on a fund of 6.5 Billion dollars exceptional access program with Ecuador.
The IMF’s director Kristalina Georgieva and Guzman spoke with Pope Francis at a Vatican Conference.
Less conditions on the fund than expected, which could potentially fare well for Argentina.
IMF has a decision to make in Argentina: rock or hard place?
IMF has a tough choice to make in Argentina
Either to unlock $5 billion in funds under the countries loan deal in order to stop Argentina from defaulting, or to hold the money back, which can spark market panic.
-
The IMF agreed to a $57 billion line of credit, with the last 5 billion to be released this month.
This is being contested, as the “business friendly” president Mauricio Macri’s election defeat caused a crash in the Peso, forcing the government to implement capital controls.
Gabriel Monzon, head of local consultancy Grupo latina is putting off the final payment of loan credit to Argentina following the election defeat of Macri on August 11 , saying that “The Fund will not disburse more money until the presidential election in October,”.
Economic outlook darkens.
The economic situation of Argentina looks to be continually worsening:
Inflation is expected at 55% this year
Economic analyst Gustavo Neffa, an economic analyst at Research for Trade believes that the sum of money the IMF is set to give Argentina will be delayed until af
Inflation spiked, and the peso lost ¼ of its value.
IMF lands in Argentina amid debt crisis
-
At this stage, Unemployment and poverty levels are sharply up
Peso has dropped and inflation was more than 50 percent in 2019
Alberto Fernadnez stated that the payments are unsustainable and wants to restructure the IMF agreement
In order to develop, Argentina needs to be free from its debt( 311 billion)
Solutions
The IMF cannot have Argentina collapse just after 2 years of taking the IMFs loan as this creates a horrible image of the IMF.
Argentina needs to resolve its debt crisis, which will in turn bring businesses back into the country, creating employment and economic growth.
Basically Argentina is saying that they will pay once they grow
Argentina: how IMF’s biggest ever bailout crumbled under Macri
How it started:
Due to political instability present in Argentina for many decades, many businesses fear going to the country( no market confidence), creating unemployment and poverty.
To inspire market confidence:
15 months after the loan was taken, no improvements were made and the country was still in a recession.
This resulted in civil unrest and helped Macri’s rival, Fernandez, win in the primary elections on August 11. This once again resulted in uncertainty of the new president, once again pushing foreign companies away. ( Even the IMF wasn't sure whether to give out the last loan to Macri’s gov. Or to wait for the next president. However, the IMF said it would support Argentina in their hard times.)
Macri received a loan of 50 billion dollars by the IMF. He was able to receive this kind of money thanks to the close ties he has with Donald Trump, which shows how the IMF operates( The US holds the biggest share of the IMF board)
No one really understands why the IMF is still trying to help Argentina, even after it's 70 years history of economic crisis’ and the 2001 economic collapse that resulted in bank runs, widespread unrest, and the president fleeing the country by helicopter.
How people view the IMF
56 percent of the population don’t like the IMF- Many feel that everytime the IMF comes to the country, it creates budget cuts and economic chaos on its way out.
Mistakes made by the Government:
Market overshoot should equal policy overshoot. But Macri’s gov. Has not done this, creating the present problem.
It continued borrowing huge sums of money while trying to adjust their economy slowly
Mistakes made by the IMF
The IMF has given out a loan of 50 billion. After this didn't work, they gave another 7 billion to the Argentinian gov. However, it didnt work either because they made another mistake. They got it wrong both times when it comes to exchange rates.
About the IMF
Created alongside the WB in 1945, is an institution in the UN system
It has 189 member states
It has 189 member states
The IMF monitors exchange rates, stabilizes international monetary systems. It is supposed to facilitate international trade and promote economic growth
Prevents a domino effect in collapsing economies.
Serves western interest such as the US or Europe.
The influence inside the IMF belongs to the country that invests the most. The US is the largest investor in the IMF, therefore has the largest say in the matters.