How is it that these actions are yielding opposite results?

[d5000]

Argentina expert here (sort of ...)

He then set out to carry out some economic reforms. Some of his economic achievements like a budget surplus and decreased inflation have been impressive.

First, "decreased inflation" is not true. The new government itself is responsible for the December/January inflation rate, which was much higher than what was experienced in most of 2023 and was caused by the first measures of the government after December 10 (above all a >50% devaluation of the ARS, which made many imported goods much more expensive). December and January had over 20% inflation monthly, while in 2023 most of the time it was around 10% monthly. I chose the monthly rate because the yearly rate doesn't really explain what's happening.

Now in February the inflation went down to 13,2%, which is an improvement over January, but still worse than in most of 2023. March is expected to have similar figures (10-15%).

The budget surplus was achieved with pretty simple measures, like reducing pensions (relatively to inflation) and subsidies, and closing several nationwide institutions, reducing thus personal costs. I agree with some of these measures, because some state institutions were inflated by clientelist structures, but with others I don't agree (see below).

But what I do not understand is that some of his policies aimed at slashing government programs and instituting extreme libertarian reforms, is triggering a deep recession and reduction in the purchasing power of the Argentines.

The problem here is, as Don Pedro Dinero already wrote, a conflict between short term and long term effects.

A reduction of public spending is recessive in the short term, because the state makes up a quite big part of the demand in the local economy. Public spending in Argentina makes up about 37% of GDP, which is similar to the US (38%) but significantly lower than in Europe (often 40%+, for example Germany has 49% and Italy, Austria and France even more than 50%, according to latest available figures). If you take this into account, even if the provincial/municipal level also is important and it decreased less, then it becomes "logic" that many local companies are now suffering decreasing sales in the internal market because of the federal states budget reduction. Above all the construction sector is affected directly by this.

Another problem is that due to the extreme inflation between December and January (together about 60%), the real salaries decreased, harming the local companies' sales even more, although they are partly responsible for this because many exaggerated their price increases.

What the government wants to achieve with this is a long-term effect: reduce inflation really significantly (at least to the level of pre-2022, to two figures anually) and achieve that the financial sector "normalizes", creating more stable conditions, which could be a pillar for future growth. Recession normally reduces inflation, as companies increasing prices too much will be punished by lesser sales. Currently this is already begining to work: it is likely that if current trends continue, in April and May the prices will rise below the 2023 average level. This is combined by a conservative Central Bank policy, reducing "money printing", which also reduces inflation according to the most established economic theories.

But the question is: if the recession is too deep, Argentina's economy could be harmed structurally, for example due to an exodus of talented workers to other countries. This would harm above all the industrial sector and reduce economic diversification. Some say the industrial sector is currently bloated and lacks competitivity. But on the other hand, Argentina is South America's only country designing and building complete own satellite missions and fabricating integrated circuits. If such strategic sectors are lost, the economy will suffer even more in the long term. There could be also a further structural poverty increase, and poverty rate is already high (35-42% in the last 6 years), which could cause a rise in welfare expenditure, or a loss of the general population's welfare level.

It's a gamble: it could work or not, or work for some time (like in the 90s when similar policies were tried), but then lead to a big bust (2001).

[kryptqnick]

The new president's ideas are radical libertarian. From things I've read and watched about the economy of Argentina, the situation is very complicated because of decades of mismanagement and bad policies. So there is no easy way to fix it, and any strong attempts to change something are likely to temporarily make things even worse and thus might lead to protests that can force the authorities to stop those policies before they can actually do any good. I find this video by the Economist helpful in this regard, especially the last part of it about the solutions and how things are likely to get worse before they can get better.

[Davidvictorson]

Argentina expert here (sort of ...)

You gave an excellent reply. I totally understand now what is going on in Argentina. As I read through, it reminds me of my country. We are facing a similar situation too with leadership, economy, long and short term effects of economic policies. In terms of inflation rate in my country, in December 2023 inflation rate was 28.92%, in January 2024 inflation rate increased to 29.90%. In February, it further increased to 31.70%. Right now, I can't tell if this is a short term effects to the reaction of new economic policies or not. Just like Argentina, our best brian are leaving the country with their family in droves for overseas to work. We have doctors, nurses, health care professionals, bankers, lawyers, engineers, software developers, who have left as a result of the economic hardship.


Thank you once again for helping me understand this. As a show of my appreciation, I have sent you 1 merit. I wish I had more to send.
https://www.nigerianstat.gov.ng/

[avikz]

Can someone who understands the Argentine economy explain what is going on there for me. I was excited when the current president won the election. He then set out to carry out some economic reforms. Some of his economic achievements like a budget surplus and decreased inflation have been impressive. But what I do not understand is that some of his policies aimed at slashing government programs and instituting extreme libertarian reforms, is triggering a deep recession and reduction in the purchasing power of the Argentines. How is it that these actions are yielding opposite results? If you understand why this is happening please explain it to me.

Please understand the concept of demand supply first. When people have disposable income, they tend to spend too much which increases the demand in the market. When demand is increased, the price increases. Now companies making those products try to match the demand by increasing the supply. To increase the supply they need to invest more into manpower and machines. People get more income and they spend more, thus aiding the current spend level which again increases the demand. It's a chain reaction.

The best way to control inflation is to such out the cash from the economy to reduce the purchasing power. This can be done by increasing bank interest rate, by increasing taxes or by cutting down the government spend. Once the excess money is sucked out of the economy, people don't have high disposable income so they tend to control their spend which decreases the demand. It's the same chain reaction again happens in reverse.

Hope this helps!

[Cookdata]

Can someone who understands the Argentine economy explain what is going on there for me. I was excited when the current president won the election. He then set out to carry out some economic reforms. Some of his economic achievements like a budget surplus and decreased inflation have been impressive. But what I do not understand is that some of his policies aimed at slashing government programs and instituting extreme libertarian reforms, is triggering a deep recession and reduction in the purchasing power of the Argentines. How is it that these actions are yielding opposite results? If you understand why this is happening please explain it to me.

Our problem is that politics doesn't help us to see even common red flags that one should have ignore. I don't know if he is the best candidate for the country but people have this sense of believe that when a country is bad and a politician campaign some agenda to improve the country, the think change can just happen over night but a better economy doesn't work like that. He might even have a good intentions but policies making might not be favorable and might have to adjust a again to a better alternative.

Recession I belive is a temporary condition especially when there is a massive reform of economy policies, you don't expect the country to continue in the same direction when you change the magnitude and directions of policy but with time they will come out of it.

As for the government officials, they need to feel what the people are feeling, when you want a country to better it's the the people that suffer and makes the sacrifice but is that fair when the government individuals are been exempted and continue to enjoy while the masses suffer? When the country is sacrificing, everyone must contribute their own quota.

[Synchronice]

Can someone who understands the Argentine economy explain what is going on there for me. I was excited when the current president won the election. He then set out to carry out some economic reforms. Some of his economic achievements like a budget surplus and decreased inflation have been impressive. But what I do not understand is that some of his policies aimed at slashing government programs and instituting extreme libertarian reforms, is triggering a deep recession and reduction in the purchasing power of the Argentines. How is it that these actions are yielding opposite results? If you understand why this is happening please explain it to me.

It's not directly in touch with your topic but since it's about the economy of Argentina, I suggest you to read The Argentina Paradox. Argentina achieved advanced development in the early 20th but then everything started going down. Argentina was one of the world's richest country and now it's one of the most poor. So, I just wanted to say that Argentina is full of paradoxes and it shouldn't be a surprise for you.

I'll tag @stompix, he loves economy, might be an interesting thread for him (and his answer might be interesting for you).

[|MINER|]

I think this government needs some time.  Because it is not possible to change this country by coming to power.  Because it is a real country, not a movie or drama.  It is not possible in reality as it is in the movies that the ideal government comes to power and changes everything.  But if there is an honest effort, I hope that Argentina's economy and prosperity will change slowly.  Argentina had long suffered from corruption and inflation.  Which is not possible for a government to resolve in three months.  It needs time.  So instead of being restless if the government is honest then one should trust the government and wait a bit.

[bluebit25]

The Argentine economy cannot rejuvenate and return to normalcy in the short term as the country's current situation seems quite dangerous. A number of problems, including hyperinflation, rising interest rates, economic recession and an exorbitant debt-to-GDP ratio, are devastating Argentina. Furthermore, I can see that the country's unstable political situation is making the problem worse.

According to my observations, many of the current Argentine president's policies actually have a reform agenda for the country, although implementing them will not be easy. However, I hope that, despite all the difficulties, Argentina will soon escape this gloomy period.

[Fortify]

Can someone who understands the Argentine economy explain what is going on there for me. I was excited when the current president won the election. He then set out to carry out some economic reforms. Some of his economic achievements like a budget surplus and decreased inflation have been impressive. But what I do not understand is that some of his policies aimed at slashing government programs and instituting extreme libertarian reforms, is triggering a deep recession and reduction in the purchasing power of the Argentines. How is it that these actions are yielding opposite results? If you understand why this is happening please explain it to me.

Argentina has been in a shitty economic situation since the 1980's and even before that, so it's not exactly a new situation that they are struggling. Unfortunately populist politicians, that use all the right soundbites and tell the people what they want to hear are simply short term thinkers who often end up only enriching themselves. It takes decades, even centuries, to rebuild trust in institutions required for a fully rounded and functioning economy. It requires independence from government on certain aspects, like central banks have in theory. When a country has been on a bad path for such a long time, you will naturally have shocks and even things getting worse as someone takes hard measures to correct the situation, it is inevitable - reap what you sow. I hope things get better for Argentina, but it make take a long time.