More than a decade after it defaulted on its foreign debts, Argentina is again facing a financial crisis caused largely by misguided government policies.
The administration of President Cristina Fernández de Kirchner recently devalued the peso and relaxed some capital controls in an effort to preserve the country’s dwindling foreign reserves. The government is hoping that these steps will ease some of the pressure on the currency, which does not float freely against the dollar. But Argentina needs to do a lot more to address inflation and other underlying economic problems that have led investors and ordinary citizens to bet against the peso.
In the years after its painful default in 2002, which wiped out the savings of millions of people, Argentina enjoyed a fast-growing economy thanks in part to the booming world demand for soybeans and other commodities the country exports. But Mrs. Kirchner squandered the recovery in recent years by increasing spending on wasteful subsidies and financing the government partly by printing pesos. As a result, inflation has shot up; independent economists estimate that consumer prices jumped 28 percent last year. The official inflation rate was only 10.9 percent but few economists or the International Monetary Fund find that data credible.
Mrs. Kirchner has also hurt the economy by picking unnecessary fights with private businesses and investors. In recent years, she nationalizedan oil company, an airline and pension funds. And, in 2011, the country implemented controls on how many pesos its citizens could convert into dollars, which has helped create a thriving black market for currency transactions and undermined public confidence in the government’s economic policies. A recent poll showed that three-quarters of the country said the economy was headed in the wrong direction.
Government officials have begun taking some small steps to correct past mistakes. For example, the economy minister, Axel Kicillof, has been negotiating compensation for the oil company, YPF, that the government seized in 2012. And Argentina will put out a new inflation index next month to convince the I.M.F. to accept its official data again. But Mrs. Kirchner will have to take much bolder steps to repair the damage.
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