Argentina is the third largest economy in Latin America and since the beginning of the 1980s, this generation has not known what it means to live without surprise devaluations, high inflation, “corralitos” and economic kickbacks of all shapes and sizes. Plus, they have seen their assets devalue crisis after crisis. Credit has been fleeting, except in some ephemeral years of stability, this generation has not had any incentive to save, because confidence in the banks and the stock market is nonexistent even though today the interest rate is 60%, the highest in the world followed by Turkey, Iran and Venezuela. The reason behind this is that they saw their parents’ savings vanish overnight.
They can’t even trust in building a nest egg because recurrent inflation (currently around 35% and forecast to hit 40.6% at the end of 2018) drives them to buy only what’s needed when it’s necessary (and at times not as necessary) for fear of inflation rising in just a few months or even weeks. A new neighbor of mine who moved to Barcelona from Argentina nine months ago tells me that inflation doesn’t just eat into your wallet, it eats into your mind, too.
Argentinians consume before saving and spend before investing. Years of mismanagement, corruption and theft of public funds caused Argentina to experience a deep and disastrous economic crisis between 1998 and 2001 and the country succumbed to demagogic populism. The acute political and economic problems the country suffered were exacerbated by the confrontation between the government and the IMF’s astringent reform plan. As a result, Argentina entered into suspension of payments on its external debt, which led to the default on about USD 160 billion in debt, representing the largest sovereign default of this type in history.
The IMF recently returned to Argentina and has approved the largest credit line that any country has received: USD 57 billion. In return, the government of President Mauricio Macri pledged to comply with the “recommendations” that the multilateral institution attached to the contract: a drastic austerity plan to reduce the fiscal deficit and the abstention of the Central Bank from intervening in the foreign exchange market. This has caused people to take to the streets once again, and Central Bank Governor, Luis Caputo, resigned after taking office in June.
The latest rescue evokes the ghosts of the last 30 years and the trauma is still lying just below the surface. Argentinians cling to secure employment, given that opportunities are scarce in the private sector. The unemployment rate is already close to 10%, and although it is still far from the rates of close to 20% registered at the beginning of this century, the crises have fueled a culture that venerates the civil service.
In the face of uncertainty, stability and fear, state employment seems to be the aim of this generation, which has been pushed towards conformism over the years. This has resulted in the an oversized public administration, which is a vacuum of talent and a debt machine, and which, in turn, fuels the vicious circle that, in short, is a good part of the origin of recurrent economic crises in Argentina.
Nine months ago, my neighbor decided to join the already huge Argentinian diaspora in the world. And now, from Spain, he tells that although a good part of his compatriots maintain their grandparents immigrant spirit and their parents entrepreneurial confidence, more and more have seen their enthusiasm wane. In my opinion, the uncertainty and distrust this generation feels is not just an Argentinian phenomenon, but an even more complex global one. However, I do believe that in Argentina recurrent economic crises and bad governments—populist or technocratic—have exacerbated this fearful conformism and quiet apathy in a generation that has not been able to think about the future.
- Investment looks to Latin America, but forecasts are not encouraging
- How can Latin America’s business environment benefit from technological change
- Innovation in Latin America: Potential Goes Untapped Due to Weak Economic Conditions
- Latin America is the World Leader in eCommerce Growth Despite Serious Challenges
Ricardo Aceves is a Mexican economist specializing in Latin American macroeconomic issues and currently works as a credit risk analyst at CRIF Ratings in Barcelona. He previously worked as Senior Economist for Latin America at FocusEconomics.
Latinoamerica21 is a blog about current economic, political and social topics in Latin America that is published within the newspapers Folha de S.Paulo in Brazil, El Observador de Uruguay and Pagina Siete in Bolivia, and will soon be published in other media outlets within the region. The original version of this blog post is available in Spanish: Una generación de argentinos con incertidumbre, inestabilidad y miedo al futuro.
*Guest blog posts do not reflect the views of FocusEconomics.
5-year economic forecasts for 127 countries & 30 commodities.