Published:
Argentina has been facing many economic and financial troubles these past few months. Future predictions are now showing a poor outlook for its economy, as the country is struggling with high inflation, a major decline in the value of the peso against the U.S. dollar, and more trouble involving disputes with hedge fund and holdout creditors. For a country that has had a history of economic troubles in this century, none of these things spell anything good for Argentina's future, and it only seems to be getting worse from here.
Argentina had fallen into recession earlier in the year but managed to find its way out of it in the last quarter. In fact, in the second quarter its GDP actually grew, as opposed to its predicted contraction. However, it was shown that the projected GDP figures had been inflated by the government, and thus economists are skeptical of future goodwill predictions for the country. In fact, economic firms are predicting overall contractions in GDP for the year, ranging in values up to 2.0%. This is considerably worse than the 0.5% contraction seen earlier this year, but the impact is projected to be primarily domestic.
One of the worries leading to pessimism about Argentina's state is its rapidly depreciating peso. Some people argue that the lowering value of the peso is good for exporters in the nation, as prices of food products from Argentina are expected to decrease and demand for these products may then increase. However, this seems like a small reward compared to the potential consequences. For instance, farmers and other food producers will see the cost of importing necessary equipment rise with the devaluation of the peso. Of course, this does not only apply to the food industry, but to anyone in Argentina trying to buy products from countries whose currencies are stronger than the peso. Indeed, several international businesses are starting to limit the services they provide to Argentina, not only because the peso is too weak, but also because the country currently has limited amounts of foreign cash at its disposal. These reserves are not likely to go up anytime soon either.
The biggest blow to Argentina, however, could come from a court order. Soon, the nation will have to face an American court and explain why they have not yet paid their debt to hedge fund creditors that they were court ordered to pay following their default in 2001. The president, Cristina Kirchner, has been protesting against having to pay this debt for several years, even filing an appeal earlier this summer that she lost. Now, they will be facing an American judge to determine if they are guilty of contempt of court for refusing to pay off this debt. If they are found guilty, they will be forced to pay off their debt in daily installments of $50,000. This does not seem like much, but could put a serious dent in the country's finances because of Argentina's current cash shortage. In the likely case that Argentina is found in contempt of court, it will be hard for it to recover from the impact of the ruling.
Argentina seems to be having a never-ending train of financial ills coming its way. How do you think they can solve all of these problems?
File under
Share this article
