Key Takeaways:
- Argentina is facing a severe economic crisis, with inflation at a 31-year high.
- The IMF has offered a bailout if the country adopts an anti-crypto stance.
NEW DELHI (CoinChapter.com) — Argentina is undergoing a severe financial crisis as the country’s inflation rates soared past 100% for the first time in over 31 years.
Inflation in Argentina reached 104.3% Year-on-Year in April. March saw inflation accelerate to 7.7%, despite economists’ speculations of 7%
Bloomberg economist Adriana Dupita wrote in a note“There’s little the government can do ahead of the October election. A rate hike at the next central bank meeting would keep real rates positive, as agreed with the IMF, but wouldn’t have a practical near-term impact on inflation.“
The last time the South American nation faced a similar crisis was during the hyperinflation in 1990. Argentina’s economy has struggled for decades, but the crisis worsened in late 2020.
In addition, the impact of the COVID-19 pandemic on the global economy exacerbated the already hurting Argentinian economy.
Protests And Security Concerns amid Inflation
Furthermore, Argentina has been facing civil unrest for some time, fuelled by a severe economic crisis, declining wages, and reduced purchasing power. In Aug 2022, two labor unions marched through Buenos Aires to protest against the increase in poverty and demand higher wages.
The country has become caught in a wage-price spiral. As prices go up due to inflation, workers demand higher wages to meet daily needs.
Demonstrations increased in Nov 2022 as people and organizations demanded more action to counter the inflation. In addition, security remains a major concern in the upcoming presidential elections.
The recent firing in a supermarket owned by football star Lionel Messi’s family underscores the security situation in the country. After the attack, Argentinian Security Minister Aníbal Fernández stated that “the narcos have won” in Rosario, the largest city in Argentina’s Santa Fe.
Meanwhile, Argentian citizens have lost trust in the peso, the country’s currency. The super-high inflation means Argentinians refuse to bet on the peso staying stable, wrote Vox’s Emily Stewart.
Additionally, Stewart noted that most people preferred converting whatever they saved into US dollars. Moreover, with the ongoing economic turmoil, Argentinians might have lost faith in the country’s banking system.
A currency crisis in 2018 caused the Argentinian peso to drop nearly 52% against the US dollar in 2018. Later, Alberto Fernández’s election as President resulted in a sell-off in government bonds that the government defaulted on later.
President Fernández resorted to printing more money during the COVID-19 pandemic, further pushing the peso down. The ARS/USD pair shed 75% of its value since Jan 2020 to reach a monthly low of $0.00413 in April 2023.
Moreover, the peso last registered positive monthly gains against the dollar in Dec 2019, highlighting the troubles in Argentina’s economy.
IMF To The Rescue, But With A Condition
Meanwhile, Microstrategy founder Michael Saylor recently tweeted that Argentina needed Bitcoin (BTC) to recover from its ongoing financial crisis. However, the International Monetary Fund (IMF) was not amused.
The IMF granted Argentina a $45 billion bailout with the anti-crypto condition in place. IMF’s decision might be in light of concerns that cryptocurrencies’ popularity could undermine the firm’s bailout operations if countries invest bailout packages in cryptos instead of their intended use.
In a recently published report on the “macro-financial implications of crypto assets,” the IMF stated that cryptocurrencies posed substantial risks to monetary policies.
Monetary policy transmission would weaken if firms and households prefer to save and invest in crypto assets that are not pegged to the domestic fiat currency. The risk of currency substitution (“cryptoization”) is particularly pertinent for countries with unstable currencies and weak monetary frameworks.
An excerpt from the report
The government had approved the clause in a March 2022 vote approving the bailout deal with the IMF.
In a letter signed by Economy Minister Martín Guzmán and central bank president Miguel Pesce, the government outlined Argentina’s efforts to “discourage the use of crypto-currencies” to “safeguard financial consumer protection.”
