Argentina: Pampas perils

published 2 June 2017

When Mauricio Macri became president of Argentina in December 2015, he inherited "an economy on the brink of crisis, ravaged by one of the world's highest inflation rates", says Benedict Mander in the Financial Times. So the central bank hiked interest rates, even as the government ramped up public spending, financed by foreign investors who are willing buyers of the country's high-yielding debt.

The result is that both the fiscal deficit and the current account deficit have soared to an unsustainable 10%. Hence all eyes are now on mid-term elections in October: investors are betting that the government will perform well, giving Macri scope for reforms to "cure Argentina's economic ills".

Yet the risks are rising, says Walter Molano of BCP Securities. The ruling coalition whose only common goal was the defeat of the previous administration "is dissolving into its original factions". Growth remains in the doldrums. And soaring public spending relies on investors being "willing to permanently finance the shortfall". "This toxic cocktail of polarisation, economic stagnation and fiscal unsustainability has put Argentina on a precarious path to perdition."

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Alice grew up in Stockholm and studied at the University of the Arts London, where she gained a first-class BA in Journalism. She has written for several publications in Stockholm and London, and joined MoneyWeek in 2017.