Argument

Argentina’s Economy Crumbles as Buenos Aires Lockdown Continues

The nation was already on the economic brink before COVID-19 hit.

A volunteer church worker delivers a box with food supplies at the Villa 31 shantytown, amid the lockdown in Buenos Aires, Argentina, on July 25.
A volunteer church worker delivers a box with food supplies at the Villa 31 shantytown, amid the lockdown in Buenos Aires, Argentina, on July 25. Alejandro Pagni/AFP via Getty Images

The Argentine government has taken a harsh approach to the coronavirus from the start—but the economic costs are now coming due, with disastrous consequences. When most Latin American countries were just becoming aware of the looming threat, Argentina was already closing its doors. On March 20, with 128 active cases in the country and just three deaths, the Argentine government imposed one of the strictest quarantines the region has ever seen. It was a desperate attempt to control the spread—and one that only partially succeeded. But the fierceness of the measures, experts warn, will have effects for years to come.

Phase one of the quarantine, which lasted until April 12 throughout the country and has recently been reinstated in areas seeing new waves of infection, demanded a near-total cessation of economic activity in the country.

Shops and banks closed their doors, as did educational and leisure centers, and the only businesses that were able to remain open were those providing essential services, such as supermarkets and drugstores. These measures, even at the beginning, were highly criticized. “All the closures, which were initially really extreme, generated serious economic damage,” said Victoria Giarrizzo, the director of the Center for Regional and Experimental Economics. “At first the industries were closed, then the businesses were closed, and in the end there were many people who were left without work,” she added, referring mainly to the small businesses that had to close down and to the independent and informal workers. Argentina, unlike other countries in the region, did not encounter massive layoffs of workers because the government imposed measures to prevent this from happening—measures that, in the long run, would harm the country’s businesses.

These measures seemed to work at first. One month after the introduction of the quarantine, Argentina had 3,031 infections and 142 deaths, and for a country of more than 40 million people, these figures were very encouraging. This situation seemed promising compared with other countries in the region. In Chile, for example, which has more than 18 million inhabitants, as of April 24 there were 12,306 cases and already 174 deaths from the virus. Beyond Argentina’s initial success, this scenario didn’t last. After the attempt to gradually reopen the Buenos Aires metropolitan area—the area most affected by the pandemic—it became clear that the quarantine, which appeared to be a temporary measure, was there to stay.

But as of Aug. 26, Argentina had 370,188 cases, most of them in the Buenos Aires metropolitan area, where over 13 million people live. The number of infections and the rapid spread of the virus mean that even today more than 30 percent of the country’s population remains under strict quarantine. In the rest of the country, with the exception of Jujuy province and some areas in other provinces, the situation seems to be improving. “The government understood that there was a good part of the country that did not have the same problem as the city of Buenos Aires and its surroundings, so the provinces began to enter other phases where there were more openings,” said Ana Inés Navarro, the director of the economics department at Austral University. But that doesn’t help much, given the critical role that the Buenos Aires metropolitan area plays economically, representing roughly 45 percent of the country’s GDP.

In April, Argentina’s economy fell by 26.4 percent from the year before, and even in May, when the strict measures began to be relaxed in the provinces, the economy still plummeted by 20.6 percent from the year before, rebounding thanks to the slight opening up of services and increased consumption there.

Raw GDP doesn’t bring home the scale of the pain. A report by the Municipal Bank Foundation estimates that for every point of decline in GDP, there is a point and a half of decline in formal wages. “If we talk about a 20 percent drop in the economy, it’s probably less, but it would be a 30 percent drop in the best salaries,” said Navarro, who led the team that conducted the study.

This drop in wages, in addition to diminishing the quality of life of citizens, is hitting the most vulnerable sectors such as the unemployed. It’s also affecting productive sectors, limiting consumption capacity, which is essential for the economy to recover.

The long-term nature of the restrictions is having a particularly harsh effect. “Initially, the strict quarantine was justified as a way to prepare to improve the health infrastructure and prepare the population,” said Enrique Szewach, a former director of Argentina’s Central Bank during the previous government. “Then the extension of the limitations to economic activity worsened the previous scenario, with the aggravating factor that without access to debt or savings, all the compensatory measures were and are still being made by expanding public spending financed from the Central Bank, with the issuance and placement of debt in the financial system.”

But even before the pandemic started, Argentina’s economic situation was already fairly dire—leaving the country more exposed than most to the impact of lockdown. In 2019, Argentina ended the year with inflation of 53.8 percent, the second highest in Latin America after Venezuela. Its debt, one of the largest in the world, amounts to $323 billion. The Alberto Fernández government, which promised to eliminate $66 billion of this debt during its term, is still in negotiations with creditors, and the chances of the country defaulting again, as it did in 2001, are high.

In 2019, Argentina closed the year with 25.6 percent of the population, 9.9 million people, in poverty. Poverty is defined as not being able to afford a basic basket of goods defined by the government; as the peso has been devalued, prices have risen, and wages have remained stagnant, driving more people into poverty. Because poorer families tend to have more kids, 53 percent of children, around 7 million people, were living in poverty. High levels of informal employment also made the poor even more vulnerable to lockdown.

“Estimates put child poverty at 63 percent at the end of 2020, affecting 8.3 million children and adolescents,” said Sebastián Waisgrais, a monitoring and social inclusion specialist at UNICEF, adding that the increase in poverty is a direct consequence of the sharp drop in economic activity.

The government has tried to cover the worst-hit groups. “An emergency income was implemented to complement the preexisting subsidies, and although there are leaks and implementation errors were corrected, this system has been relatively effective,” said Szewach, referring to the creation of the IFE (emergency family income), which is a payment of 10,000 Argentine pesos (about $141) whose main function has been to alleviate the economic situation of the most affected Argentine families. This payment has been extended for the second time, reaching approximately 13 million people and 2.8 million children and adolescents. “Almost 60 percent of households with children are receiving some kind of cash transfer from the state,” Waisgrais said. The government also increased food plan allocations, provided extraordinary bonuses for different types of cases—from retirees to health workers—and imposed measures such as making it impossible for companies to invoke force majeure (an exception to the country’s tight labor laws that allows companies to lay off workers due to situations that are not under their control) to dismiss their workers until July 31.

But there was one group these measures couldn’t reach. “The IFE improved the situation of the lower sectors, and many of these people were able to live even better than before the quarantine. The problem is that there was another very large sector of low-income people who could not access the IFE,” said Giarrizzo, noting that the high number of undocumented people in the country means that a significant sector of the population is left without this type of assistance. Low-information communities, such as the people living in Argentina’s villas miseria (a local term for slums constructed by the inhabitants themselves)—in many cases without access to basic housing and health services—are also affected by this situation.

Reducing the impact on the most vulnerable needs targeted policies. “There are 4.2 million people who live in the 4,000 most populous neighborhoods throughout the country, where childhood poverty exceeds 90 percent,” Waisgrais said. “In these neighborhoods, 98 percent do not have access to the sewage network, 64 percent do not have access to the electricity network, and 99 percent do not have access to the formal natural gas network. “

Companies, already reeling from a crisis that had been dragging on for years, have suffered from the lack of aid. Small businesses, particularly those unable to benefit from e-commerce, are suffering most from this situation. “For these sectors, the aid was and is very partial and quite inefficient, and bankruptcies and closures are being generated that will not be easy to overcome,” Szewach said. For some eligible companies, the state covers 50 percent of employers’ wages, with certain limits, and also freezes some rent and bill payments. A 24 percent credit line was also set up to cover wages, which, Giarrizzo said, “is very expensive for businesses.”

The lack of support, in addition to generating massive business closures, has a direct impact on the most vulnerable sectors of society. “The government has tried to stop companies from laying off workers—and seems to have succeeded—but the serious problem that Argentina has at the moment is the closure of companies,” Navarro explained. “It’s the number of companies that have stopped producing, or that can’t produce because they’re not yet operational, and that are unlikely to reopen after the quarantine. Then you are going to find, after the quarantine, a very worrying landscape from the point of view of the generation that is looking for employment.”

“If there is no support for businesses, the truth is that I cannot imagine an economy eternally totally subsidized by the state,” Giarrizzo said. Because of the state’s fiscal deficit and lack of resources, the government temporarily resorted to printing more pesos to cover the costs of the pandemic. “The government is going to have to lower the costs for the companies to make them profitable in a context where consumption is going to be lower,” she added.

Argentina was able to recover relatively quickly from its last major economic crisis, in 2001, thanks to a booming global economy. That’s not happening today. “In the 2001 crisis, the government had a huge tailwind with the commodity boom, which had a very positive impact on all of Latin America,” said Navarro, adding that the foreign market no longer moves that way.

The inexperience of the government—which took office last year—and the lack of political agreements and implementation of contingency programs, such as anti-inflation plans, mean that the outlook for the future is not encouraging. But the government’s inexperience may also prove a surprising advantage, making it more willing to take risky measures to save the economy of a country that has been in crisis for years. The swift lockdown doubtless helped save lives—but unless the government can take bold steps, the economic crisis consuming the country’s poor will claim its own toll.

Milagros Costabel is a visually impaired freelance writer and disability rights advocate living in Colonia, Uruguay.

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