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How a year of "endless storms" battered Argentina's economy

by Reuters
Thursday, 20 December 2018 11:00 GMT

People walk past a store with signs reading "Unique offers, last months" and "Buy today and pay in February," in Buenos Aires, Argentina December 12, 2018. Picture taken December 12, 2018. REUTERS/Agustin Marcarian

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In Argentina, 2018 has become the year of the "new poor"

By Nicolás Misculin and Gabriel Burin

BUENOS AIRES, Dec 20 (Reuters) - Argentine government worker Fabián Pennella lost his job on Aug. 17, just as his country plunged deeper into economic crisis. On the same day, President Mauricio Macri acknowledged in a news conference that more Argentines were living in poverty.

In Argentina, 2018 has become the year of the "new poor."

Interest rates are at world highs, inflation is close to 50 percent and the peso has lost nearly 50 percent of its value against the dollar. Consumers have also faced wallet-emptying double-digit increases to electricity and gas bills and public transport fares, part of Macri's austerity program to balance the budget.

A drought crippling vital agricultural production, investor worries about Macri's ability to plug yawning fiscal and trade deficits, and higher U.S. interest rates that sucked money from emerging markets combined to deliver a series of blows to Latin America's third-biggest economy in 2018.

In Buenos Aires, shops with final sale signs or steel security shutters drawn down are a common sight. Some Argentines have resorted to barter clubs to exchange food and clothes. Anecdotally, there is evidence more people are participating in the gig economy, renting out rooms on Airbnb or driving for Uber for extra income.

Pennella, 36, is one of those seeking a job with Uber.

Four months ago, he was an executive assistant at a state energy company where he had worked for 10 years. He rented a suburban house, had a health plan for his family, and took regular holidays.

When he lost his job, his wife lost her income, too. She had sold home-made food at his office. No longer able to afford rent, Pennella, his wife and two young children have moved into an apartment on the ground floor of his parent's house.

The family's only income comes from odd jobs, like painting, that Pennella finds while he waits for Uber to approve his application.

"My life changed after 10 years, literally," Pennella said. "My wife and I try to do without, but we try to make sure the children do not lack anything."


Macri, a wealthy former mayor of Buenos Aires, won the presidential election in 2015 on his "Let's change" platform, an attractive message for voters exhausted by the corruption scandals and the country's frequent economic and political crises.

On taking office, Macri made good on his promises to eliminate capital controls, cut export taxes and float the peso, moves that pleased foreign investors. He also pledged to bring inflation down to single digits.

That hasn't happened. Economists now forecast the country will end 2018 with inflation touching 50 percent.

"There were endless storms (in 2018) that started with the drought and the retreat from emerging markets, of which Argentina is part," Macri told a gathering of government officials last week.

One of the first storms to strike the economy with tornado-like force occurred in April, when yields on the U.S. benchmark 10-year Treasury notes reached their highest in four years, battering emerging markets. Argentina was one of those hit the hardest.

Over a period of three days, Argentina's central bank sold more than $2 billion in foreign reserves in a vain effort to stop a sharp devaluation of the peso. (Graphic: https://tmsnrt.rs/2Gu0GMD)

As the peso continued to fall, the central bank increased interest rates in May to 40 percent and Macri began emergency talks with the International Monetary Fund. In June, the IMF announced a $50 billion lifeline for Argentina.

Throughout the crisis, Macri has been highly visible on television, explaining to Argentines the steps his government is taking. Nevertheless, his approval ratings have tumbled.

Emiliano Di Ilio, a 38-year-old pharmacy owner, voted for Macri in the hope he could bring economic stability.

"He made a promise that was not fulfilled," said Di Ilio, whose pharmacy has experienced a 25-percent drop in sales of medicines over the past year. "They were all lies and I feel disappointed."

Macri has acknowledged that his austerity program is painful but also necessary to develop the economy.


Even as Argentines struggled to adjust to their new reality in the early months of 2018, another storm was brewing.

A devaluation in the Turkish lira on Aug. 10 reignited concerns over the vulnerability of emerging markets. The peso was in the line of fire. Within three days it had crashed to an all-time low against the dollar.

It was a fresh blow for Argentines already battling to make ends meet amid rampant inflation, fueled in part by subsidy cuts that led to a 70 percent increase in gas prices, a 24 percent hike in electricity bills and a 116 percent jump in public transport fares over the year.

While the economic crisis is not on the same scale as the 2001-2002 meltdown, its impact is clearly visible along Florida Street, one of the capital's main shopping arteries. Some 20 percent of its nearly 1,300 stores are unoccupied, according to a December report by the real estate firm Adrián Mercado.

Along a 200-meter stretch of Forest Avenue in the Chacarita neighborhood, there are empty shops, shuttered store-fronts and "total liquidation until stock is exhausted" signs. At least four stores and a clothing factory have closed in recent months, people in neighboring shops told Reuters.

"People are coming in and saying that a 160-peso (4 dollar) chomba (t-shirt) is expensive, but that is not expensive. The problem is that people don't have money," said Néstor Recchini, a salesman at one of the area's stores.

The weak sales come against a background of rising unemployment, which climbed to 9 percent in the third quarter, up from 8.3 percent in the same period in 2017, according to official data.

Government data is expected to show poverty grew to 33 percent by the end of the year from 27 percent in the first half of 2018, said researcher Agustín Salvia at the Catholic University of Argentina. (A person earning less than $213 per month is considered to be living in poverty in Argentina.) Argentina recently changed the way it measures poverty, so it is difficult to show a historical comparison. The 33 percent figure would be the highest since 2016 and some researchers think it would be the highest in at least a decade.


Two weeks after Pennella, the former executive assistant, lost his job, Macri went on national television on Sept. 3 to announce emergency measures to halt a collapse in the peso and restore investor confidence.

The central bank had already raised interest rates to 60 percent. Now Macri's government announced a tax on exports, a halving of government ministries and other measures to cut spending. The following month Argentina secured $7 billion in additional funding from the IMF.

Those measures, along with a tighter monetary policy and an austere budget passed by Congress in October, have helped stabilize the peso. Economists expect the recession to bottom out in the first quarter of 2019.

In the meantime, Pennella is surviving on his dwindling severance pay and the odd jobs.

"We are doing what we can to bring money home, but the money is not enough. I am sending out résumés," he said. "They have called me, I have gone to interviews, but they do not call you again."

(Reporting by Nicolas Misculin and Gabriel Burin; Additional reporting by Scott Squires Editing by Ross Colvin and Paul Thomasch)

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