Argentina’s Peso Is Falling Apart, and Foreign Aid Isn’t the Safety Net It Used to Be

Argentina's economy is among the worst it has been in the last several decades. The peso's value has been consistently declining. Inflation has become a plague and distrust of the government by the people has been growing. Moreover, the price of goods is changing so rapidly due to the devaluation of the peso that stores are updating their prices sometimes daily. Saving in pesos has become worthless for many Argentines.

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The case combines old factors with new ones. To begin with, this is not the first time that Argentina has been in trouble financially. Argentina has had economic crises ranging from hyperinflation in the 1980s to debt defaults (when a country is unable to repay the money it owes to lenders,) especially the one in 2001, which, in turn, triggered a deep recession. What makes the current situation different is that the resources that Argentina has been using to support her economy, e.g. foreign loans and international aid, are not effective anymore.

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Argentina has been, for a long time, largely dependent on foreign aid, such as funding from the International Monetary Fund (IMF) and other global lenders. The lenders' expectation was that the money would be used for economic reform, which would then lead to long term stability. Instead of that the government decided to continue printing money for social programs and other expenditures while it did not control inflation or tighten spending. Although this action may have provided relief at the time, it set the stage for long, term economic instability and was one of the reasons why inflation reached the highest levels in the world.

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At the moment, Argentina's inflation rate has gone beyond 200%. This situation makes it almost unthinkable for families to make financial plans or save money that they already have. Businesses try to set prices but it is getting more and more difficult because rapidly changing inflation rates make valuation of goods and services hard. At the same time, workers request higher wages and although they get raises, these are quickly made a mockery of by the continuous devaluation of the peso. Namely, this has had the effect that people who want to save and spend turn to dollars as a means of offering more stability. Nevertheless, since the government tightly regulates access to the dollar, it is not a complete solution. Apart from that, as the peso loses its value, the demand for dollars rises, and thus, the rate of the black market peso compared to the dollar gets lower, i.e. one dollar would buy more pesos on the black market than at the official dollar exchange rate, since the dollar is becoming more expensive, a development referred to as "informal dollarization, " which is getting more difficult at the rate the peso loses value.

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It was not long ago that foreign aid seemed like a way out from these situations. During times of crisis in the past, the IMF or other countries would come to the rescue with monetary aid to stabilize the economy and assure investors. However, due to the years of assistance, defaults, and mismanagement, lenders have become wary of Argentina. The IMF has already lent money to Argentina on several occasions, including the most recent loan of over $40 billion, but many experts argue that it is only postponing the inevitable.

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For the average person of the country, these conditions translate into serious problems that they face every day. The prices of basics, for example, food at the local supermarket, have increased beyond measure. Savings in pesos have almost turned to be totally worthless. Poverty is at an all, time high. Even with the IMF support, people in Argentina are bearing the brunt of the situation in terms of their standard of living.

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The president is always met with a backlash no matter what he decides. Taking action to stabilize the economy may result in worse poverty and will be met with outrage and protests. Moreover, the political situation is deteriorating as well since parties accuse each other of causing the problems. What is unmistakably clear is that foreign aid is not the solution to the problems in Argentina. Deep structural reforms, stricter fiscal discipline, reliable monetary policy, and regained trust in the government are what would lead to more stability. Instead of continuing to live as if there were no tomorrow and making the situation worse, greater economic stability is what would help Argentina's economy to function like many thriving ones in today's society thus avoiding the cycle of collapse and expensive recovery.