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

The economy in Argentina is in one of the worst states it has been in decades. The value of the peso is spiraling downwards. Inflation is rampant, citizen’s trust in the government is fading, and the value of the peso is dropping so quickly that prices in stores are changing multiple times a week. For many Argentines, saving in pesos has no worth anymore.

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The situation has both old but also unfamiliar factors. Firstly, this is not the first time Argentina has been in a tough spot economically. From hyperinflation in the 1980s to debt defaults  (when a country can’t pay back the money it owes to its lenders), especially the one in 2001 that caused severe recession, Argentina has a long history of economic stability. The issue with the current situation is that the tools that Argentina once relied on to help with their economy such as foreign loans and international aid aren’t working like they used to.

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For many years, Argentina depended heavily on foreign support such as funding from the International Monetary Fund (IMF) and other global lenders. The hope of the lenders was that the country would use the funding for economic reform to foster long term stability. However, instead of tightening spending and controlling inflation, the government continued to print money to pay for social programs and other expenses. This may have caused relief at the time, but it set up continuous economic stability and fueled one of the highest inflation rates in the world.

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Today, the inflation rate in Argentina has passed 200%. This makes it nearly impossible for families to plan or save with the savings they have. Businesses struggle to set prices, as the rapidly changing inflation rates make it hard to value goods and services. At the same time, their workers demand higher wages, while raises become quickly outdated and insignificant with continued depreciation of the peso. This has had the effect of motivating individuals to rely on dollars to save and spend, offering more stability. However, the government tightly controls access to the dollar, so it’s not a perfect solution. Additionally, as the value of the peso decreases, the demand for the dollar increases, making the value of the peso in the black market worth even less compared to the dollar as the dollar becomes more expensive–a development called “informal dollarization,” which gets harder at the rate the peso loses value.

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Foreign aid was once an escape in situations like these. In previous periods of crisis, the IMF or other countries would step in with monetary aid to help stabilize the economy and reassure investors. But after years of help, debt defaults, and mismanagement, lenders have become skeptical. The IMF has already extended several major loans to Argentina, the latest one over $40 billion, but many experts believe that is only delaying the inevitable. 

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For the common citizen in the country, these conditions have serious day-to-day implications. The prices of commodities such as the food at the supermarket around the corner have skyrocketed. Savings in pesos have basically become worthless. Poverty levels are at record highs. Even with IMF help, the citizens in Argentina are suffering the consequences in their standard of living from the situation.

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The president can’t make a decision without backlash. Taking action to try to stabilize the economy may deepen poverty and won’t be met without mass protests and social unrest. The political climate also isn’t helping as parties blame one another for the issues. What’s clear is that foreign aid can’t fix the situation in Argentina. Deep structural changes, stronger fiscal discipline, credible monetary policy, and regained confidence in the government are what can lead to greater stability. Instead of continuing the habit of prioritizing the present and worsening the situation in the future, greater economic stability is what could help make Argentina’s economy function like the many prospering ones in today’s society, avoiding the cycle of collapse and expensive recovery.