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Coronavirus risks a critical blow to Argentina’s ailing economy

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La Flor de Barracas, a well-known bar in Buenos Aires, has resisted the ups and downs of Argentina’s combustible economy for more than a century since it opened during the country’s heyday in 1906.

Then came the coronavirus. Carlos Cantini, who kept the historic neighborhood meeting place alive despite a decade without economic growth in Argentina, said for months in the Buenos Aires blockade that he had no choice but to close the door for good.

“I said enough is enough, chaos. It was the last blow after four very bad years, “complained Mr Cantini, who explained that high inflation and punitive tax rates already had the business on the ropes.

“It’s grim, but what can you do? . . I’m afraid that once this [lockdown] is over, Buenos Aires will have lost much of its character and history. “

Despite one of the longest and most severe blockades in the world, the death toll in Argentina continues to rise. The daily death rate increase from Covid-19 is the sixth highest in the world. More than 10,000 people have died so far.

Argentina’s rate of about 234 deaths per million is still lower than its large neighbors – in Brazil and Chile, the rate exceeds 600 deaths per million – but the economic consequences of its blockade have been particularly dire.

Andrés Borenstein, an economist at Econviews, a consultancy in Buenos Aires, said Argentina’s economy had been hit twice as hard as its neighbors. Brazil and Chile’s gross domestic product is projected to fall between 5 percent and 6 percent this year, while Argentina is expected to shrink to 12 percent, according to a central bank study.

Meanwhile, sales in August are 27 percent lower in Argentina than in February, before the pandemic hit, with average sales this year 10.5 percent lower than last year. In Brazil major retail sales are already above pre-pandemic levels.

Argentina began its blockade in March and has extended it to at least September 20th. Restrictions – which include banning flights and social gatherings and the continued closure of tourist destinations, restaurants and bars – are the most severe in Latin America. The Google Motion Index, which uses data from apps to track the impact of the coronavirus on the movements of people around the world, has shown that Argentina has the most restricted movement in the world.

Argentina also entered the coronavirus crisis with at least one significant disadvantage. After a decade of economic stagnation and a currency crisis in 2018 that led to a sovereign debt default in May, “the government had no resources to fight the crisis except [printing money]”, Said Mr. Borenstein. A young and inexperienced government that took power just three months before Argentina’s pandemic strike on Mars reached a “double shock”, he added.

Complicating matters, the government aims to reduce the primary fiscal deficit from about 7 percent this year to 4.5 percent in 2021. “What kind [market] trust you can build that way. . . you effectively tell people that you will print a lot of money again next year. “If one of the problems in Argentina is currency stability, you are not giving the right signals,” said Mr Borenstein, who expected inflation to rise above 50 per cent next year.

Fernando Polack, an infectious disease specialist, questioned whether the blockages were the right way for Argentina. “At a time when Argentina had to make decisions [about how to combat coronavirus] the logical thing to do was to imitate the Asian model as much as possible, “he said, referring to the blockages.

However, he said, “eventually, tensions between the economic and psychological consequences of quarantine versus the threat to public health became difficult to resolve.”

Eduardo Levy Yeyati, dean of the government school at Torcuato Di Tella University in Buenos Aires, concluded in a recent study of 120 countries that poorer economies have not only seen poorer compliance with blockages, but that accession is falling by over time.

Adherence to blockade rules in the large and impoverished suburbs of Buenos Aires is a particular problem: more than a third of Argentines working in the informal sector are concentrated there and also live in cramped conditions that complicate staying home. . Moreover, state subsidies are often insufficient to cover the cost of living for many families.

President Alberto Fernández, who periodically threatens to press the “red button” and return to the most severe phase of Argentina’s blockade given the continuing threat posed by the pandemic, now insists the country is no longer in blockade.

“If you take to the streets, it is clear that there is a serious decline in economic activity. One thing is political discourse, another thing is reality, ”said Pedro Cascales, spokesman for CAME, a business federation for small and medium-sized enterprises in Argentina. He said 10 percent of the federation members – about 60,000 companies across the country – were in a critical position, ready to close or have already closed.

“If SMEs fall, the whole economy falls,” Mr Cascales said, noting that SMEs provide 70 per cent of jobs in Argentina and represent 45 per cent of GDP.

“Decisions to block have always been made with the advice of doctors, epidemiologists and [infectious diseases experts], but never with SMEs, big business or workers. We could have contributed with ideas. . . to prevent an economic collapse, ”he said.

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