Argentina, Worst in the World for Economic Contraction Due to COVID-19

Source: JUAN IGNACIO RONCORONI / SHUTTERSTOCK

[Asia Economy Reporter Yujin Cho] Argentina, struggling with massive national debt, is experiencing the worst economic contraction in the world since the COVID-19 pandemic, according to an analysis.

On the 9th (local time), The Wall Street Journal (WSJ), citing economic consulting firm Ecogor, reported that Argentina's real growth rate decreased by 10% compared to the previous year, marking the worst economic contraction since the COVID-19 pandemic.

Argentina's economic recession, which has persisted since the second half of 2018, worsened further due to the COVID-19 crisis, severely impacting the real economy, including the domestic market.

The total size of Argentina's stock market shrank from $350 billion in 2018 to $20 billion last year. With the economy contracting for three consecutive years, consumer price inflation rose to 36%, and the poverty rate increased to 44%, reaching the highest levels since the early 2000s.

The Argentine government is focusing on economic recovery through measures such as banning corporate layoffs, raising tariffs on major exports, and introducing a wealth tax, but experts remain skeptical about the effectiveness of these policies.

WSJ reported that the prolonged COVID-19 movement restrictions have further worsened the economy compared to before, accumulating public resentment and leading to a series of street riots, placing the country in its worst crisis.

Argentina fundamentally relies on imports for most industrial and capital goods, but due to the peso's depreciation and worsening domestic demand, imports are not proceeding smoothly, and business activities are not at normal levels.

Foreign companies operating in Argentina, such as Walmart, Nike, and LATAM Airlines, are continuing their exit from Argentina, and Argentina's largest state-owned oil company, YPF, is facing a default risk on $413 million in debt.

Eduardo Levy Yeyati, former chief economist of the Central Bank, said, "I don't really know where growth will come from," adding, "The government has no resources to stimulate the economy, and companies are continuing to withdraw investments."

Carlos Melconian, an economist and former official of Argentina's state-owned bank, said, "Without investment, the government's measures will fail."

Credit rating agency Fitch maintained Argentina's credit rating at CCC on the same day. Fitch has kept the rating at CCC for about a year and a half since downgrading Argentina's credit rating from B to CCC in August 2019. CCC is far below investment grade, comparable to countries like Zambia and Congo in Africa.

Fitch cited uncertainty about recovery as the reason for maintaining the rating. In a statement, Fitch explained, "It reflects the continued weakness in debt repayment capacity and unclear prospects for improvement since the debt restructuring in September last year, as well as severe political uncertainty." It also expressed concerns about the fragile economic situation caused by fiscal expansion, including large-scale borrowing equivalent to 8% of the gross domestic product (GDP) for COVID-19 support measures.

This content was produced with the assistance of AI translation services.