G-20 leaders descend on Buenos Aires as host Argentina battles worst economic crisis in a decade

Leaders of the world’s biggest economies have gathered in Buenos Aires for the annual Group of 20 Summit to discuss some of the most important issues facing the global economy, from the future of work and food security to U.S. President Donald Trump’s trade war and the Khashoggi killing.

And although their host, Argentine President Mauricio Macri, probably won’t want to talk about the dire state of his country’s economy, heads of state need only use a cash machine to see evidence of it. A U.S. dollar worth just 20 pesos in April today converts into almost double that, making the Argentine currency the world’s worst performer this year.

We’ve been following the ebbs and flows of the Argentine economy for two decades and are currently wrapping up a book on economic and fiscal policy in Argentina, Brazil and Chile. Here’s a quick look at what went wrong and how it could get better.

A man serves food at a soup kitchen in Buenos Aires. AP Photo/Natacha Pisarenko

Scary times

Pesos have been fleeing the country. The economy has been sinking deeper into recession. And the country is suffering the worst drought in decades.

Sound scary?

For Argentina, it’s more of the same. The country has suffered through many economic crises in recent decades. And pretty much every time, the catastrophic meltdowns ended with some combination of unsustainable national debt, high unemployment, rising poverty rates, looting, bank runs, capital flight and hyperinflation. That in turn set the stage for the next economic crisis.

But it didn’t have to happen this time. Only two years ago, Argentina’s leadership had appeared to learn lessons from the past and were governing the economy pretty effectively. Capital controls helped stabilize the peso and strengthen the financial sector, while prudent government spending helped reduce poverty. Consumer spending grew and unemployment and income inequality fell.

The wrong policies

So when Macri became president at the end of 2015, there was a foundation of beneficial policies in place that supported the government’s coffers – as well as some challenges.

But, instead of pursuing a path of fiscal responsibility to rein in spending and inflation, the center-right Macri decided to cut taxes for businesses and borrowed record amounts in dollars to do so. At the same time, he eliminated the capital controls put in place in 2002.

Unsurprisingly, all of this made the country more vulnerable to a crisis, which began in May when a particularly bad drought – the most expensive in Argentina’s history – dried up important export crops, such as soybeans and corn. Argentina is the world’s third-largest exporter of both.