Drought puts Argentina into default

There hasn’t been a cloud on the horizon for months, but the perfect storm for Argentina has already arrived. A severe drought hit the country, combined with a series of unprecedented heatwaves that brought the economy to its knees, complicating the government’s economic plans. The results start with finance, go through exports, and fall on consumers: drought spares no one.

No water, the economy is collapsing

According to expert estimates, extreme drought in Argentina risks reducing export revenues by more than 30 percent and undermining the government’s entire economic program agreed with the International Monetary Fund. Not only that, the solvency of the state, in both pesos and dollars, is once again at risk.

Rating agency Standard & Poor’s expressed a positive opinion on the recent government-run local currency securities swap, an initiative that has moved to 2024 maturities, which is unsustainable in the current context. However, S&P itself highlighted Argentina’s continued “weak market access”, noting that the debt’s current peso-denominated “CCC-” rating means “risk of default in the next six months, unless there are substantial positive changes.” .

The IMF this week lowered its reserve accumulation targets set by the central bank’s Extended Fund Facility (EFF) program to repay Argentina’s $44 billion loan from Christine Lagarde to the United States in 2018, precisely in anticipation of lower agricultural export revenues. e allowed. ex-president Mauricio Macri. However, in the third revision of the EFF agreement, the IMF has not one bit moved its budget deficit reduction target from the current 2.3% of GDP to 1.9% by 2023.

According to Emanuel Alvarez Agis, an economist consulted by ANSA, this is more like “lending you a match to combat the drought” than solving the problem.

Argentine wheat burned by drought

The historic drought is ravaging Argentina’s crops and exacerbating the economic crisis of one of the world’s top grain exporters, but it’s not just that. Pampas farmers are on their knees: Argentina is the world’s exporter of processed soybeans and the third exporter of corn.

“We are facing an unprecedented climate event,” Julio Calzada, head of economic research at the Rosario stock exchange, told Reuters. “The failure of three harvests is unprecedented. We are all waiting for rain,” he added.

In nominal terms, “the drought will lead to a contraction in foreign exchange inflows of the order of $18 billion, with a 2.4% direct negative impact on GDP,” according to the director of consulting firm “PxQ”. This, added to the unpredictable impact of the current financial storm, is a context that could completely invalidate the country’s growth projections for 2023, set by the IMF at a modest +2%.
Once the peso-denominated debt issue is resolved in this week’s swap, the only default Argentina may face in 2023 will be the International Monetary Fund, and it’s an “option that needs to be considered”, according to Alvarez Agis. “An agreement that does not take into account the impact of drought dooms the country to an economic crisis with unforeseen consequences,” Agis said. said.

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Source: Today IT