1 00:00:00,280 --> 00:00:04,160 According to the economist Simon Kuznetz, there are four types of 2 00:00:04,160 --> 00:00:08,720 economies, developed economies, underdeveloped economies, Japan 3 00:00:08,760 --> 00:00:11,840 and Argentina. And to be clear, he didn't 4 00:00:11,840 --> 00:00:15,160 separate the last two out because of their quality. 5 00:00:15,680 --> 00:00:19,760 A century and a quarter ago, the situation in Argentina was very 6 00:00:19,760 --> 00:00:23,480 different to today. Back then, Argentina was the 6th 7 00:00:23,560 --> 00:00:28,240 richest nation on earth, with GDP per capita almost as high as 8 00:00:28,240 --> 00:00:32,119 the leading economies Britain and the United States, and 9 00:00:32,119 --> 00:00:35,720 higher than Spain, its former colonial master. 10 00:00:36,200 --> 00:00:40,040 The nation's former glory is evident in the architecture from 11 00:00:40,040 --> 00:00:44,520 that period in Buenos Aires. Unfortunately, the 20th century 12 00:00:44,520 --> 00:00:49,040 didn't treat Argentina as well. It's possibly the only country 13 00:00:49,040 --> 00:00:53,200 that's ever transitioned from being developed to a developing 14 00:00:53,200 --> 00:00:56,840 market economy. A big part of the decline can be 15 00:00:56,840 --> 00:01:01,320 explained by political instability, which began in 1930 16 00:01:01,320 --> 00:01:05,920 when a military junta took power, ending 7 decades of 17 00:01:05,920 --> 00:01:08,200 civilian constitutional government. 18 00:01:08,480 --> 00:01:14,040 The nation endured 7 military coups between 1930 and 1981. 19 00:01:14,320 --> 00:01:18,560 Juan Domingo Peron, a former military officer who was elected 20 00:01:18,560 --> 00:01:23,280 president three times, cast a long shadow over Argentina. 21 00:01:23,560 --> 00:01:28,040 His left wing movement, known as Peronism, drew support from 22 00:01:28,040 --> 00:01:31,240 labor unions, the poor and the working classes. 23 00:01:31,520 --> 00:01:36,160 Peronists won 10 out of the 14 presidential elections in which 24 00:01:36,160 --> 00:01:40,480 they were allowed to run. Peronists favoured economic 25 00:01:40,480 --> 00:01:44,680 isolationism and stifled international trade, which had 26 00:01:44,680 --> 00:01:48,760 made Argentina wealthy in the past in an attempt to protect 27 00:01:48,760 --> 00:01:50,920 workers from foreign competition. 28 00:01:51,240 --> 00:01:55,760 This focus meant that over time, Argentina's exports fell as a 29 00:01:55,760 --> 00:01:59,160 percentage of global exports year over year. 30 00:01:59,520 --> 00:02:02,360 There are, of course, many versions of Peronism. 31 00:02:02,360 --> 00:02:07,760 There's Peronism, Neo Peronism, Orthodox Peronism, Revolutionary 32 00:02:07,760 --> 00:02:12,360 Peronism, Renovation Peronism, Federal Peronism, and 33 00:02:12,360 --> 00:02:18,080 Kirchnerism, which it seems is a branch of Peronism opposed by 34 00:02:18,400 --> 00:02:23,640 some factions of Peronists. Government spending has been a 35 00:02:23,640 --> 00:02:27,640 massive problem in Argentina over the years, where successive 36 00:02:27,640 --> 00:02:31,240 governments put in place expensive social programs that 37 00:02:31,240 --> 00:02:34,680 the country couldn't afford and more than 1/3 of all workers in 38 00:02:34,680 --> 00:02:37,240 the country were employed by the government. 39 00:02:37,920 --> 00:02:42,080 Argentina additionally has one of the most regulated economies 40 00:02:42,080 --> 00:02:46,160 in the world, with the weight of regulation growing year over 41 00:02:46,160 --> 00:02:48,520 year. There were of course strict 42 00:02:48,520 --> 00:02:53,160 labour laws, complex import and export regulations, stringent 43 00:02:53,160 --> 00:02:57,640 controls on currency exchange and rent controls, but also 44 00:02:57,640 --> 00:03:01,760 rules on where you could fly a kite, how artists should dress, 45 00:03:02,040 --> 00:03:06,680 requirements that horses wear hats on sunny days and and a ban 46 00:03:06,680 --> 00:03:10,920 on feather beds which lawmakers argued encourage lascivious 47 00:03:10,920 --> 00:03:14,840 behaviour. Decades of energy and transport 48 00:03:14,840 --> 00:03:18,040 subsidies, which were put in place to protect the poor, 49 00:03:18,200 --> 00:03:21,840 bankrupted the country and caused all sorts of economic 50 00:03:21,840 --> 00:03:24,600 distortions. Left-leaning politicians 51 00:03:24,600 --> 00:03:28,320 introduced these subsidies to protect the poor from inflation, 52 00:03:28,560 --> 00:03:32,160 but the subsidies were so costly that the government had to print 53 00:03:32,160 --> 00:03:36,360 money to pay for them, fueling inflation in a vicious cycle. 54 00:03:36,760 --> 00:03:41,040 Argentina has seen decades of economic mismanagement that 55 00:03:41,040 --> 00:03:44,680 brought high inflation when its central bank printed money to 56 00:03:44,680 --> 00:03:46,720 fund excessive government spending. 57 00:03:47,120 --> 00:03:50,680 Major collapses in the Argentine peso occurred in 58 00:03:50,680 --> 00:04:04,040 1952195819671975198519892000 and 1 and 2018 through to present. 59 00:04:04,440 --> 00:04:10,160 In 2001, Argentina defaulted on $100 billion of sovereign debt, 60 00:04:10,320 --> 00:04:13,520 which was the largest sovereign debt default in history at the 61 00:04:13,520 --> 00:04:15,960 time. The country has defaulted 8 62 00:04:15,960 --> 00:04:20,040 times since then, most recently in 2020. 63 00:04:20,560 --> 00:04:25,560 Last year, GDP per capita was 11% lower than it had been in 64 00:04:25,560 --> 00:04:30,560 2011, and inflation was over 211%. 65 00:04:30,840 --> 00:04:38,360 And then Havier Malay was elected, an unusual politician 66 00:04:38,480 --> 00:04:42,680 who campaigned with a chainsaw, saying that he would chainsaw 67 00:04:42,680 --> 00:04:45,040 government spending and regulation. 68 00:04:47,600 --> 00:04:50,680 He smashed up Styrofoam models of the central bank. 69 00:04:54,280 --> 00:04:57,720 He said that he would close multiple government departments. 70 00:05:02,440 --> 00:05:13,320 He has a superhero alter ego called General and Cap, and he 71 00:05:13,320 --> 00:05:15,880 said that he would dollarize the economy. 72 00:05:16,440 --> 00:05:20,040 So now that he's been one year on the job, let's look at how 73 00:05:20,040 --> 00:05:23,880 he's done. Malay, a self-described anarcho 74 00:05:23,880 --> 00:05:27,600 capitalist, won the Argentine presidential election last year 75 00:05:27,720 --> 00:05:32,040 with a lot of showmanship but also a serious economic program 76 00:05:32,280 --> 00:05:35,640 that's been described as the most radical dose of free market 77 00:05:35,640 --> 00:05:38,480 thinking since the days of Margaret Thatcher. 78 00:05:38,840 --> 00:05:42,080 While the media have frequently described Malay as being 79 00:05:42,080 --> 00:05:45,600 Argentina's Donald Trump, other than that they both have a 80 00:05:45,600 --> 00:05:48,800 background in television, distinctive hairstyles and a 81 00:05:48,800 --> 00:05:52,480 hatred for anything woke, the two men have very little in 82 00:05:52,480 --> 00:05:55,400 common. They do, however, speak well of 83 00:05:55,400 --> 00:05:59,360 each other, and Malay says that he sees Trump as part of the 84 00:05:59,360 --> 00:06:03,400 broader fight against socialism. Malay was the first foreign 85 00:06:03,400 --> 00:06:06,400 leader to meet Trump after his presidential victory in 86 00:06:06,400 --> 00:06:10,720 November, and Trump called him a great gentleman and a MAGA 87 00:06:10,720 --> 00:06:11,360 person. God. 88 00:06:11,560 --> 00:06:14,320 He's a great gentleman. You know, He's mega. 89 00:06:14,800 --> 00:06:17,240 He's mega. Make Argentina great again, it's 90 00:06:17,280 --> 00:06:19,960 true. Now, while Trump worked his way 91 00:06:19,960 --> 00:06:23,360 up from serving fries at McDonald's just a month ago to 92 00:06:23,360 --> 00:06:27,200 the highest office in the United States with promises of economic 93 00:06:27,200 --> 00:06:31,720 protectionism like tariffs, Malay argues instead for free 94 00:06:31,720 --> 00:06:35,000 trade and has been slashing subsidies and tariffs in one of 95 00:06:35,000 --> 00:06:39,200 the most protectionist countries in the world in order to control 96 00:06:39,360 --> 00:06:41,880 the triple digit inflation that he inherited. 97 00:06:42,280 --> 00:06:46,200 Argentine media has reported that Malay will be seeking a 98 00:06:46,200 --> 00:06:50,120 free trade agreement with the United States once Trump takes 99 00:06:50,120 --> 00:06:53,480 office. But both men are outsiders to 100 00:06:53,480 --> 00:06:57,160 traditional politics. Malay has almost no support in 101 00:06:57,160 --> 00:07:00,840 Congress and had to negotiate every initiative with opposition 102 00:07:00,840 --> 00:07:03,240 parties. Trump, on the other hand, will 103 00:07:03,240 --> 00:07:07,680 have full control of both houses of Congress a year into his 104 00:07:07,680 --> 00:07:10,320 tenure. Malay has managed to slash 105 00:07:10,320 --> 00:07:14,680 government spending, which is now 30% lower in real terms than 106 00:07:14,680 --> 00:07:16,880 it was when he took office a year ago. 107 00:07:17,080 --> 00:07:21,320 He's cut the number of ministries from 18 to 8, halted 108 00:07:21,320 --> 00:07:24,920 almost all public works, and ended most transfers to 109 00:07:24,920 --> 00:07:28,520 provincial governments. In his first month in office, he 110 00:07:28,520 --> 00:07:31,800 managed to run a primary surplus, meaning that he brought 111 00:07:31,800 --> 00:07:35,200 in more money in taxes than the government spent, and he has 112 00:07:35,200 --> 00:07:38,120 managed to do this every month since then. 113 00:07:38,440 --> 00:07:42,040 Running a surplus like this eliminates the need for the 114 00:07:42,040 --> 00:07:45,040 central bank to finance government spending by making 115 00:07:45,040 --> 00:07:48,320 transfers to the government, which in Argentina are always 116 00:07:48,320 --> 00:07:52,520 announced as being temporary but are rarely paid back and so 117 00:07:52,520 --> 00:07:56,680 money is printed. This primary surplus is a huge 118 00:07:56,680 --> 00:08:00,920 improvement and comes after more than a decade of uninterrupted 119 00:08:00,920 --> 00:08:04,200 deficits. This is quite remarkable in 120 00:08:04,200 --> 00:08:08,320 Argentina. Malays signature achievement is 121 00:08:08,320 --> 00:08:11,800 that inflation has fallen sharply over the last year. 122 00:08:12,040 --> 00:08:16,520 Argentina's monthly inflation rate declined from 26% last 123 00:08:16,520 --> 00:08:21,400 December to 2.7% as of the last reading in October. 124 00:08:21,960 --> 00:08:27,240 Now, 2.7% is by no means low. That's a monthly figure, not an 125 00:08:27,240 --> 00:08:31,720 annual figure. So it translates to over 37%, a 126 00:08:31,720 --> 00:08:36,080 Turkish level of inflation. So Argentina's by no means out 127 00:08:36,080 --> 00:08:40,600 of the woods, but at least the direction of travel is correct. 128 00:08:41,320 --> 00:08:45,240 This reduction in inflation is the main reason that Malay has 129 00:08:45,240 --> 00:08:49,920 held on to his popularity, which at 56 percent is higher than his 130 00:08:49,920 --> 00:08:54,040 last two predecessors approval rankings after their first years 131 00:08:54,040 --> 00:08:56,920 in office. Cutting inflation was his key 132 00:08:56,920 --> 00:09:00,360 promise to voters, and so far he's delivered on it. 133 00:09:00,520 --> 00:09:04,520 His popularity has in fact been rising in recent months, which 134 00:09:04,520 --> 00:09:08,160 is very unusual for a president who's cutting spending as 135 00:09:08,160 --> 00:09:12,040 severely as he is. Voters in every country hate 136 00:09:12,040 --> 00:09:15,960 austerity, but Argentinian voters who have grown accustomed 137 00:09:15,960 --> 00:09:19,800 to outsize government handouts would be expected to hate it 138 00:09:19,800 --> 00:09:22,600 more than average. At present, they seem to be 139 00:09:22,600 --> 00:09:25,920 willing to tolerate the pain with the belief that things will 140 00:09:25,920 --> 00:09:30,320 be better in the future. Days after taking office, Milae 141 00:09:30,440 --> 00:09:35,120 devalued the Argentine peso by more than 50%, causing the 142 00:09:35,120 --> 00:09:38,880 already sky high inflation rate to rise even higher. 143 00:09:39,080 --> 00:09:42,360 He announced cuts to energy and transportation subsidies, 144 00:09:42,600 --> 00:09:46,440 cancelled public works projects and began cutting government 145 00:09:46,440 --> 00:09:50,640 jobs to reduce spending, Saying if we continue as we are, we're 146 00:09:50,640 --> 00:09:55,000 heading towards hyperinflation. There is some real pain 147 00:09:55,000 --> 00:09:57,320 associated with this shock therapy. 148 00:09:57,520 --> 00:10:00,760 It doesn't get called shock therapy for no reason. 149 00:10:01,080 --> 00:10:05,800 Argentinas economy is expected to have contracted 2.6% in the 150 00:10:05,800 --> 00:10:10,680 third quarter of 2024 compared to a year earlier, with this 151 00:10:10,680 --> 00:10:14,000 being the 6th quarterly decline in a row. 152 00:10:14,320 --> 00:10:17,360 While the figures have not yet been released, it looks like the 153 00:10:17,360 --> 00:10:21,160 economy expanded against the prior quarter, meaning that the 154 00:10:21,160 --> 00:10:25,920 recession may be over. It's no surprise that GDP has 155 00:10:25,920 --> 00:10:30,480 fallen in Argentina, as when you slash government spending by 30% 156 00:10:30,640 --> 00:10:36,280 and government spending made-up almost 40% of GDPGDP has to 157 00:10:36,280 --> 00:10:39,240 fall. The Argentine economy is 158 00:10:39,240 --> 00:10:43,520 expected to finish the year 3% smaller than it was when Malay 159 00:10:43,520 --> 00:10:47,440 took office last year, and should it hit JP Morgan's growth 160 00:10:47,440 --> 00:10:52,520 forecast of 5.2% for next year, that would only bring GDP per 161 00:10:52,520 --> 00:10:55,720 capita back to where it was in 2021. 162 00:10:56,400 --> 00:11:00,880 For many Argentinian workers, malaise cuts have been extremely 163 00:11:00,880 --> 00:11:03,960 painful. He's laid off more than 30,000 164 00:11:03,960 --> 00:11:08,920 government workers and slashed spending on health, welfare and 165 00:11:08,920 --> 00:11:12,040 education. Spending on public salaries and 166 00:11:12,040 --> 00:11:16,800 universities is 20% lower this year in real terms than it was 167 00:11:16,800 --> 00:11:20,520 before he took office. He eliminated price controls and 168 00:11:20,520 --> 00:11:23,400 subsidies that made public transit, heating bills and 169 00:11:23,400 --> 00:11:27,440 groceries cheaper, leaving more people struggling to make ends 170 00:11:27,440 --> 00:11:30,840 meet. Argentinas poverty rate reached 171 00:11:30,840 --> 00:11:36,600 almost 53% in the first half of the year, up from 42% at the end 172 00:11:36,600 --> 00:11:40,160 of last year. This is more than double the 26% 173 00:11:40,160 --> 00:11:44,600 it was back in 2017. The biggest savings in terms of 174 00:11:44,600 --> 00:11:48,240 government spending have come from holding down the real or 175 00:11:48,240 --> 00:11:50,560 inflation adjusted value of pensions. 176 00:11:50,760 --> 00:11:55,200 About 35% of the spending cuts came from a decline in 177 00:11:55,200 --> 00:12:00,000 pensioners purchasing power, another 25% came from reducing 178 00:12:00,000 --> 00:12:04,080 investment in infrastructure programs, and the remaining 40% 179 00:12:04,080 --> 00:12:07,520 came from a mix of measures like cutting subsidies, cutting 180 00:12:07,520 --> 00:12:11,920 transfers to provinces and downsizing of public staffing 181 00:12:11,920 --> 00:12:14,520 levels. According to the Financial 182 00:12:14,520 --> 00:12:19,000 Times, 1 of Malay's biggest political advantages is the lack 183 00:12:19,040 --> 00:12:22,720 of reasonable alternatives. In Argentina, people appear to 184 00:12:22,720 --> 00:12:26,720 be OK with putting up with the economic pain as long as they're 185 00:12:26,720 --> 00:12:29,880 seeing results, which they have been seeing so far. 186 00:12:30,160 --> 00:12:33,760 The people who voted for him are saying let the madman get on 187 00:12:33,760 --> 00:12:37,240 with it. Argentina is home to more than 188 00:12:37,240 --> 00:12:42,200 3000 labor unions and roughly 40% of the countries workforce 189 00:12:42,200 --> 00:12:44,600 is unionized. The unions have held 190 00:12:44,600 --> 00:12:48,480 surprisingly few strikes since Malay took power, and some 191 00:12:48,480 --> 00:12:51,400 leaders say that they've struggled to draw the mass 192 00:12:51,400 --> 00:12:55,800 participation it hoped for. the FT interviewed the head of 193 00:12:55,800 --> 00:12:59,840 Argentina's construction Workers Union, who admitted that society 194 00:12:59,840 --> 00:13:03,760 holds the unions partially responsible for the economic 195 00:13:03,760 --> 00:13:06,080 crisis, along with the politicians. 196 00:13:06,400 --> 00:13:10,560 He said for now they feel they need to trust in something new 197 00:13:10,560 --> 00:13:13,280 to solve Argentina's structural problems. 198 00:13:14,120 --> 00:13:19,360 Argentina's central bank foreign reserves were minus $11 billion 199 00:13:19,360 --> 00:13:23,320 when Malay took office last year, and they've improved to 200 00:13:23,320 --> 00:13:27,960 minus $7 billion today, which is obviously better but still 201 00:13:27,960 --> 00:13:31,480 negative. About $20 billion has re entered 202 00:13:31,480 --> 00:13:35,640 the formal banking system due to a tax amnesty that encouraged 203 00:13:35,640 --> 00:13:39,680 the public to deposit their savings and repatriate some of 204 00:13:39,680 --> 00:13:44,080 their foreign savings too. Many predicted that Malay would 205 00:13:44,080 --> 00:13:47,520 struggle to make the changes he had campaigned on due to his 206 00:13:47,520 --> 00:13:51,000 lack of support in Congress, opposition from powerful trade 207 00:13:51,000 --> 00:13:54,120 unions and his lack of government experience. 208 00:13:54,360 --> 00:13:58,920 But he has managed to outperform expectations, mostly by the use 209 00:13:58,920 --> 00:14:02,520 of executive powers to get around opposition in Congress. 210 00:14:03,000 --> 00:14:07,000 Argentina's country Risk Index, a measure of the premium 211 00:14:07,000 --> 00:14:10,800 investors demand to hold local bonds compared to the equivalent 212 00:14:11,040 --> 00:14:17,000 U.S. debt, fell below 900 basis points in October from the 2500 213 00:14:17,000 --> 00:14:20,080 basis points. It had been odd last year. 214 00:14:20,360 --> 00:14:23,080 While this is a huge improvement, it's still more 215 00:14:23,080 --> 00:14:26,520 than twice the risk of an emerging market bond index, so 216 00:14:26,520 --> 00:14:29,440 there's plenty of room for a further improvement. 217 00:14:30,160 --> 00:14:34,240 On the campaign trail, Malay promised that the economy would 218 00:14:34,240 --> 00:14:38,640 grow fiercely once he eliminated capital controls and the red 219 00:14:38,640 --> 00:14:41,280 tape that restricts everything in Argentina. 220 00:14:41,520 --> 00:14:45,800 His Ministry of Deregulation began work in July and quickly 221 00:14:45,800 --> 00:14:48,960 started announcing regulatory reforms daily. 222 00:14:49,200 --> 00:14:52,920 It's too early to decide if these changes are working today, 223 00:14:53,160 --> 00:14:56,520 but it's likely that they will improve the situation given the 224 00:14:56,520 --> 00:14:58,480 bureaucratic weight that they're lifting. 225 00:14:58,480 --> 00:15:02,320 In Argentina, which is is one of the most regulated countries in 226 00:15:02,320 --> 00:15:07,400 the world, Malay brought in a rule to reduce government delays 227 00:15:07,560 --> 00:15:11,480 where a requested permission is considered approved if the 228 00:15:11,480 --> 00:15:15,120 government does not respond to the request within a determined 229 00:15:15,120 --> 00:15:18,000 period of time. I believe Modi brought in a 230 00:15:18,000 --> 00:15:21,520 similar rule in India a number of years ago and it worked there 231 00:15:21,520 --> 00:15:24,000 too. Some early successes in 232 00:15:24,000 --> 00:15:27,920 Argentina include eliminating the country's rent control 233 00:15:27,920 --> 00:15:31,840 system, which tripled the supply of available rental apartments 234 00:15:31,840 --> 00:15:35,880 in Buenos Aires and caused rents to fall by 50%. 235 00:15:36,280 --> 00:15:40,400 Malay eliminated an import licensing scheme too, which 236 00:15:40,400 --> 00:15:45,520 caused a 35% drop in the price of home appliances and a 20% 237 00:15:45,520 --> 00:15:47,840 drop in the price of imported clothing. 238 00:15:48,360 --> 00:15:52,480 The country implemented an open skies policy that increased 239 00:15:52,480 --> 00:15:55,440 airline competition. Previously, there had been a 240 00:15:55,440 --> 00:15:59,440 rule to protect the national airline that banned competitors 241 00:15:59,440 --> 00:16:02,680 from parking their airplanes overnight at one of the main 242 00:16:02,680 --> 00:16:06,240 airports in Buenos Aires. Malays new Ministry of 243 00:16:06,240 --> 00:16:10,680 Deregulation, which is made-up of lawyers and economists, say 244 00:16:10,680 --> 00:16:14,360 the cutting red tape is improving economic freedom and 245 00:16:14,360 --> 00:16:17,480 reducing opportunities for corruption in the country. 246 00:16:17,960 --> 00:16:20,960 Despite Malay's libertarian stance on issues like 247 00:16:20,960 --> 00:16:24,880 privatization and deregulation, there are concerns that he has a 248 00:16:24,880 --> 00:16:29,160 less libertarian approach to issues like policing and freedom 249 00:16:29,160 --> 00:16:31,800 of speech. He announced a plan a few months 250 00:16:31,800 --> 00:16:35,920 ago to use face recognition software to deal with protesters 251 00:16:36,080 --> 00:16:40,720 and AI to predict, detect and investigate crimes, which the 252 00:16:40,720 --> 00:16:43,720 press has compared to the film Minority Report. 253 00:16:44,560 --> 00:16:50,120 Malay spent $300 million buying 24 fighter jets in April, saying 254 00:16:50,120 --> 00:16:53,680 that they're needed to guarantee Argentinas control of its 255 00:16:53,680 --> 00:16:56,600 airspace. This doesn't make an awful lot 256 00:16:56,600 --> 00:17:00,000 of sense during a period of austerity when all other 257 00:17:00,000 --> 00:17:04,079 spending is being slashed. Investors have been impressed 258 00:17:04,079 --> 00:17:07,839 with the changes in Argentina and this can be seen in credit 259 00:17:07,839 --> 00:17:11,040 spreads and the fact that the national stock index has soared 260 00:17:11,040 --> 00:17:15,640 almost 140% this year. Malay has been working to 261 00:17:15,640 --> 00:17:19,680 attract business investment which is badly needed to boost 262 00:17:19,680 --> 00:17:23,240 economic growth. Domestic businesses are happy 263 00:17:23,240 --> 00:17:27,079 with Malays reforms but foreign investors are still in a wait 264 00:17:27,079 --> 00:17:31,000 and see mode as there have been many false dawns in Argentina 265 00:17:31,000 --> 00:17:35,280 over the last 100 years years. Capital controls, which limit 266 00:17:35,280 --> 00:17:39,160 the flow of foreign exchange into and out of the country, are 267 00:17:39,160 --> 00:17:43,560 still in place and do deter international investors, as no 268 00:17:43,560 --> 00:17:46,920 one wants to invest in a country where you can't get your money 269 00:17:46,920 --> 00:17:50,600 back when you want it. Malay's government still sets 270 00:17:50,600 --> 00:17:54,320 the exchange rate too, and there is a lot less talk about 271 00:17:54,320 --> 00:17:58,160 dollarizing the economy today than there was last year. 272 00:17:58,440 --> 00:18:03,360 Malay devalued the peso by more than 50% last December and then 273 00:18:03,360 --> 00:18:07,520 by another 2% each month since, but the currency is still 274 00:18:07,520 --> 00:18:10,080 overvalued, according to most economists. 275 00:18:10,600 --> 00:18:14,520 Devaluing the peso rapidly again would cause a spike in 276 00:18:14,520 --> 00:18:18,120 inflation, but a weaker peso would also make the country's 277 00:18:18,120 --> 00:18:20,760 exports more attractive to foreign buyers. 278 00:18:21,200 --> 00:18:25,800 Malay argues that he can't risk floating the peso until there's 279 00:18:25,800 --> 00:18:29,520 a large supply of hard currency in the central bank to calm 280 00:18:29,520 --> 00:18:33,320 markets and prevent Iran, which would trigger inflation. 281 00:18:33,880 --> 00:18:37,720 While the fiscal picture has improved massively, Argentina 282 00:18:37,720 --> 00:18:41,720 still faces significant external financial pressure, with more 283 00:18:41,720 --> 00:18:46,600 than $14 billion of debt repayments due next year alone, 284 00:18:46,800 --> 00:18:50,160 with essentially no chance of the country borrowing more on 285 00:18:50,160 --> 00:18:54,440 international markets until the economy is a lot stronger. 286 00:18:55,080 --> 00:18:59,160 Argentina still has too much foreign exchange debt relative 287 00:18:59,160 --> 00:19:02,720 to its limited export base and foreign exchange reserves. 288 00:19:02,960 --> 00:19:06,240 And while the fiscal balance of the government has improved 289 00:19:06,240 --> 00:19:10,160 hugely, the central bank balance sheet still has negative net 290 00:19:10,160 --> 00:19:13,560 reserves. Malay has done an amazing job on 291 00:19:13,560 --> 00:19:17,000 the fiscal front. It's very unusual for a country 292 00:19:17,160 --> 00:19:21,040 to voluntarily do a bigger fiscal consolidation than the 293 00:19:21,040 --> 00:19:24,680 IMF asked for. The challenge now is that things 294 00:19:24,680 --> 00:19:28,760 will only get more difficult going forward, as the terms of 295 00:19:28,760 --> 00:19:32,280 the most recent debt restructuring in 2020 gave 296 00:19:32,280 --> 00:19:35,240 Argentina five years of breathing space. 297 00:19:35,400 --> 00:19:38,640 But that is about to run out next year and they'll have to 298 00:19:38,640 --> 00:19:42,360 start paying about $3 billion a year on their international 299 00:19:42,360 --> 00:19:46,040 bonds. The core problem for Argentina 300 00:19:46,240 --> 00:19:49,080 is that the foreign exchange balance sheet does not look 301 00:19:49,080 --> 00:19:51,680 good. There are no non borrowed 302 00:19:51,680 --> 00:19:54,880 foreign exchange reserves sitting at the central bank, and 303 00:19:54,880 --> 00:19:58,840 the country has huge foreign currency obligations and a small 304 00:19:58,840 --> 00:20:02,320 export base to earn the necessary foreign exchange. 305 00:20:02,560 --> 00:20:06,720 While Malay wants to solve the problems without restructuring, 306 00:20:06,920 --> 00:20:10,680 Argentina's debt structure does need to reflect the nation's 307 00:20:10,680 --> 00:20:14,000 economic. And strength Malay's free market 308 00:20:14,000 --> 00:20:17,920 reforms have gone as well as they could have gone, especially 309 00:20:17,920 --> 00:20:20,560 given the scale of the problem that he's dealing with. 310 00:20:20,800 --> 00:20:24,720 And the people of Argentina seem to have regained a lot of lost 311 00:20:24,720 --> 00:20:28,640 faith in their government. There is still a very tough road 312 00:20:28,640 --> 00:20:32,880 ahead for the country and a huge challenge for Malay will be to 313 00:20:32,880 --> 00:20:37,000 ensure that voters stick with him as he implements the needed 314 00:20:37,000 --> 00:20:39,440 reforms. Thanks for tuning into this 315 00:20:39,440 --> 00:20:43,000 week's podcast, with a special thanks to my supporters on 316 00:20:43,000 --> 00:20:46,840 Patreon who make it all happen. Have a great week and talk to 317 00:20:46,840 --> 00:20:48,400 you again soon. Bye.