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September 24, 2021

Econviews Monthly

Argentina: Special Analysis on Public debt. Will it be sustainable this time?

BY Alejandro Giacoia, Andrés Borenstein, Miguel A. Kiguel, Lorena Giorgio, Isaías Marini

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I. A poor election and a Government under pressure

Inflation, the exchange rate, and economic activity are moving in election mode. The government is using all its firepower to keep the main economic variables under control. Inflation, which had reached 4.8% in March is now hovering at around 3%, the official exchange rate continues to crawl at only 1.2% per month, much lower than inflation, while economic activity is slowly picking up pace as evidenced from the recent published figures. So far so good, but the flipside of these outcomes is the build-up of imbalances that will be costly to unwind.

II. Public debt: a look at sustainability beyond political debates

Public and external debt has been Argentina’s Achilles heels for decades with three defaults in this century alone. So, the ghosts of default always haunt the economy and become one of the (many) hurdles to grow and develop.

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