Written by Samiha Singh of Inkling for UWCSEA MUN.
The world's 21st largest economy, Argentina, has been struggling with a monetary crisis. The deprecation of the peso coupled with the sustained increase in the Argentine inflation rate (recorded at 57.3% in May 2019) has proliferated the value of its external debt. Ultimately, in June 2018, Argentina came forward to the IMF for a $50 billion USD loan (which later rose to $57.1 billion USD in September 2018). As of 2018, Argentina's government debt is approximately equal to 86.2% of its GDP.
Inflation has led to a myriad of undesirable outcomes. While unemployment has soared between 7-10%, the real value of the peso has depreciated. Additionally, Argentina's current account deficit has further exacerbated due to the reduced purchasing power of those with fixed incomes such as pensions and reduced exports.
Furthermore, Mauricio Macri, the Argentine President, used expansionary fiscal policy to stimulate the economy through increased government spending. However, this spending needed to be financed through borrowing, inflating the government debt. As a result, the Argentine Central Bank had to intervene - printing more money to raise the money supply. This led to an increased aggregate demand and exacerbated the inflation; This prompted the Central Bank to raise interest rates by 60% in order to limit expenditure and attract foreign investors to restore the value of the peso. To add to Argentina's misery, due to a drought in 2018, its agricultural sector, which accounts for 36% of all Argentina exports, suffered. This furthered the devaluation of the pseo and increased the real value of Argentinas public debt.
So how might Argentina deal with its debt crisis?
This was the first motion being discussed in the IMF committee and the primary solutions being suggested revolved around "counteracting austerity measures and raising awareness" as stated by Aarushi Rath, the Head Chair of the IMF. The resolution on the question of resolving the Argentine debt crisis was submitted by Leonardo Villar, the delegate of Columbia. The austerity measures suggested by the committee were: the implementation of progressive taxes, reduction of corporate taxes, increased spending on long-term investment projects that will improve the quality and/or quantity of the nation's resources, and the provision of support to the unemployed and disenfranchised.
The directors present at the IMF committee agreed that the resolution of Argentina's proliferating public debt would be beneficial for all Member States as they have provided Argentina with multiple loans. Thus, by assisting Argentina, the States can also recover their loans.
The resolution, submitted by Leonardo Villar of Columbia, received approval from the majority of the directors, with most of the amendments made being friendly and improving details that may be overlooked. The delegate of Columbia emphasised the use of serious austerity measures that contradict the use of current expansionary fiscal and monetary policies by both Macri's government and the Central Bank. Director Villar's policies were further expanded on and amended by Director Mojarrad of Afghanistan to include - higher income taxes for higher income brackets and reduced taxes for those in the lower income brackets, support for the unemployed and disenfranchised, higher severance pay, and increased public infrastructure. These amendments also targeted an increase in aggregate demand and a reduced public debt by increasing purchasing power and disposable incomes (for the unemployed, disenfranchised, and those with lower incomes), government revenue (to reduce the debt), and employment in the public sector (through the implementation of new infrastructure projects).
Director Zhongxia of China suggested that Macri's government consider methods for potential coalition governments and encourage all current parties to focus both on the long term as well as the short run impacts of economic policies. This would ensure that the debt and current economic conditions are not exacerbated by political instability or changing parties, especially since demand-side policies tend to have a large impact on political support because they directly affect the consumers (who vote).
Ultimately, the resolution passed with amendments mainly focusing on stimulating aggregate demand. The majority of the Directors in the IMF understood the significance of the Argentine debt crisis and its impact on the other nations. The directors also included the implementation of a large-scale campaign by UNESCO to raise awareness and inform the Argentine public of the actual economic conditions, assisting them in financial planning and reducing the misconceptions that currently exist.
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