Argentina's Double Default

February 9, 2015Argentinaby EW News Desk Team


Argentina’s economy contracted more than was forecast in the third quarter of 2014, as the South-American nation defaulted on its debt for the second time in thirteen years. As a result, the government was pushed to reduce imports, amid an already worrisome shortage of US dollars.

Gross domestic product shrunk by 0.8% that quarter, according to the agency for national statistics, and the median estimate of nine economists surveyed by Bloomberg was for a decline of 0.6%.

The second largest economy in South America defaulted first in the second quarter of 2014, which came after years of legal battles against creditors. The government increased its limits on imports in an attempt to preserve the international reserves that fell to an eight-year low in the spring of 2014. However, this has also made it harder for manufacturers in the country to obtain the supplies they need.

The Current Economy

At this point, the economy appears to be on hold with no signs of recovery. According to official data, the country saw its first year-over-year contraction since the second quarter of 2012.

Argentina's current account deficit is at $736 million, compared to $1.7 billion from the same quarter in 2013. International reserves have fallen by $983 million in the same period, while total external debt has seen a fall to $145.4 billion, according to the report.

Industrial Production Fell

What's more, the Institute for National Statistics has also said that industrial production shrank. In November 2014, production fell by 2.1% year over year. Furthermore, exports fell by 12% through November, while imports saw a slide of 11%.

New taxes negatively affected the auto industry as new taxes can do to any industry.  Other negative consequences can be a drop in demand from consumers that balk at higher prices, and declining imports.

Estimates from the IMF

According to the International Monetary Fund (IMF), which censured the nation for apparently producing unreliable economic data, the Argentinian economy could contract by around 1.5% during 2015.

Commodity Prices

While the nation experienced a record soybean crop, the total value of grain exports was similar to prices in 2013, after a decline in commodity prices. Similarly, the low prices of oil forced Argentina, which was a country that largely exported energy, to reverse course and spend around $6 billion more on importing gas and oil than it exported during 2014.

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