Why Argentina is Facing Record 92 Inflation

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Why Argentina is Facing 
Record 92% Inflation?
- By Ankit Agrawal
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WHAT’S HAPPENING?
Lionel Messi has finally won the World Cup.
Before the final match, many were of the view that it was going to be 
Messi against the defending champions.
As it turned out, it looked more like Mbappé versus an Argentine team 
that seemed convinced of its date with destiny.
But before moving on, it matters to put on record what Messi and his 
team’s achievement means, especially for the Argentine people.
In one of the preview podcasts on the BBC about the FIFA World
Cup, the reporter stationed in Buenos Aires said something quite 
remarkable as he was trying to describe the atmosphere on the
streets and people’s expectations from the final on Sunday.
He said the Argentinians want nothing more than Messi lifting the 
World Cup; in fact, the intensity of people’s wishes was so much that 
when asked whether they want zero inflation or Messi to
win the cup, they wanted the latter.
SKY HIGH INFLATION
To understand the burning desire for Messi’s win one needs to 
know the inflation rate in Argentina:
It was more than 92% in November. In other words, prices in 
November were 92% higher than what they were
in November last year.
That’s close to doubling of prices. Not surprisingly, it is the 
highest inflation rate in 30 years.
However, it is by no means just a one-off spike.
The 92% inflation in 2022 was preceded by 50% inflation in 2021 
and 40% inflation in 2020.
Further, according to an estimate published by the Organisation for 
Economic Co-operation and Development (OECD) last month, 
Argentina will continue to face an inflation rate of
83% in 2023 and 60% in 2024.
The International Monetary Fund projects similarly high inflation 
rates.
RISE IN INTEREST RATES
The central banks of the United States and most other developed 
countries are effectively pushing their economies into recessions,
By furiously raising interest just so that they may contain inflation 
rates that are barely into double digits.
India’a RBI has had to write an explanation to the government why it 
allowed inflation to spike above 6% for nine months on the trot.
In contrast, while other central banks raise interest rates “by” 75 basis 
points — 100 basis points make a percentage point —
Argentina’s central bank has raised interest rates nine times during 
2022, pushing it up “to” 75%.
To be sure, RBI and US Fed talk in terms of interest rates reaching a 
terminal rate of 5.5%-6% levels.
WHAT ABOUT GDP GROWTH?
If an economy grows fast, it provides some consolation for high 
inflation.
But in Argentina’s case, high inflation is happening even when the 
economy’s GDP has contracted for three straight years —
2018, 2019, and 2020.
In fact, Argentina’s economy contracted in four of the nine year 
before 2018.
FOREIGN EXCHANGE RESERVES
High inflation, uncertain growth outlook, high 
fiscal deficits — all lead to investors staying 
away from a country’s economy.
BUT HOW ARGENTINA GOT HERE?
Argentina has a long history of economic mismanagement.
But here’s what the World Bank’s latest MPO states:
“Argentina is struggling with large macroeconomic imbalances, which 
are slowing the pace of economic growth,” it states.
“Economic activity recovered quickly from the COVID crisis and 
returned to pre-pandemic levels in 2021.
However, output is still 2% below its previous cyclical peak and 
growth has slowed since early 2022,” states the OECD report.
“Budgetary rigidities and discretionary transfers contribute to 
fiscal deficits and their monetization, fueling inflation,” it states.
In other words, if a government doesn’t respect the budget 
constraint, and simply spends money (even if it has to print it), 
then it will simply fuel inflation; as indeed, is happening.
WILL THE FIFA WIN HAVE ANY IMPACT?
In an academic paper published in September 2022, Marco Mello of 
University of Surrey used OECD data, starting from 1961, to examine 
whether winning the FIFA World Cup boosts GDP growth.
Mello’s analysis showed that winning the FIFA World Cup increases 
GDP growth by at least 0.25% points in the two subsequent quarters.
Q. Falkland Islands Sovereignty Dispute is a territorial 
dispute between Argentina & which other nation?
A) UK
B) France
C) Chile
D) USA
Why Argentina is Facing 
Record 92% Inflation?
- By Ankit Agrawal
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	Slide 8: What’s happening?
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	Slide 11: Sky high inflation
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	Slide 14: Rise in Interest rates
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	Slide 16: What about GDp growth?
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	Slide 18: Foreign exchange reserves
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	Slide 21: But how Argentina got here?
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	Slide 23: Will the fifa win have any impact?
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