MercoPress. South Atlantic News Agency

World Bank foresees economic deterioration for Argentina this year

A recovery above average is also forecast for 2025

According to the latest “World Economic Outlook” report released Tuesday by the World Bank from its headquarters in Washington DC, Argentina's economy is expected to fall sharply this year, thus becoming the Latin American country going through the tightest contraction in the region before rebounding in 2025. The study projected a 3.5% drop this year followed by a 5% surge in 2025, thus outperforming the rest of the continent.

The World Bank said that “growth forecasts for 2024 have been revised downward since January, mainly due to a marked downgrade for Argentina, which is now projected to contract this year before resuming growth next year” as the Libertarian government of President Javier Milei “is trying to address the country's significant economic challenges with a new policy approach based in part on fiscal consolidation and readjustment of relative prices, including the exchange rate.”

“The fiscal and monetary policy measures needed to correct chronic imbalances are expected to bring about a temporary contraction,” the WB also pointed out. In addition, inflation “is expected to remain elevated this year, albeit declining at a rapid pace.”

Regarding Latin America and the Caribbean, growth is set to slow down from 2.2% in 2023 to 1.8% in 2024, before rebounding to 2.7% in 2025 on average as “headline and core inflation have continued to fall across the region, albeit at a slower pace. The exception among the major Latin American countries is Argentina, which experienced a significant increase in monthly inflation in early 2024, but now shows signs of moderation in both inflation and inflation expectations.”

“Given that, in most countries, inflation is expected to be within the margins set by central banks this year, it is expected that reductions in official interest rates will continue,” the report also noted.

However, Argentina “is the exception, with inflation remaining above 200% year-on-year, reflecting the recent significant depreciation of the currency and the upward adjustments of regulated prices.”

In this scenario, Economy Minister Luis Toto Caputo announced Tuesday that negotiations were under way with the International Monetary Fund (IMF) in search of fresh cash to drop the exchange rate restrictions. According to Caputo, the Libertarian administration might receive US$ 800 million and then renegotiate its debt with the credit agency to exit the “exchange rate trap.”

In Caputo's words, Argentina's current situation rekindles the worst of the Rodrigazo (a sharp devaluation in the mid-1970s), the worst of Alfonsín and Menem's 1989-90 hyperinflation, and the 2001 liquidity crisis. The official also recalled that when Milei took office on Dec. 10, 2023, Argentina had “a Central Bank totally bankrupt.”

“We had a country with a fiscal cancer and monetary, financial, exchange, and institutional metastasis. It was a patient that was closer to passing to the other side of life than to recovering,” he added while insisting that fiscal balance was achieved after only one month when everybody believed it was impossible to do even in the entire 4-year term.

At any rate, the government's achievements under Milei came at the price of thousands of jobs lost and scores falling into poverty or indigence, which dents the President's popular approval.

The Argentine Government insists that once passed by Congress, the so-called Omnibus Law bill (officially named the Bases Law) will be “the reactivator of the economy.” Nevertheless, Presidential Spokesman Manuel Adorni said the Libertarians would keep moving on regardless: with the Bases Law or without it.

After being passed by the Lower House, the text is to be debated upon at the Senate on Wednesday while the opposition plans to stage a demonstration outside Congress to encourage and support swaying opposition lawmakers to vote against it.

As Milei's popularity dwindles, new bickering surrounds the head of state's cabinet. Foreign Minister Diana Mondino is said to have fallen off grace, particularly that of Presidential Secretary and sister Karina Milei, under whom a fund-handling department formerly reporting to Mondino has been shifted. “Mondino is ratified in her position,” Adorni explained Tuesday without delving into why such an explanation was necessary. Are her days numbered? For starters, she will not be attending the G7 Summit in Italy later this week together with Milei. Karina will.

Also under the spotlight is Human Capital Minister Sandra Pettovello for the scandals regarding the distribution of food to the needy and the hiring of overpaid outsourced staffers amid numerous layoffs. But unlike Mondino, Pettovello is believed to be under the president's wing. The Minister also claimed that some burglars had tried to break into her home. Such a timely incident making her the victim has caused more disbelief than sorrow in Buenos Aires, according to MercoPress sources. “Pettovello told me that they broke part of her fence and tried to enter. She understands that it was nothing more or less than a consequence of intimidation and an attempt to scare her because of the biggest corruption uncovering in the last decades,” Adorni argued.

Mondino and Defense Minister Luis Petri will travel to Switzerland for the unilateral peace talks summoned by Ukrainian President Volodymyr Zelensky. After that, she is due in New York for an appearance before the United Nations (UN).