Argentina's external debt issue

On January 10, 2024, the International Monetary Fund (IMF) and the Argentine authorities signed an agreement allowing Argentina accessing approximately $4,700 million in order to rebalance its balance of payments. According to data from the National Institute of Statistics and Census (INDEC), at the end of March 2024, Argentina's external debt amounted to $289,000 million and must mainly return this money to credit institutions, bondholders as well as public sector organizations. Between 2018 and 2019, under the government of Mauricio Macri, the IMF granted one of the largest loans in Argentina's history, amounting to US$44,000 million. The South American country has experienced 2 major cycles of external debt leading the country to default:

1. 1976-1983: Military dictatorship

2. 1989-2001: Menem-De la Rúa governments

Argentina's presidents often mention bearing a "heavy legacy" when they take office, referring to the country's difficult economic situation and the huge foreign debt they inherit from their predecessors. Since Argentina has been drawing up its revenue and expenditure budgets, the country has always included "debt servicing", i.e. the activity that will make it possible to repay the capital loaned to it as well as the interest. For years, Argentina has had to provide for the payment of its external debt. But how can we explain the monstrous weight of its external debt in the economy?

What is external debt and what is it due to? Case study: Argentina

Definitions

External debt is the money that a government, company, or an individual owes to foreign entities or institutions. In other words, it represents the money that foreign entities have lent to a state as well as the interest generated by those loans. Loans are granted to states to meet different needs they may have, such as investing in infrastructure or implementing policies to promote economic development.

External debt is the result of expenditures exceeding revenues, which therefore do not cover current consumption and investment needs of the country's economic actors, mainly due to a negative trade balance.

There are different theories regarding external debt. On the one hand, according to Keynes' theory, borrowing is necessary because it allows a country to finance domestic investments, particularly for developing countries. Debt increases global demand, thereby boosting economic growth. Moreover, a borrowing state does not need to raise taxes to finance the economy.

On the other hand, classical economists such as Adam Smith consider external debt to be a direct cause of a country's impoverishment and economic recession because it involves the payment of interest and causes capital flight.

Indeed, external debt can cause capital flight. But in reality, it's a little more complex than that. Capital flight can come from external debt, and external debt can accelerate capital flight. However, external debt can be driven by capital flight, and capital flight can also accelerate the increase in external debt. In a country, capital is needed to be able to finance investments, but with capital flight, the country no longer benefits from the resources to finance itself, so it looks for financing abroad and goes into debt.

Anyway, the accumulation of external debt puts the country at risk of a long-term financial crisis if there is insufficient revenue to pay back the accumulated debt. The foreign debt can is paid by taxes and the income of economic activities. Indeed, to cope with a large debt payment, the central bank of the country in question can print more money, but this causes the devaluation of the local currency and generates an inflation situation due to the greater circulation of money. In addition, by devaluing the local currency, the price of imports increases, which can lead to a trade deficit and an economic crisis in the long run.

The image of a country with a significant external debt is impacted. Its credit rating (i.e. its ability to repay the money in a loan) is often affected. Therefore, investors transfer their money out of the country, and potential investors avoid investing money in the country in question.

In the case of Argentina, it is mainly financed in dollars. Indeed, a country can contract debt in several currencies, and it is very different to take on debt in local currency and foreign currency. According to data from the Argentine Ministry of Economy, in 2022, 66.9% of Argentina's external debt was made up of dollar debts. Since most debts are incurred in dollars, a devaluation of the local currency or an appreciation of the dollar can increase the net worth of local debtors by tightening the financial terms of loans in the country. In addition, a currency devaluation can worsen the country's fiscal position if it is already experimenting a deficit (expenditure>revenue). 

To respond to this situation of mistrust, the government often raises interest rates to attract investors again and encourage them to make more loans in the country (and benefit from the high interest rate) ... This can turn into a real vicious circle because higher interest generated by loans granted by investors can mean that countries must borrow more and more to pay these interests without being able to get out of this debt situation...

Finally, in a situation of default, although a State cannot go bankrupt, its assets can be seized abroad, as was the case in Argentina.

Foreign exchange constraint in Argentina

In the case of Argentina, the burden of its external debt is largely explained by its external restraint problem.

The country suffers from a foreign exchange constraint which means that it is very difficult, if not impossible, to have sustainable growth due to the difficulty of obtaining foreign exchange. This phenomenon is generally the direct consequence of a trade deficit (imports>exports). To avoid this, the state can borrow to obtain foreign currency or control foreign capital to keep it in the country and prevent it from fleeing. In addition, it often involves a devaluation (voluntary or not) of the local currency in order to increase the total amount of exports and limit the trade deficit.

Currency devaluation: The loss of value of one currency relative to another determined by a country's monetary authority.

Argentina usually contracts external debts to get dollars. However, with the devaluation that this entails, it takes more pesos to pay the foreign debt in dollars and this is where the vicious circle begins from which Argentina is struggling to escape...

Another problem is the country's large budget deficit (expenditure>revenue), which means that it also has to borrow to reverse the balance and be able to cover its own expenses.

In addition, the shortage of dollars is also due to the high demand for US currency in the country:

• Argentines tend to save in dollars due to the various inflationary cycles that Argentina has suffered from.

• The industrial sector needs dollars, especially for its imports of raw materials.

Another cause of the country's foreign currency shortage can be explained by the lack of confidence in the Argentine peso. This lack of confidence prevents Argentina from financing itself as other countries in the region, such as Colombia do, and forces it to take out loans abroad.

Another very common problem in Argentina is the carry trade phenomenom ("bicicleta financiera"): speculative investors finance themselves in pesos and then invest in dollars in anticipation (by speculating) that the peso will be devalued, and that the dollar will appreciate.

Investors finance themselves (take out a loan) in Argentine pesos, when for example 100 pesos are worth $100. Later, they lend in dollars when 100 pesos are worth $30. This way, they can easily repay the pesos while generating profits from the dollars they loaned to a debtor. 

Another issue specific to Argentina is that investors finance themselves abroad by taking advantage of low interest rates and then lend money in Argentina because the country offers very high interest rates. The country's high interest rates are due to the public sector's indebtedness in the domestic financial market. 

In the end, investors bring their capital to Argentina only for very short-term results. The latter bring their capital to make a profit and then withdraw it from the country. In other words, very little investment in Argentina's real economy is being made.

To conclude this first part, Argentina's indebtedness can be largely explained by:

-          A budget and trade deficit

-          An unstable financial sector with speculative investors

-          Strong domestic demand for foreign currency.

Argentina first needs dollars to deal with it’s the foreign exchange constraints, and then to repay the money and interest on the loan it has taken out to be able to deal with this problem of shortage. Secondly, it has to take on external debt again in order to compensate for its budget deficit. The problem is that Argentina is a financial market-based economy in which economic actors first finance themselves on the international market and then invest in Argentina, and when their financial assets (securities, bonds, deposits) have increased in value, they take them out of the country causing capital flight preventing any hope for the country to benefit from sustainable economic growth. The investments made in Argentina are short-term investments and are not intended to finance the real economy.

Is external debt part of argentina's DNA?

1824: when Argentina took out its first external debt

The first Argentine president to take out a foreign currency loan was also the first president of Argentina, Bernardino Rivadavia. In fact, when he contracted it in 1824, he was not yet president, but a minister in the government of Buenos Aires. This loan was granted by the Baring brothers (England) and amounted to £1,000,000. In theory, the Argentine government took out this loan to cover the expenses of the work on the port of Buenos Aires and the urbanization works. However, the money was never used to develop this infrastructure, but rather to finance the war in Brazil and to comply with one of the demands imposed by the British Empire to recognize Argentina's independence. It took the country more than a century to pay off this debt.

During the 19th century and the first half of the 20th century, the loans requested by Argentina were used to finance projects such as infrastructure works and to cover military expenditures. At that time, Argentina began to develop its agro-industrial production model, which was the country's main source of income at the time. However, Argentina was still considered a fragile state with little capacity to meet the socio-economic expectations of the population and had a trade deficit covered by debts from European loans.

Successive governments have continued this practice. In 1880, the country's ruling elite tripled the foreign debt from £14,000,000 to £38,000,000. The main creditors were the English, the French and the Germans. At the beginning of the twentieth century, the debt amounted to £78,000,000.

1944 and the Bretton Woods Agreement

However, the real problems began after the Second World War, especially with the creation of international financial institutions such as the IMF or the World Bank and with the beginning of the dictatorship in Argentina. International financial institutions are multi-state organizations created with the goal of establishing a framework for economic and financial cooperation aimed at avoiding a repetition of the consequences of the economic policies that generated the Great Depression (originating in the United States) of the 1930s.

In July 1944, the United States, the United Kingdom and representatives of 44 governments met at the Bretton Woods Conference to establish rules for trade and economic relations between the world's most developed and industrialized countries. To achieve this goal, an International Monetary System (IMS) has been established. This system was intended to make it possible, among other things, to rebalance international payments, in the event of a persistent deficit or surplus of a country in relation to the rest of the world. It is in this context that the IMF was created.

The IMF's main objective is to ensure the stability of the international monetary system, i.e. the system of international payments and exchange rates that allows countries and their citizens to transact with each other. It does this by monitoring the world economy and the economies of its members, providing loans to countries facing balance of payments problems, and providing practical assistance to its members.[1] 

Argentina joined the IMF as a full member in 1956.

Foreign debt under the dictatorship (1976-1983)

Throughout the dictatorship (1973-1986), the IMF lent money to Argentina and began to get involved in the country's economic decisions. And in just 10 years of dictatorship, Argentina owed 40 times more money to foreign creditors.

The 1970s were characterized by an immense amount of money available on the international market to lend to emerging countries. This enormous amount of available money is partly explained by the drastic increase in the price of oil imposed by the Organization of the Petroleum Exporting Countries (OPEC) in 1973, increasing the abundance of capital in the OPEC countries. The latter placed the foreign currencies obtained from the sale of oil on the international market, generating a wave of loans that were mainly intended to cover the increase in the price of crude oil and inflation. However, in some Latin American countries that were under dictatorship at the time, such as Argentina was, this injection of capital was used to finance authoritarianism, "state terrorism", [2] but also the 1978 World Cup and economic liberalization policies. What happened?

In Argentina, the end of the 1970s marked the end of the industrialization by import substitution (ISI) model and marked the rise of neoliberalism and rentier capitalism. Rentier capitalism can be defined as a system in which large corporations make significant profits by owning and controlling assets and not by using a country's economic resources in innovative and entrepreneurial ways. It means that the economy is driven by the payments of interests from the debtors. It was from the end of the 1970s that the financial market began to have a lot of weight in the Argentine economy. Debt reduction is not one of the goals of this system and financial speculation is the basis of the system to the detriment of productive investment.

This new system resulted in economic reforms such as the 1977 reform that introduced a floating exchange rate regime (determining the exchange rate through the free market without government manipulation). Capital controls were removed, the reserve ratio was reduced (banks needed less liabilities to be able to provide loans). Tariffs have been gradually reduced, subsidies for non-traditional exports have been eliminated, and prices for public services have increased. In addition, foreign exchange and financial markets have been liberalized through mechanisms to encourage financial speculation and discourage productive investment.

Similarly, the government decided to freeze wages, which, in the context of inflation caused by the increase in the price of oil, led to a 40% drop in wages. The economic opening has caused the flooding of foreign products on the Argentine market, generating a trade deficit. In addition, there were the processes of devaluation of the austral (former Argentine currency) and overvaluation of the dollar, causing a significant drop in the purchasing power of Argentines, further widening the trade deficit, leading to the bankruptcy of Argentine industries that could not compete with international supply and encouraging capital flight. It is estimated that the flight of capital accumulated up to 1983 reached $37 billion.

And as you now know, the devaluation of the local currency leads to an increase in the real amount of debt. The low economic growth and the foreign exchange constraints caused by the trade deficit made it difficult to repay the money lent to Argentina and the flight of capital caused an increase in external debt due to the lack of capital in the country to carry out investments. As a result of all this, public external debt has skyrocketed.

1980-2000: The lost decade and the debt crisis

In Latin America, the 1980s are known as the "lost decade" because it was a decade in which most countries in the region suffered severe economic crises. In 1982, the external debt crisis erupted, beginning with the Mexican moratorium which, shortly afterwards, spread throughout the region like a virus. Foreign banks that had lent to these countries found themselves extremely vulnerable, in part because of the central role they play in the international financial market. This foreign debt crisis in Latin America has affected the banks of the countries of the global North and with it the financial system of their countries. To cope with the situation, these creditor banks have started to build up reserves in order to be able to cope with possible defaults by debtor countries in the future. As far as Latin American countries are concerned, like Argentina, they have reduced their financing abroad. The debt ratio has fallen, and capital flight has slowed.

The situation of Argentine external debt at that time was characterized by the decision in 1982 of the BCRA (Central Bank of the Argentine Republic) to nationalize private debt. It is estimated that a transfer of at least $15 billion has been made from the private sector to the public one. The public external debt in 1976 was about $9 billion, while in 1983 it reached $46 billion.

When it comes to the economy, despite the measures implemented by the new democratic government of Raúl Alfonsín (1983-1989), which included subsidies for industrial exports and state aid in strategic sectors, high interest rates on the international market aggravated Argentina's foreign exchange constraint problem and worsened its external debt situation. This colossal debt was one of the triggers of the country's economic collapse in 1989, which we will talk about later. 

In the mid-1980s, the moratoriums of Latin American countries began to disappear, and the reserves established by the creditor banks enabled them to overcome the crisis. The banks wanted to get back the money they had lent to Latin American countries, but they knew that the countries did not have the sufficient foreign exchange reserves to repay all the interest. The IMF's annual meetings in 1985 gave birth to the Baker Plan. The plan was designed to facilitate the financing of indebted countries. It is based on 3 pillars:

1. Inflation management, macroeconomic stability, structural reforms

2. Strengthening cooperation with the IMF and the World Bank

3. Increase in bank credit (from private institutions) to indebted countries

The idea was that countries only had a problem of cash flow and not of insolvency. So, with measures to boost economic growth, new financing, and reforms, countries could repay borrowed money. However, three years later, the plan failed. The banks turned a deaf ear and did not provide the necessary funds to the countries as they were supposed to do.

Cash flow and solvency: Clash flow is the ability to pay in the short term and solvency is defined as the ability to pay in the long term on an ongoing basis.

Argentina in 1989 was marked by a long cycle of hyperinflation (3,000% per year at the end of 1989) after the devaluation of the currency by nearly 80% in December of the same year. In order to provide basic goods, Argentines kept the money needed to survive a week in cash and put the rest of their wages in fixed term deposits of seven days or a month, taking advantage of the high interest rates in the country. Interest rates reached 138% in June 1989. In addition, Argentina had a huge budget deficit and a balance of payments deficit that did not allow it to pay its external debt.

Fixed term deposit: Term deposits are financial products that offer a fixed and guaranteed return in exchange for keeping a sum of money deposited in a bank for a certain period of time. It is a way to save without taking a lot of risk and generate money.

At that time, the government decided to implement the Bonex Plan (external bonds). The plan consists of the forced exchange of term deposits for the receipt of bonds issued by the State for 10 years. The goal was to reduce the amount of money in circulation that was used to buy dollars to limit inflation.

Bonds: A bond is a debt issued by a company, local authority, or government. When one of these entities needs financing, the amounts required may sometimes require the participation of a large number of creditors. This is when different creditors can "buy" a bond, i.e. a part of the debt that the entity will contract to finance its project. This creditor who has "purchased" part of the debt will see his principal repaid on a fixed date, usually 5 to 30 years later, and will also receive periodic interest at a fixed or variable rate.

An example below: 

A company needs to borrow €10 million (€10,000,000). It decides to issue bonds on the bond market (fixed interest rate). This loan is divided into 1,000 shares of 10,000 euros each. Therefore, the company will issue 1,000 bonds and each bond will cost 10,000 euros. The interest rate is set at 5% and the term of the loan is set at 10 years, i.e. the company will have to repay the money loaned to it in 10 years.

Now, you can decide to buy one of these bonds and become a creditor, i.e. you have the right to ask the company to repay you a debt. If the interest rate is annual, you will receive €500 per year for ten years. At the end of the tenth year, the company will pay you 500 euros for the last time, which is interest, and the first 10,000 euros you lent to the company.

In 1991, the government decided to set the parity of the Argentine currency against the US dollar, at a rate of 1 US dollar per 10,000 australs or later 1 peso (Argentina changed its currency from 1992 onwards, from the austral to the peso). The convertibility law was intended to fight against inflation on the basis of a theoretically stable currency.

One peso = one dollar

Initially, the Bonex plan and parity made it possible to curb price increases. However, by setting the parity between the two currencies, Argentina was exposed to all international economic shocks and when the dollar rose by 70% in 1991, the peso ended up being overvalued so that Argentine companies could no longer compete with the international market (outside the dollar zones) due to the high price of their products. Exports have fallen, as has foreign investment in the country. In the end, inflation continued.

Added to this is a rapid, if not unsustainable, increase in demand for dollars. The government has made it more difficult to obtain foreign exchange to curb demand, which has had the effect of drastically increasing the real amount of external debt.

In 1992, Argentina decided to join the Brady Plan, presented in 1988 by the US Secretary of the Treasury, Nicholas Brady. The goal was to reduce the external debt contracted by the public sector towards private banks, by managing to cancel part of this debt. The plan provides for the conversion of debt into government bonds with a 30-year payment deferral. Creditors have two options:

• Write off 35% of the debt (discount bond)

• Reduction of the interest rate, set at 6% (pair bond)

The reduction of the principal amount offered by the first option assumes that the debtor agrees to pay a variable interest rate set by the creditor.

To repay the rest of the debt and part of the interest, countries had to have guarantees from developed countries, by buying US Treasury bonds or government bonds from European countries or Japan. To finance these bond purchases, organizations such as the IMF and the World Bank have provided loans to debtor countries. The implementation of the Brady Plan implied the agreement of the debtor countries to apply the guidelines of the Washington Consensus.

The Washington Consensus in Latin America reflects the American hegemony at the end of the twentieth century. It was coined by economist John Williamson in 1989, and it describes a set of reforms aimed at helping developing countries plagued by the financial crisis. These reforms were dictated by the IMF, the World Bank, and the U.S. Treasury Department. These reforms included the privatization of state-owned companies, reforms of the state to reduce its role in the economy, and the deregulation of markets and, in particular, financial markets.

Argentina implemented the Brady Plan and was one of the most receptive Latin American countries to the Washington Consensus. Despite the promises made by President Menem (1989-1999) during his campaign regarding wage increases and a so-called "industrial revolution", the reality was very different, namely privatization of companies and fiscal adjustment (measures implemented by the government to reduce the state budget deficit). The Brady plan enabled Argentina to obtain debt forgiveness (-$6,000 million), an extension of payment terms to 30 years and a reduction in the interest rate set at 6.25% for debts contracted in dollars.

While the implementation of the Brady Plan seemed to be working at first glance, the parity policy put in place in the early 1990s proved to be a total failure and made it difficult to pay the debt and its interest. In response, the government implemented a new external debt restructuring plan called "Megacanje" (Mega Swap), which consisted of extending payment terms by increasing interest. As a result, the amount of debt reached $150 billion by the end of the century.

External debt restructuring: Debt restructuring represents bilateral agreements between creditors and debtors that modify the terms of repayment.

In 2001, the parity policy ended. Dollar deposits were turned into Argentine pesos, and the peso collapsed. The defaulted debt (the debt that the state cannot repay) represented more than 160% of GDP. The devaluation of the peso had, among many negative consequences, only one positive effect, namely that it made Argentine exports more competitive and at the same time Argentina was able to take advantage of the surge in commodity prices (commodity Supercycle) that generated a trade boom. Argentina recorded a growth rate of 8% in 2003.

2000-2023: Default and debt restructuring

In 2001, Argentina defaulted, and President Kirchner (2003-2007) began a long process of debt restructuring. This is the largest default in history, with bonds worth more than $90 billion. The country managed to cancel its debt to the IMF in 2005, which amounted to $9,800 million, or 15% of its total external debt. In addition, the Kirchner government managed to restructure 76% of the external debt, or about $27 billion, and achieved a 43% reduction in its total nominal public debt. President Cristina Fernández (2007-2015) continued her husband's debt reduction policy.

However, the deleveraging process hit a hurdle in 2010. The government had managed to restructure 90% of its external debt, but the remaining 10% of creditors took legal action against Argentina in New York. Dubbed the "holdouts," these creditors were mostly vulture funds that did not agree to negotiate Argentina's external debt. President Fernández refused to pay these vulture funds, and in 2012, an Argentine navy training ship was detained in a Ghanaian port at the request of these creditors.

Vulture Fund: A vulture fund is a venture capital fund that invests in the debt of a financially troubled company or government at very low prices.

Mauricio Macri (2015-2019) finally agreed to pay the holdouts and loans were again taken out to repay them and the debt increased again, amounting to $240 billion. Between 2003 and 2015, nominal debt rose from $180 billion to $240 billion, but in real terms, debt was lower, the debt-to-GDP ratio fell by 52%, and the share of debt incurred in dollars was less important.

However, in 2019, external debt represented more than 90% of Argentina's GDP and 80% of the latter was contracted in dollars, thanks in particular to new loans granted by the IMF. In the same year, President Macri asked the organization to finance it in dollars to be able to pay its external debts, generating even more debt in a context of collapse of the real economy, massive closure of small and medium-sized industries, unemployment and inflation.

75% of the disbursements that had to be made between 2020 and 2023 were denominated in foreign currencies. Although President Alberto Fernández (2019-2023) has managed to renegotiate some

$66 billion, exports were not enough to overcome the problem of difficult access to dollars. In addition, in 2021, Argentina had to pay the debt contracted with the IMF a few years earlier.

External debt in 2024

In 2023, Javier Milei began his mandate, and in the first quarter of 2024, the country recorded a budget surplus, curbed money issuance and managed to build up foreign exchange reserves of $17 billion again. Despite these improvements, at the end of the first quarter of 2024, Argentina's external debt still stood at $289 billion. In addition, in April 2024, Argentina recorded a monthly increase in inflation of 8.8% and an annual increase of 289.4%.

On January 10, 2024, the IMF and the Argentine authorities reached an agreement that allowed Argentina to have access to some $4.7 billion for it to deal with its balance of payments. As part of this agreement, the Argentine authorities have undertaken to modify their economic, fiscal and monetary policies, among others, in order to stabilize their economy and to be able to benefit from this amount of money. Some of the changes that the Argentine authorities plan to implement include:

• Fiscal policy: Achieve a primary surplus of 2% in 2024.

• Social protection: preserve the real value of pensions and increase social assistance.

• Exchange rate policy: End of the Administrative Control System for Imports (SIRA) due to its transparency problems and adoption of a market-based regime with less government intervention in foreign exchange markets. Deregulation of the economy and foreign exchange markets through the implementation of measures to eliminate capital flow management (CFM).

• Financing plans: The government will not finance the market but will focus on improving domestic debt maturities.

• Structural policies: Boost Argentina's energy and mining potential, among other things by increasing competition and simplifying bureaucratic processes. This implies opening the Argentine economy to facilitate and attract foreign investment.

Despite the failure of the convertibility law in the 1990s, the new Argentine president has once again put the idea of dollarizing the economy back on the table. According to Milei, exchange rate parity has been one of the most successful policies to control the economy, so he would like to implement a similar model to combat inflation. However, many experts do not share Milei's vision. Many believe that parity exposes Argentina too much to the international environment and that this type of policy should be done along with a correction of the fiscal accounts and the establishment of a sufficient foreign exchange reserve to hope to have a positive impact.

Argentina's external debt and the IMF: toxic relationship

IMF loans and programs often lead debtor countries into an economic recession, a devaluation of the local currency with a decline in real wages in order to eliminate or reduce the trade deficit. The programs also imply a drastic reduction in social spending and an increase in the interest rate that impacts the country's economy and the purchasing power of the population.

The IMF's controversial structural adjustment policies have caused widespread fatigue among the population of many Latin American countries, including Argentina.

The IMF was originally created to provide short-term assistance to countries facing cash flow or exchange rate crises, in order to prevent them from resorting to currency devaluation or protectionist measures that could affect international trade. Over the years, however, the IMF has expanded its functions by offering long-term programs to address solvency problems, not just clash flow issues. 

What conditions must be met for the IMF to lend money to governments?

Between 1944 and 1971, the IMF's lending terms were sound fiscal accounts, stable balances of payments, and adjustable fixed exchange rates. In the case of Argentina, the main condition imposed by the IMF for the granting of a loan was fiscal adjustment (ensuring that revenues exceed expenditures).

The adjustment programs imposed by the IMF by lending money to countries have repeatedly led to severe economic crises. The adjustments made by Argentina at the end of the twentieth century in exchange for IMF loans partly led the country to default in 2001. The IMF executive even acknowledged the mistakes of the IMF, which was overly optimistic about Argentina's growth prospects, but also in establishing debt levels and assessing the exchange rate regime.

The organization recognized that all the funds that had been mobilized to maintain the Convertibility Act with the U.S. dollar would have been better used if those funds had been used to end it.

The loan itself is not problematic, but the extent and type of reforms imposed by the organization are what create discontent among the population.

Conclusion

To conclude, the main problem with Argentina's external debt is that, from the outset, the loans were contracted due to a fragile state that did not have the capacity to meet its own obligations. In the end, the Argentine state takes on a new debt to pay off the old one contracted during a previous government, and the country has a very hard time getting out of this vicious circle. Loans made by Argentina have rarely been used for their original purpose and adjustment programs imposed by organizations such as the IMF have had a negative impact on the country's economy. The fact that the Argentine economy is currently based on the financial market makes it difficult to achieve sustainable growth and reduce external debt.

In order to overcome the problem of foreign exchange shortages, the government needs to invest in export-oriented productive sectors. Foreign trade must be encouraged and access to dollars restricted to build confidence in the peso and reduce Argentina's dependence on the US dollar. It will definitely take a long time to achieve such a goal and, above all, continuity of policies between successive governments. However, the new agreement signed with the IMF in 2024 shows that the country is far from reducing its external debt. Finally, the policies imposed by the international financial institutions in exchange for the granting of loans challenge the country’s sovereignty, as it mainly depends on foreign capital (mainly provided by the global North countries) to support its economy.

[1] "The World Bank Group and the International Monetary Fund (IMF)," Text/HTML, World Bank, accessed April 14, 2024,   https://www.bancomundial.org/es/about/history/the-world-bank-group-and-the-imf.

[2] State terrorism is the use of illegal methods of a clandestine nature by a State in order to bring about structural economic and social changes in a relatively short period of time. Goldentul, Analía; Dorado (2020). 1976-1983: The terrorist state. Eudeba. p. 219 to 255

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