Argentina's foreign debt falls in relation to GDP

Public debt has fallen by 10.5%
Ministerio de Economía de Argentina

 -   Ministry of Economy of Argentina

During the first quarter of 2022 Argentina's foreign debt fell due to payments made to the IMF, the effect of the fall in foreign exchange and the growth of Gross Domestic Product compared to the same period of the previous year. The country's external debt, which now stands at 69.5% of GDP, reached 80% during 2021.

These data place Argentina in the average of the region, which stands at 65.3%, while the debt of emerging countries is two points lower, at 63%, and the global debt rises to 103.2%, due to the fact that in mature markets public indebtedness reaches 127%. According to a report by the International Surety Institute (IIF), global debt now exceeds 305 trillion dollars due, above all, to the rise in the debt of China and the United States. 

REUTERS/AGUSTÍN MARCARIAN  -   El presidente electo de Argentina, Alberto Fernández
REUTERS/AGUSTÍN MARCARIAN - Argentina's President-elect Alberto Fernández

The report highlights Argentina as a country that manages to reduce its public debt during the first four months of 2022 compared to the last four months of the previous year, however, these good data only affect the public sector. For their part, companies reveal that their non-financial corporate debt fell from 19.1% to 16.6% of GDP. Argentina is a country used to living with high levels of debt, despite a slight drop in 2021 that continues to be maintained during the first four months of 2022.  

What are the consequences of high public debt? 

The economic crisis caused by the COVID-19 pandemic and negative interest rates have led to skyrocketing indebtedness worldwide. State debt crises come out of nowhere and plague states until they take out new loans that allow them to repay their debt and which are also free of charge due to negative interest rates. This seemingly perfect strategy would be the lifeline for many states, but if creditors lose confidence in the solvency of the countries, their interest rates would rise and the deal would no longer be so profitable. Faced with this situation, states have three options: 

REUTERS/Marcos Brindicci
REUTERS/Marcos Brindicci - Argentina is a country accustomed to living with high levels of debt.

Option one: cut public spending and try to pay for the war with taxpayers' money. However, this option poses risks like those suffered in Greece during the 2010s, when the government's austerity policy led millions of citizens to lose their jobs and caused the country's productive capacity to disappear.

Second option: suspension of debt repayment, as Argentina did during 2022. This is the most risky option because it could lead to huge debts for banks, which could end in bankruptcy and stagnation of the economy. 

AFP/EITAN ABRAMOVICH  -   Gasolinera en Buenos Aires, Argentina
AFP/EITAN ABRAMOVICH - Gas station in Buenos Aires, Argentina

Third option: the Central Bank prints more money to pay off the state debt, this is the strategy used by Germany in 1923. However, although apparently the easiest solution, this choice caused the Reichsmark (the currency used in Germany between 1924 and 1948) to lose its value in a few months, causing hyperinflation.

Turning to the Central Bank as a way to solve public debt is not one of the best options, however in times of need it does not seem such a terrible solution, as the European Central Bank (ECB) already demonstrated at the peak of the debt crisis when its president at the time Mario Draghi promised to buy unlimited government bonds if necessary "the ECB will do everything in its power to preserve the euro", said Mario Draghi in 2012 and managed to put an end to the crisis with just one sentence.

Americas Coordinator: José Antonio Sierra