in a small office in Buenos Aires a black market deal is underway if they're caught those involved could end up in jail but it's not drugs or weapons being sold it's money despite the risks deals like this are commonplace in Argentina's capital and they are one in a long list of economic woes like hyperinflation president menom inherited a country in economic and social disorder Bank runs even an ex-president found guilty of defrauding the state Fernandez Association has this Mr trial it's a Witch Hunt the problem is that as we normally say Argentina is a country that never misses an opportunity to miss an opportunity argentines frustration with the economic dysfunction saw the rise of a radical presidential hopeful in the 2023 election Javier melaye wants to dollarize the economy a move he says would blow up the central bank but the change that Argentina needs will take more than one man the main reason Argentina's economy is so chaotic is because of consistent economic mismanagement over decades without big Solutions things could get much worse events of the past few years have been difficult for the world economy this is going to be a tough year tougher than the year we leave behind this financial storm hit when Argentina was already in peril to understand how bad it is for South America's second largest country take a look at inflation countries like Britain have experienced annual price Rises on par with the world average in high single digits Argentina's inflation hasn't been that low in decades the rate has been higher than 100 percent for almost all of 2023. right now only Venezuela and Lebanon have higher rates it's really hard to kind of just imagine what that's like for some people they just can't make ends meet anymore inflation this High forces many argentines to get creative argentine's save in dollars because saving in local currency in a local bank has been a recipe for disasters even this is an easy right now argentines can only legally buy 200 a month at the official exchange rate that has created a vast black market for currency dealers line the streets of the city center while people hoard stashes of cash at home but buying dollars on the black market is more expensive than the official rate El Flacco is one of a handful of bosses in Argentina's currency Black Market he's agreed to talk to us on condition of anonymity he claims the Black Market has tacit approvals foreign with the GDP of 630 billion US Dollars Argentina is one of the largest economies in South America but this booming Black Market is a symptom of just how bad things are and the roots of the problem Run Deep the main reason Argentina's economy is where it is today is historical once one of the richest countries in the world there are many reasons behind Argentina's decline including the legacy of this man Juan Domingo Peron elected president in 1946. he came to power after having been inspired by Mussolini's fascist Italy from fascism was a strong very intrusive is and he combined that with also having a very strong labor movement he introduced the eight-hour workday increased wages for the poor and created vast expensive welfare schemes he also embraced economic isolationism the emphasis on National sovereignty led to kind of the coddling of workers by protecting them from foreign competition it has shut itself off from international trade today Argentine politics is still dominated by his legacy peronists have been in power for 16 of the past 20 years one of the issues with with baronism is they haven't evolved with globalization and with the world Argentina's exports have shrunk as a percentage of global exports year after year in the mining sector Argentina has one of the largest reserves of lithium and also it's very rich in Copper just to think that Chile is the biggest copper exporter in the world and Argentina produces zero copper and we share the same mountains as well as remaining isolated from the world economy the government also still hugely overspends on things like price subsidies the average European spends around forty dollars a month on electricity the average Argentine spends five dollars eight times less in 2022 alone this cost the government 12.5 billion dollars around 2 percent of Argentina's GDP but government largesse goes beyond welfare after 13 million people in formal employment in Argentina over a third of them are employed by the state itself a lot of spending goes on paying salaries and pensions you actually wanted to go on things like investment technology infrastructure helping the poor rather than paying public wages all of this points to the main issue in Argentina's economy Argentina has been running fiscal deficit for the last 13 years if you are in a difficult time for 13 years in a row well you have a big problem policies to counteract this deficit like printing money only make things worse governments have become dependent on the Central Bank printing money to basically Finance spending and the more money you print the worse inflation gets local shopkeeper Marta Valdez feels the direct impact of more money being pumped into the system is putting more money into circulation can mean it's worth less impression is money is only one way the government tries to fund its spending another is borrowing so Argentina has borrowed a lot of money but it has also defaulted so many times that people don't want to lend it money anymore despite the risks there is one institution that continues to lend it is today Argentina's debt to the IMF is more than double that of Egypt the second highest borrower all told Argentina holds almost a third of all of the imf's total lending one of the criticisms that most economies have opposed to the IMF is that the conditionality that they put to Argentina was so so light they didn't need to stabilize the economy they didn't need to do any homework and they received money that I think that was another missed opportunity for Argentina borrowing and printing money are not unusual tactics for group does both is Extreme and damaging in part because loans from the IMF need to be repaid in foreign currency and one tactic Argentina employs to get that foreign currency only complicates things more trade restrictions soybeans are one of the country's biggest exports the soybean producer in Argentina they face an export tax of 33 percent if a tone of soybean costs say 500 I received 500 minus 33 percent leaving the farmer with 335 dollars they then have to exchange these dollars per pesos on the official exchange rate when the dollar rate is bad Farmers have to make harsh decisions the incentive is to keep your soybeans in your silos and and until the exchange rate changes if everybody does that the supply of dollars in the economy is cars so the government invented something that we call the soybean dollar the soya dollar is a slightly better exchange rate specifically for profits on soya exports but it's not the only Market with confusing rules if you want to organize a concert in Argentina and bring a British singer you have to pay the official dollar and then an extra tax we call it the dollar Coldplay it's your Argent a card and you pay the official Dollar Plus taxes and we call that the dollar Qatar this idea of having 10 15 20 different prices for the same thing doesn't make any sense that's a distortion with the set of distortions is impossible that Argentina grows over the years different presidents have proposed different solutions to the economic conundrum but the outcome tends to be the same more debt and more inflation what's really really hard to fix Argentina's economy and that's because many of the things that we've talked about are linked everybody agrees the government needs to spend less one way to do that is by reducing subsidies but if you do that you're going to put up inflation everyone knows the currency needs to be devalued but if you devalue the currency that will also push up inflation so it's really hard because tackling one part of the puzzle means that things could get much worse before they actually get better as the 2023 presidential election approaches it will be difficult to convince a disillusioned population that short-term pain will bring long-term prosperity principlement is the real heart of the problem is trust if Argentina cannot win back the trust of its citizens or the trust of the markets it's never going to be able to fix its problem and in order to build trust you need to have good policies for decades not just for a few years not just for one government thanks for watching 2023 is an election year here in Argentina and I'm going to be covering it extensively so if you want to read my coverage and watch more videos like this please click on the link and don't forget to subscribe
