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Wed Apr 27, 2016, 12:02 AM

Austerity leads to credit crunch in Argentina.

Figures published today by the Argentine Central Bank show that the country's credit market shrank by 0.7% in first quarter of 2016 from the same time a year ago - a sharp contraction of 25% in real terms considering that inflation has risen to around 33% in the same period.

The figure is in stark contrast to 2015, when credit in Argentina expanded by 37% while prices did so by about 25%. Growth in every major type of credit slowed: business loans, which had grown by 40% in 2015, declined by 6.6% in the first quarter; mortgage loans (which never fully recovered from the 2002 crisis) grew by 15% in 2015 but declined 1% in the first quarter; and revolving credit, which helped fuel record sales of big ticket items, rose 57% in 2015 but declined 5% in the first quarter.

The sudden credit crunch in Argentina coincides with monetarist policy adopted by the Central Bank since President Mauricio Macri took office four months ago. His Central Bank president, Federico Sturzenegger, has made curbing growth in the monetary base a policy centerpiece in keeping with Macri's campaign promise to control inflation (which had averaged 25% under his predecessor).

Their own 40% devaluation in December, however, later forced Sturzenegger to double central bank interest rates to 38% to stop a run on the peso in February. The hike in interest rates calmed the currency crisis; but has strangled the country's already tight credit market.

Access to credit was further dampened by the Macri team's decision to limit access to the Productive Investment Line for businesses and to the PROCREAR low-interest mortgage program, which had issued over 200,000 mortgages to new homeowners since it was enacted by former President Cristina Fernández de Kirchner in 2012. Fees and commissions also weighed on credit after lending regulations were dismantled as part of the new team's laissez faire approach.

The credit crunch has exacerbated a sharp recession first triggered by the December devaluation and the sudden jump in consumer prices that followed. While Macri has refused to release monthly economic data since he took office, the estimated 141,000 layoffs and 28% deterioration in consumer confidence since November indicate that real Argentine GDP may decline for the first time since 2002.

Amid an increasingly negative business outlook, the increased foreign investment the Macri administration committed itself to incentivizing has failed to materialize. Alfredo Cornide of the Chamber of Medium Enterprises (CAME) believes the country has entered a vicious circle in which higher unemployment means lower consumption, which in turn prompt companies to dismiss even more staff.

Juan Carlos Sacco of the Argentine Industrial Union (UIA) agrees, estimating that the combined recession with rate hikes will cause between 100,000 and 200,000 layoffs in the manufacturing sector alone. Argentine firms could be especially hard hit, Sacco pointed out, since the local affiliates or partners of foreign manufacturers can usually access credit from their parent companies.

At: https://translate.google.com/translate?hl=en&sl=es&u=http://www.pagina12.com.ar/diario/economia/2-297863-2016-04-26.html&prev=search

And: https://translate.google.com/translate?hl=en&sl=es&u=http://www.pagina12.com.ar/diario/elpais/1-297874-2016-04-26.html&prev=search

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Reply Austerity leads to credit crunch in Argentina. (Original post)
forest444 Apr 2016 OP
Judi Lynn Apr 2016 #1
forest444 Apr 2016 #2
Judi Lynn Apr 2016 #3

Response to forest444 (Original post)

Wed Apr 27, 2016, 12:00 PM

1. "Y'r doing a heck of a job, there, Macri." Now they've seen what Macri can do. Crazy. n/t

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Response to Judi Lynn (Reply #1)

Wed Apr 27, 2016, 12:28 PM

2. A fitting admonition to Argentina's middle class, which voted against their own interests.

A credit crunch, of course, hits them hardest since, like the middle classes in most places, they are the most dependent on credit.

A few days ago, you may recall, I myself was surprised to learn that Macri was expanding benefits to the poor. Besides the sad sight of his having to increase welfare spending because of the recession he himself created, this policy shift is a real irony in that a) it flies in the face of middle class demands that "those lazy blacks stop collecting welfare" (sound familiar?); and b) because this now makes the middle class the new whipping boy of the Macri era, left to bear the brunt of the recession with layoffs and a credit crunch.

They were certainly warned this would happen, just as it did during the dictatorship and in Menem's aftermath. I'm just glad it's not as bad as it was then.

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Response to forest444 (Reply #2)

Wed Apr 27, 2016, 12:49 PM

3. Yes, they had their own history to inform them, and should have thought it through.

I do remember your earlier comments, and it sounds exactly like the race/class baiting hatred the right-wing politicos employ when trying to pull a fast one on the voters.

This time they are the only ones who didn't see it coming, apparently.

Hope it blows up in his face, but right-wingers are far harder to get rid of, whereas when they want to get rid of leftists, they start assassinations, and hate campaigns, "making the economy scream," and any other number of filthy tricks.

The voters don't have very far back to look to realize what kind of blunder they've made, do they?

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