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Expropriation Risk: 63 64 64 64 ►Political Violence Risk:48 48 48 48 ►Terrorism Risk:29 25 25 23 ►Exchange Transfer and Trade Sanction Risk: 73 73 73 73 ►Sovereign Default Risk:74 74 74 74 ►
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Protest intensity to date* 2022 2023 Very-High Very-HighUnrest risk in 2024**Cost of living: Very-HighAnti-austerity: Very-High
The debt crisis in Argentina has different characteristics to that in much of the world — not least that it had relatively little to do with the pandemic or the 2022 Russian invasion of Ukraine (although those events have undermined the economy and thus the debt outlook).
After a series of defaults and restructurings in recent years, the debt position deteriorated in 2018, when then-President Mauricio Macri agreed to a US$57.1 billion loan program with the International Monetary Fund (IMF) and the following year mooted a “reprofiling” of short-term debt widely interpreted as a default. The current government renegotiated a new US$45 billion Extended Fund Facility with the IMF in 2022 following the impact of COVID-19, but it has been unable to meet the agreed targets and faces the prospect that disbursements could eventually be suspended, possibly implying a default with the IMF.
With international credit markets still closed to Argentina, an international default is less immediately likely; however, ballooning levels of domestic debt (most of it short-term and now accounting for some 27.5% of GDP), which have been rolled over at increasingly high interest rates, represent a more significant threat, and any domestic default could pose a serious systemic risk to the banking sector. The need for the central bank to continue issuing new instruments to meet interest payments has driven monetary expansion and contributed to an annual inflation rate expected to exceed 150% by year-end.
Further doubts surround the outcome of the October presidential elections, particularly following the August 2023 open party primaries (PASO), in which the divisive and controversial far-right libertarian candidate Javier Milei emerged as the front-runner. As yet, it appears likely that Milei will face a second-round runoff with Economy Minister Sergio Massa of the governing Union por la Patria (Union for the Fatherland, or UP), with the opposition Juntos por el Cambio (Together for Change, or JxC) candidate Patricia Bullrich currently several points behind in opinion polls.
Considerable doubts surround Milei’s policy choices (and options) in the event that he wins the presidency, not least given his lack of strong congressional or provincial backing, his radical discourse and his unpredictability. Notably, he has promised to dollarize the economy and to eliminate the central bank, neither of which appears feasible given that central bank net reserves are now negative by some US$4.5 billion and there are no dollars available to facilitate dollarization.
The IMF and international and local business leaders have also strongly questioned Milei’s proposals, raising doubts over the investment climate. Moreover, while Massa and Bullrich have both proposed a gradual reduction of social assistance spending, Milei has proposed a rapid slashing of social spending — a move likely to prove impossible in a context in which some 45% of the population is below the poverty line.
The election outcome remains uncertain; much will depend on the attitude of the one-third of voters who did not participate in the PASO; however, triple-digit inflation, a high primary deficit, exchange rate volatility and an expected contraction this year mean that no incoming government will be able to stabilize the economic and social situation rapidly. The government taking office in December 2023 is likely to have limited popular support and may rapidly face protests over measures to reduce economic imbalances.
*Note: Protest intensity is calculated based on ACLED. **Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of 'anti-austerity' calculations, see the essays in the introduction; for details of 'cost-of-living' calculations, see the previous edition of the Index.
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Expropriation risk to foreign investors per se is relatively limited at present, given the number of companies that have already exited Argentina, lack of government funds, and the fact that there are currently no politically or emotionally significant companies (such as YPF or Aerolineas Argentinas) to be targeted.
The recent U.S. District Court ruling awarding some US$12 billion to minority investors in YPF following its 2012 expropriation is unlikely to be complied with, raising the likelihood of new efforts to embargo Argentine state properties overseas and complicating any effort to improve investor sentiment.
The assassination attempt against Vice President Cristina Fernandez de Kirchner in September 2022 has sharply raised concerns over the risk of political violence. Although it is not yet clear whether those involved acted alone or were linked to wider political groups, the fear of increased political violence (including from right-wing groups such as Federal Revolution) will remain high.
The threat of violence could emanate from some supporters of Milei and might increase either if he loses the election or if he fails to deliver rapidly on his campaign promises. Conversely, low-income sectors that are currently inclining in favor of Milei may become rapidly disillusioned with his policies, which are likely to have deeply negative impacts on the most vulnerable members of the population; an unexpectedly adverse impact on personal circumstances could prompt a rapid and violent backlash.
Furthermore, protests have continued in recent months among both pro- and anti-government factions, with the IMF debt deal a key point of contention. This will increase in coming months as economic conditions deteriorate and controversies over economic policies deepen. Overall, personal security and the risk of violent crime will remain a key concern.
No major terrorist attack has occurred in Buenos Aires since 1994, and the risk of terrorism in Argentina remains low today.
Central bank reserves have continued to decline and are expected to be negative by some US$10 billion by year-end. The government has tightened import controls, and less formal measures also abound to discourage imports, prompting shortages and driving inflation further, while the government now owes some US$16 billion to US$20 billion to importers that also cannot be paid in any near future.
The continuing drought has undermined agricultural output and exports, reducing expected exports by some US$20 billion this year and making it impossible that reserves targets will be met.
Following an August 2023 devaluation, the official exchange rate is now around 365 Argentine pesos to one U.S. dollar, while the so-called “blue” dollar is currently around 745 Argentine pesos to one U.S. dollar. Lacking foreign reserves, the central bank will continue to limit access to U.S. dollars.
The government currently predicts a contraction of 2.5% this year and growth of 2.7% in 2024, which will make it extremely difficult to stabilize the debt position. The main concern will remain a possible default on domestic debt as well as the onerous and short-term conditions on which rollovers are being made. The incoming government is likely to face a near-term domestic debt crisis.
Moreover, the IMF deal was approved only very reluctantly in Congress, and many of its terms still face resistance. Moreover, the deteriorating domestic and international environment will make the deal’s fiscal and monetary targets more difficult to achieve, and worsening social conditions are likely to harden resistance to compliance.
