Argentina’s economy is in a downward spiral, with inflation close to 60 percent, the peso losing its value rapidly and the center-left government declaring the nation in virtual default of its foreign debt payments.
The government in Buenos Aires has kowtowed to the wishes of the restive population in the face of economic difficulties. It froze the prices of basic goods and services in April in an attempt to limit the impact of inflation. The new government in August further announced minimum wage increases, tax cuts and a 90-day freeze on petroleum prices in another bid to placate striking workers. The government also pledged a P10,000 ($160) bonus for pensioners and a six-month freeze on public utility prices.
The populist stance of the government, however, has not offered solutions to Argentina’s problems. Argentina’s gross domestic product is expected to drop 3.1 percent this year after falling 2.5 percent last year. The public debt rose to 100 percent of the GDP while the poverty rate now stands at 41 percent.
Argentina’s fiscal house is in disarray, with little revenues to raise to pay for its debt. The nation’s debt has increased to $335 billion, or 93 percent of the GDP. It has a mismanaged economy. The declining value of the peso and surging inflation have drastically reduced the spending power of the currency.
The Philippines, in contrast, has avoided Argentina’s pitfalls. Its macro-economic fundamentals are solid—low inflation and interest rates, stable peso, high foreign exchange reserves and a very manageable public debt.
The executive department and lawmakers have cooperated in introducing higher taxes to generate enough revenues to fund infrastructure projects and human development. It is quick to respond to inflationary pressures through the Rice Tariffication Law that immediately arrested higher prices.
The liberalized rice import regime is a non-populist policy and may have rattled rice farmers. It did, however, brought down inflation and offered a long-term solution to rice shortage.
The government should realize that populist but anti-market policies, like lower oil prices and utility rates, will not work in lifting the economy and the incomes of the poor. They may provide stop-gap solutions, as in the case of Argentina, but they will not reduce the poverty level in the long run.