Argentina braces for gradual economic recovery after lockdown

Argentina braces for gradual economic recovery after lockdown

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Argentine President Alberto Fernández said Monday that he expects the economy to slowly recover after a shutdown of most activities is lifted later this month, as his administration puts its focus first on stemming the spread of the coronavirus. 

"The idea is to gradually recover our economic rhythm," he said in an interview with Radio con Vos. 

On Sunday night, Fernández ordered an extension of a mandatory quarantine through April 13. Argentina has been on lockdown since March 20, one of the most draconian moves to fight the virus in Latin America that has limited people's movements outside to buying essentials like food and medical supplies. Police are circling the streets, using loudspeakers on their cars to tell people to stay home.

"There are going to be people who get infected, who get sick, who die, but I want it to happen as little as possible," Fernández said. 

While there have been cases of people disobeying the order, most have abided the rule. Indeed, after the president's speech at 10pm on Sunday, applause could be heard from homes in Buenos Aires. 

"He is acting like a protective father," Carlos Germano, a political analyst in Buenos Aires, told LatinFinance. "He is trying to take care of everybody with a slogan of, 'First health, then the economy,'" he said. "He prefers a fall in the economy over having to continue lamenting deaths."

The virus, which causes COVID-19, has surged from one confirmed case at the start of March to 820 on Monday, with the death count reaching 23, according to the Johns Hopkins Coronavirus Resource Center.

Concerns are starting to emerge about how long the quarantine can last before people start to suffer from lost income, job losses and rising debt levels in an economy that has been in stagnation for nearly a decade. While the unemployment rate was largely unchanged at 8.9% in the fourth quarter from a year earlier, the poverty rate rose to 35.4% in the first half of 2019 from 27.3% in the year-earlier period, according to official data.

To contain any social backlash, the government is drawing on a new $11 billion stimulus package to try to sustain economic activity, avert food and medical supply shortages, help companies and protect workers and vulnerable groups affected by the crisis. Another $580 million is going to help micro and small businesses as well as self-employed workers, while $300 million is coming in loans from the World Bank to minimize the impact of the coronavirus pandemic on low-income households.

But with the health crisis not expected to peak in Argentina until late April or early May, there is uncertainty about how long the shutdown could last before the economic setbacks are too hard to endure. 

Germano said that if low-income households, many of which live day to day, are affected too much, there could be a surge in social conflict, something that supermarkets know too well after widespread looting during a 2001-02 economic crisis. He said supermarkets have put their home appliances in storage in the event that a social uprising leads. 

Over the weekend, a homeless man started a small fire on the side of train tracks in an upscale neighborhood of Buenos Aires, only for it to be put out a few minutes later by five police officers. "But I'm hungry," the man told the officers. 

If the lockdown extends for longer than April 14, there are concerns of a deeper recession. 

"The cure could be worse than the illness," said Federico Mac Dougall, an economist and business professor at the University of Belgrano in Buenos Aires. "The economy is going to drop way too much."

Fernández has appealed to companies to not layoff workers and keep prices stable, saying they must accept that for now they are going to earn less. "An economy that falls always rises, but if health fails, we will not raise it anymore," he said.

Even so, the health crisis has caught Argentina in the middle of negotiating a restructuring of more than $100 billion in debts, a process that the government had wanted to complete by March 31.

The restructuring is expected to take longer — or fail. "The impact of the coronavirus will only hasten the government's move towards default," London-based Capital Economics said in a note to clients on Monday.

Ecolatina, an economic consulting firm in Buenos Aires, warned that as consumer demand falls with the quarantine, more businesses are going to close, leading to a surge in unemployment and a decline in tax revenue, making it harder for the country to pay its debts.

"The magnitude of this economic deterioration will depend, essentially, on two things: how long the social isolation lasts and what happens with the negotiation of the debt," it wrote in a note to clients. A third thing to watch, it added, is the how far up the chain of payments can resist and what the government's response will be. If the authorities decide to flood the market with money and slash borrowing rates, that could help businesses get through the health crisis, but it could also stoke inflation that is already above 50%.

"It's a fine line," Ecolatina said. "Hopefully, it won't break."