This paper seeks to determine the crux of the Argentine Paradox in a contemporary context from a Sectoral Financial Balances (SFB) perspective. Since 2007, under President Cristina Fernandez Kirchner and subsequently, under President Mauricio Marci from 2015, Argentina has experienced severe macroeconomic crises characterized by high inflation, increasing unemployment, erratic GDP growth and a depreciating peso. This is surprising for a country that was around a century ago, one of the richest in the world. While many answers have been discussed in academia and the popular media, we carry out a sectoral decomposition of the Argentine economy to show that the essence of the problem is the structural stagnation of the private domestic sector, which has been unable to develop adequate economic complexity and turn Argentina into a globally competitive player so as to increase its export capabilities or attract autonomous capital inflows to cover the current account deficit. Instead, successive Argentine governments have had to turn to either autarkic policies or accommodate the current account deficit through issue of its own financial liabilities i.e. sovereign external debt, which in turn, have led to either dwindling foreign exchange reserves or has drawn the country into a debt trap, respectively. The Argentine Paradox has important lessons for other emerging economies, including India, which struggles to develop economic complexity even as it falters in attaining a high growth trajectory.
Keywords: Argentine Paradox, current account deficit, debt trap, sectoral financial balances, macroeconomic crises
Although the term “Argentine Paradox” is usually used in a historical context, highlighting Argentina as one of the richest countries at the turn of the twentieth century that experienced decline since 1928 – the final year of its “belle époque” (Glaeser et al, 2018, p. 4) – this paper (re)contextualizes the term in a more contemporary context. Why does a country like Argentina, with a per capita income of US$ 11,000 and US$ 20,000 in PPP terms, ranked 47 on the Human Development Index with an absolute score of 0.825, and blessed with abundant natural resources face severe and recurrent macroeconomic crises on a scale and at intervals rarely experienced by emerging economies in Asia or other middle income countries of South America? Argentina’s crises are extreme with galloping inflation rates, a depreciating currency accompanied by unemployment, high interest rates, erratic GDP growth, debt repayment defaults and chronic current account imbalance.