The Wall Street Journal has a good article about it. With reserves dropping like a rock, out of control inflation and massive social problems, it is now just a matter of watching how further down it can go.
The recent scenes of widespread anarchy due to the police strike across the country are still fresh in people’s minds. Due to recent blackouts, some people have been without power in Buenos Aires for three weeks and inflation according to independent firms is 30%, a very different tune compared to the one sung by the government that claims inflation is 10%.
Argentina's Crumbling Economy
Officially, inflation is 10.5%, but skeptics think it's much higher. Capital flight is accelerating.
By Mary Anastasia O'Grady
On a visit to Buenos Aires in November I noted a sense of foreboding hanging over the city. With the economy in a stall, consumer prices rising and capital fleeing the country, porteños from every walk of life seemed to be bracing for a storm—and resigned to the hardship it would bring to this harbor city.
The city infrastructure looked defeated too: The wide boulevards and grand 19th-century buildings are now tired and grungy and the streets smelly. Angry graffiti and tattered posters deface walls, adding to the general feeling of lawless decay. It takes a long time to destroy a nation's wealth but a decade of kirchnerism o—government by President Néstor Kirchner and now his widow, Cristina —seems to be doing the job.
In recent weeks things have gotten worse. The way out also looks more difficult. Three big developments in December raised the specter of descent into full-blown chaos. The first occurred when the police in the provincial capital of Cordoba suddenly walked off the job to protest low salaries. Hooligans took the work stoppage by law enforcement as an invitation to sack the city. More than 1,000 stores were looted and two people killed.
The national government could have helped Gov. José Manuel de la Sota, who is not an ally of Mrs. Kirchner. But it was unresponsive, instead suggesting that the violence was part of a plot to destabilize the president. His back against the wall, the governor gave the police a 33% salary hike. They returned to work. But police in 20 other provinces learned a lesson. Strikes across the country followed and so did looting and violence. Look for more pressure on public-sector wages.
Behind the difficulty in paying provincial employees a decent wage is the same old problem that brought Argentina to its knees in 1989: inflation. According to the Foundation for Latin American Economic Research (FIEL), based in Buenos Aires, inflation for December was 3%, driving the total for 2013 to 26.4%. Food and beverage prices were up 28.9%, FIEL says, despite "repeated freezes" mandated by the government.
The government claims annual inflation is 10.5%. But there is widespread distrust of official figures. In 2011 one of Mrs. Kirchner's henchmen fired the head of the institute charged with measuring the price level because he didn't like its inflation findings. Even the International Monetary Fund took note. In February 2013 it censured Argentina for its failure to divulge accurate inflation data to the public.
Money-printing by the central bank has Argentines selling pesos whenever they can. Capital controls in effect since 2011 make that harder than it used to be but not impossible. They have accelerated capital flight. More sellers than buyers drives down the price of the peso where it trades freely. While the official exchange rate is now 6.6 pesos to the dollar, it now takes almost 11 pesos to buy a dollar in the black market.