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Inflation Rate (in %)

(1989) Too much spending, too

little taxing

(1976) Increased Fiscal Deficit (1991) Convertibility Plan

(1970) Wage-Price Spiral (2001) Economic Collapse

Economic Analysis on Inflation

According to The World Bank (2016), Argentina has vast natural resources in
energy and agriculture. Within its 2.8 million square kilometers of territory, Argentina is
endowed with extraordinary fertile lands and has great potential for renewable energy. It is a
leading food producer with large-scale agricultural and livestock industries. In addition,
Argentina has significant opportunities in some manufacturing subsectors, and innovative
services in high tech industries.

But before Argentina became one of the largest economies in Latin America, the
country experienced an eventful economic history. By 1970, local industries in the country were
inefficient so its products were surpassed by foreign products entering the market. Local
authorities were unable to control the wage restraints which led to the economy of Argentina
lunging into a Wage-Price Spiral situation where the increase of prices cause demand for
higher wages, which leads to higher production costs and further upward pressure on prices,
creating a conceptual spiral (Investopedia).

By 1976, Argentina was under the succession of the military and democratic
government that implemented different financial policies, but fiscal deficits of the country started
to increase followed by the external debt of the government of the country. By 1989, the public
payrolls swelled while government revenues remained stagnant. This means that there was too
much spending but too little taxing and investors were pulling out their investments through the
realization that the countrys debt may be unpayable because there was no growth and no
prospect for growth for the countrys economy.

On March 1991, Argentinas government announced its Convertibility Program, a

new initiative to improve policy credibility and to establish macroeconomic stability. The
purpose of the program is to establish strict discipline on Argentinean monetary and fiscal
policy. And through this program, inflation was tamed after a lag (Galbi).

Before the election of Argentinas president on 2011, the countrys government

acquired a lot of debt, both domestic and foreign, and that sent domestic interest rates up. The
more the government of Argentina was borrowing, the more expensive credit became for
businesses. And that forced many companies to lay off more employees and eventually to cease
their operations (TIME, 2011).

Political instability is one of the reasons why Argentina doesnt have price
stability because there were different financial policies implemented which contributed to the
slow economic growth of the country. Devaluation was also a factor where the inability of
Argentinas currency to respond to the global market proved more of a burden than a benefit.
Hyperinflation was also evident when the inflation reached an unprecedented 5,000 percent,
rising so fast that some supermarkets read prices out over intercoms rather than bothering to
update price tags. From the presented information regarding the different factors that affected
Argentinas inflation rates, we can conclude that the economy of Argentina doesnt have price
stability if it will be assessed against the definition of John Keynes.

And in order for the economy of Argentina to improve, the government of the
country must implement a sound economic policy to attract investors in order to increase the
employment of the country.