18/12/2015
By Steve Johnson
Argentines woke up on Thursday richer than Poles, Chileans and Hungarians. By bedtime they were not only poorer than all three, but also more impecunious than Mexicans, Costa Ricans and the good people of Equatorial Guinea.
The country’s slide down the global gross domestic product per capita rankings (as measured in dollar terms at least) was the result of the peso’s 29 per cent tumble against the greenback after Mauricio Macri, the newly elected president, lifted capital controls.
It was just the latest ignominy to hit the seemingly accident-prone nation, which just over a century ago was the seventh-wealthiest country in the world on a per capita basis, ahead of the likes of Denmark, Canada and the Netherlands and five times wealthier than Brazil, a country it is only around 50 per cent richer per head than now, even factoring in the real’s equally sharp slide this year.
Based on IMF forecasts, Argentina was expected to be the world’s 21st largest economy in dollar terms this year, with its GDP of $579bn just below that of Saudi Arabia and ahead of the likes of Nigeria, Sweden and Poland.
After the peso devaluation, Argentina’s GDP will be something in the vicinity of $411bn, potentially relegating the country to 26th place, between Belgium and Norway, as the first chart shows.
Admittedly this is a crude calculation, as currency volatility and unexpectedly strong or weak GDP growth and inflation will impact the figures as well. The 10 per cent fall in the euro against the dollar this year means Belgium’s GDP, measured in dollars, will probably be close to the revised Argentine figure.
Nevertheless, the revision does give an idea as how the size of Argentina’s economy has been buffeted by the plunging peso, which has now lost 77 per cent of its value against the dollar in nominal terms over the past decade.
Perhaps more important, for ordinary people at least, is the impact of the peso slide in GDP per capita terms.
The IMF foresaw Argentina being ranked 53rd by this measure in 2015, with its GDP per head of $13,428 a fraction below that of Latvia but ahead of neighbouring Chile, as well as fellow middle-income nations Poland and Hungary.
Now, with GDP per capita of just $9,534, it has fallen to 64th, below this trio as well as the likes of Equatorial Guinea, Lebanon, Costa Rica, Malaysia and Mexico, as the second chart shows.
Again, this is something of a crude measure, but is still indicative of the broad trend for a country that has long suffered from chronic mismanagement, despite its many natural advantages.
In reality, the removal of capital controls is something of a double-edged sword. Argentines now have free access to dollars, without having to resort to the black market, but at a cost.
“The peso devaluation is a bitter pill for Argentinian households who kept their savings in pesos and for multinationals who had reported peso cash balances at the official exchange rate on financial disclosures,” says Bill Adams, senior international economist at PNC Financial Services Group.
“Eventually, a more competitively valued exchange rate should be positive for Argentine economic growth, as well as for close trading partners like Brazil. But in 2016, a potentially painful period of adjustment is possible.”
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