Debt and more debt: The cost of the response to Covid-19 in Argentina

Debt and more debt: The cost of the response to Covid-19 in Argentina

Matt Barlow

In Argentina, the economic and social lockdown as a response to the Covid-19 pandemic was implemented with speed and a concise directive; to remain indoors. Strict quarantine measures for international arrivals [from high-risk areas] preceded a complete border closure. The shutdown of schools and the curtailment of major economic activities completed the initial part of the government’s crisis response. The pandemic would be an early test for the new administration.

The inauguration of President Alberto Fernández [10th December 2019] not only heralded the return of Peronism [and the left] to the Argentine presidency but it marked the return of former President (2007-2015) and now Vice President, Cristina Fernández de Kirchner, to front-line politics.

Crisis response is expensive and the cost of crises is something Argentina is not unfamiliar with. Funding the Covid-19 response will, however, present greater challenges. This is not just because the Covid-19 crisis is global, affecting both rich and poor countries. The problem in Argentina is that economic emergency measures are so normalised because of past crises that their effectiveness is diminished, if not exhausted. The country was in recession and debt levels pre-Covid-19 were already reaching un-serviceable amounts.  It is far from clear that the country can sustain more indebtedness as a way out.

The complete lockdown initiated on the 20th March — when confirmed cases were [officially] 128 — brought in strict curbs on the daily lives of the population and effectively closed down the economy. As of 27th April, confirmed cases are 4003 and through early lockdown measures, the Argentine government has controlled the rise of cases in a more effective manner than has been witnessed in large countries in the wider region; Chile, 13,813; Brazil, 61,888; Peru, 27,517.

With the narrative shifting from lockdown towards the easing of some restrictions [from early-May] in Europe, the cost of these lockdowns both socially and economically has now come to the forefront. The response [so far] to the Covid-19 pandemic has corroborated the argument that; in times of crisis, even the most liberal of governments will turn to the state.

State intervention into Covid-19 economies in Europe have not been seen on this scale for decades. In response to crisis, governments have been urged to initiate stimulus packages and to think big to unlock the capacity of the state. Heterodox policies including governments assuming salary liabilities, direct cash transfers, government backed loan options and the renationalisation of controlling stakes in companies, have all become the norm – funded by low borrowing costs.

Talk is already shifting in Europe towards how to pay for the debt, which in Italy has reached 135% of GDP and projected to reach 150%. Will it be through a generational tax burden as seen post-WWII? Or re-imposed austerity measures? What does all this mean for the developing world? Countries that have traditionally been financed through debt were already struggling with repayment schedules before the pandemic, how are they positioned to exit this crisis, if indebtedness is seen as the way forward?

Argentina’s Covid-19 Response
At the time of writing [29th April] all borders remain closed to international visitors in a lockdown that has been extended until 10th May, at the earliest. President Fernández’s government has implemented some of the most stringent curbs on the economy on movement and freedoms. In an attempt to offset some of the fallout of these measures and in a nod towards the working-classes — the traditional core supporters of Peronist leaders — President Fernández acted quickly utilising presidential decrees to protect workers’ rights by prohibiting lay-offs and company cutbacks for 60 days from the 1st April.

Price controls across municipalities on basic goods were implemented on the 9th April, to further support citizens by keeping down the price of the Argentine consumption basket. This was followed by the expansion of the Emergency Employment and Production Assistance Programme on the 11th April. This wage support programme bears similarities to redistributive responses initiated throughout Europe with a mechanism guaranteeing 50% of salary liabilities and offering interest free loans for the self-employed. Additional socially focused policies included the suspension of rent hikes, guarantees on provision of utility services for low-earners and the suspension of rental evictions — until September.

On the 24th April, Argentina withdrew from its participation in new deals with partners in the MERCOSUR trading bloc (Brazil, Paraguay and Uruguay) to concentrate on its domestic and economic response to the pandemic. Argentina has since taken an emboldened  step in prohibiting the sale of airline tickets both domestically and internationally until 1st September 2020, increasing pressure on the airline industry, which a regional body estimates will negatively impact 300,000 jobs in the country.

Whilst these government-imposed measures have had the desired effect on slowing transmission of the disease, in a social and economic context, they carry amplified challenges to those faced by developed nations. The infringements on human rights through authoritarian rule carries added connotations of violations of the many military dictatorships of the mid and late-20th century in Latin America.

Furthermore, the manner in which the lockdowns have exacerbated inequalities — especially in communities where informal work is more prevalent and social distancing is more difficult, if not impossible — have been felt more acutely amongst the poorest in Latin American societies, leaving them more susceptible to contracting the virus and facing impossible choices to either stay home or feed families. Economically, how will this lockdown be paid for? Argentina has exited crisis before and successfully. In 2001, with the country excluded from international finance, ‘emergency tax’ was a key driver of economic recovery, could tax offer a pathway to recovery again?

Exiting the 2001 Financial Crisis
In December 2001, Argentina defaulted on $93b USD of sovereign debt which was the culmination of a tumultuous month that saw mass protests, bank freezes and presidential resignations. This default had a devastating impact on the Argentine economy. In the immediate aftermath of the crisis, unemployment levels rose to 23.6%, wages fell by 23.7% and inflation that had been low or negative in the 1990s reached 41% in 2002. These macro-level indicators consolidated into a sharp rise of the number of citizens that were classified as living in poverty; to 57.5% in early-2002 (ECLAC, 2003).

With over 50% of the population classified as being impoverished, a large scale coordinated response was required. President Eduardo Duhalde (2002-2003) initiated a ‘State of Emergency’ as part of this crisis-response which included the (re)introduction of export taxes on some of Argentina’s main export crops. Not seen in Argentina for over a decade, these export taxes coupled with high Soybean prices were a driving force for Argentine growth during recovery. Between 2003-2007, GDP growth averaged 8.75% — the highest in Latin America— a recovery driven by growth in the price of soybeans from $300 to $400USD per tonne by 2008.

This favourable international environment highlights the benefits that an export-led country can reap when prices of key commodities are high. Which was fortunate for Argentina as the last remaining international financing option had been withdrawn [by the IMF] in 2001. However, the volatility of international prices underpins the pitfalls of economic growth based on [primary commodity] export-led growth — the price of soybeans is currently $313 per tonne. With the country close to debt default President Fernández is far from being in the position President Duhalde enjoyed.

Different crisis with a hangover from 2001
President Fernández assumed office with poverty levels nearing 40% and $311bUSD of sovereign debt including a $57bUSD loan to the IMF (INDEC, 2020). Large-level debt owed to the IMF is nothing new to Argentina; they have been here before and have weathered the aftermath of the storm. However, when debt liabilities are meshed together with expensive stimulus policies and an economy in lockdown, the problem is exacerbated and the options to exit crisis diminish.

The emergency tax that was the foundation for Argentine recovery in 2002, is already being utilised. This response became normalised and subsumed into the tax design for redistributive state spending as these taxes were applied at varying levels [on varying commodities] 2002-2020. The contested tax on soy is already levied at 33% for large producers and 30% for smaller producers. With wide ranging export taxes previously applied to other products, including wheat and corn, the capacity for the Argentine government to fund both a fiscal exit to the Covid-19 crisis whilst servicing its debt will not come solely from export taxes. Their effectiveness has diminished.

Rate reductions for corporate income taxes have also already been implemented in December 2019, as part of tax reforms to address the mounting debt. The pressure on the Argentine Government from crisis response and debt repayments was evident less than 3 weeks into the current crisis. $10bUSD in debt repayments were deferred on the 7th April which resulted in S&P downgrading the Argentine credit level, making any further borrowing more costly.

As a response to try and shore up state financing, on the 20th April the government submitted plans to Congress to tax those more well off through a wealth tax of between 2-3.5% on capital reserves of over $3mUSD with 11,000 eligible payees. Ironically, debt renegotiations collapsed on this day with international creditors rejecting an earlier government proposal related to $66.6bUSD of debt which is currently being renegotiated.

Debt has negatively impacted Argentina’s response to Covid-19 but Argentina is not an exception. Debt in poor countries is part of a wider [growing] global picture. In 2018, the IMF estimated 40% of low-income countries were in danger of defaulting on debt or in debt stress, up from 21% in 2013. Low tax revenues are a driving force for growing indebtedness in low and middle-income countries. This leads to mounting debt which, in turn, will be a factor that will curtail current government responses and ironically add to debt through more borrowing.

Debt-sustainability is seen as a major obstacle to achieving the UN’s Sustainable Development Goals (SDGs) target by 2030. To have any hope of achieving  some of these goals, only a global fiscal deal that spreads the cost of recovery [post-Covid-19] fairly between rich and poor countries will be sufficient. Burdening those that can least afford it now, will be more costly in future.


ECLAC. (2003). Social Panorama of Latin America 2002-2003. Santiago de Chile. [Online]. Available at: [Accessed 9 August 2019].
INDEC. (2020). Incidencia de la pobreza y la indigencia en 31 aglomerados urbanos. 4, Buenos Aires.


Matt Barlow is a PhD Candidate at the Department of Politics, University of York. He researches emergency governance and the political economy of taxation in Argentina.

Image credit: Argentine Congress, Buenos Aires, Argentina, May 2019. Matt Barlow