The economy contracted by nearly 10 per cent last year, and the country faces a reckoning with the IMF over US$45 billion in debts.
Before the pandemic, Carla Huanca and her family were making modest but meaningful improvements to their cramped apartment in the slums of Buenos Aires, Argentina.
She was working as a hairstylist. Her partner was tending bar at a nightclub. Together, they were bringing home about 25,000 pesos (about $370) a week — enough to add a second story to their home, creating extra space for their three boys. They were about to plaster the walls.
"Then, everything closed," said Huanca, 33. "We were left with nothing."
Amid the lockdown, the family needed emergency handouts from the Argentine government to keep food on the table. They resigned themselves to rough walls. They shelled out for wireless internet service to allow their children to manage remote learning.
"We have spent all of our savings," Huanca said.
The global economic devastation that has accompanied Covid-19 has been especially stark in Argentina, a country that entered the pandemic deep in crisis. Its economy shrank by nearly 10 per cent in 2020, marking the third straight year of recession.
The pandemic has accelerated an exodus of foreign investment, which has pushed down the value of the Argentine peso. That has increased the costs of imports such as food and fertiliser, and kept the inflation rate above 40 per cent. More than 40 per cent of Argentines are mired in poverty.
Hanging over national life is an inevitable renegotiation later this year with the International Monetary Fund, an institution that Argentines widely detest for having imposed crippling budget austerity as part of a rescue package two decades ago.
With its public finances depleted by the pandemic, Argentina must work out a new repayment schedule on US$45 billion in debts to the IMF. That burden is the result of the fund's most recent bailout and the largest in the institution's history — a US$57 billion package of loans extended to Argentina in 2018.
Now under new management, the fund has lessened its traditional reverence for austerity, alleviating some of the usual anxiety. Even so, the negotiations are certain to be complex and politically tempestuous.
The Argentine government, led by President Alberto Fernández, is rife with discord before midterm elections in October. The administration faces a stiff challenge from the left, with Cristina Fernández de Kirchner — a former president and current vice president — demanding a more combative stance with the IMF.
Businesses vent that the government has failed to come up with a strategy that can generate sustained economic growth. Liberating Argentina from stagnation and inflation is an objective that has evaded the country's leaders for decades. In a country that has defaulted on its sovereign debt no fewer than nine times, scepticism perpetually dogs national fortunes by limiting investment.
"There is no plan, there is no path forward," said Miguel Kiguel, a former Argentine finance secretary who runs Econviews, a Buenos Aires-based consultant. "How can you get companies to invest? There is still no trust."
The Fernández administration is banking on the merits of a more cooperative relationship with the IMF, seeking to secure a deal with the institution that spares the government punishing budget cuts and allows it to spend to promote economic growth.
Such hopes would have once been unrealistic. From Indonesia to Turkey to Argentina, the IMF has forced countries to slash spending in the midst of crises, removing fuel for economic growth, and punishing those dependent on public relief.
But today's IMF, led for the past two years by Kristalina Georgieva, has moderated the institution's traditional obsession with fiscal discipline. She has urged governments to levy wealth taxes to finance the costs of the pandemic — a measure that Argentina adopted late last year.
The fund's analysis of Argentina's debt picture, and its conclusion that the burden was not sustainable, set the groundwork for a settlement with international creditors last year. Investors ultimately agreed to write down the value of about US$66 billion in bonds, overcoming the opposition of the world's largest asset manager, BlackRock.
The Argentine government is proceeding on the assumption that it can secure a deal from the fund that will allow the country to significantly postpone its debts, providing relief from looming payments — US$3.8 billion this year and more than US$18 billion next year — without strict requirements that it cut spending.
"The IMF leadership has made clear that this is the framework," said Joseph Stiglitz, a Nobel laureate economist at Columbia University in New York. The new arrangement will reflect "the new IMF," he said, "recognising that austerity doesn't work, and recognising their concerns about poverty."
The IMF's expected flexibility with Argentina reflects its deepening confidence in Fernández and his economy minister, Martin Guzmán, who studied with Stiglitz.
On the surface, their administration represents a return to the thinking that has animated Argentina's public life since the 1940s under the leadership of Juan Domingo Perón. His presidency featured muscular state authority, public largesse for the poor and contempt for budgetary considerations.
Peronist politicians ever after have showered aid on struggling communities and spent into oblivion, paying the bills by printing pesos. That has frequently produced runaway inflation, crisis and desperation. Reformists have intermittently taken power with mandates to restore fiscal order by cutting public spending. That has enraged the poor, laying the ground for the next Peronist upsurge.
The previous president, Mauricio Macri, took office as the supposed solution to this cycle of booms and busts. International investors celebrated him as the vanguard of a new, technocratic approach to governance.
But Macri overdid it in exploiting his popularity with investors. He borrowed exuberantly, even as he antagonised the poor with cuts to government programs. His debt binge combined with another recession forced the country to submit to the ultimate humiliation — asking the IMF for a hand.
In elections two years ago, voters rejected Macri and installed Fernández, a Peronist. Some suggested that Fernández might stake out an acrimonious position with creditors, including the IMF. But the Fernández administration has proved pragmatic, winning the confidence of the IMF, while maintaining relief for the poor.
"We have to avoid following the patterns of the past that did so much damage," Guzmán said in an interview. "We want to be constructive and resolve these problems in a way that works."
The most pernicious problem remains inflation, a reality that assails businesses and households, adding to the strain on the poor through higher food prices.
In major economies such as the United States, central banks conventionally respond to inflation by lifting interest rates. But that snuffs out economic growth — not a tenable proposition in Argentina, where the central bank already maintains interest rates at the stultifying level of 38%.
Instead, Guzman has pressured unions to accept meagre wage increases, arguing that smaller paychecks will go further if inflation can be tamed. He has imposed price controls on food, while urging other companies to maintain lower prices for their products.
The government has also increased taxes on exports, angering cattle ranchers and farmers.
"You spend more time filling out spreadsheets for the government than producing," said Martín Palazón, a farmer who plants soybeans, corn and wheat, and raises cattle outside Buenos Aires.
Still, the laments from Argentine businesses and the intensifying strains on the poor coincide with the reality that the country's prospects are already improving.
Argentina's economy is expected to expand by nearly 7 per cent this year, as exports of soybeans generate growth, while high commodity prices give the country a needed source of hard currency.
Many Argentine businesses remain dubious that the recovery can gain momentum, especially as the central bank maintains high interest rates.
Edelflex, a company based just outside Buenos Aires, designs equipment used by breweries, food processors and pharmaceutical manufacturers to manage liquids. High borrowing costs have prevented the company from making improvements to its plants that might yield additional growth, said company President Miguel Harutiunian.
"We inevitably take a short-term view and can't invest in new technology," Harutiunian said. "The final goal of a company — or a country — can't be to merely survive."
Texcom, a textile manufacturer with three mills in Argentina, makes fabric for international sporting-goods brands. Amid a government-mandated quarantine in March 2020, the company shut down production. By May, Texcom reopened and switched to an area of dire need: It supplied material for protective gear such as face masks needed by front-line medical staff.
Even so, the company's output fell by half last year compared with 2019, and it expects its production this year will return to only 70 per cent of the pre-pandemic level.
Texcom President Javier Chornik is by now accustomed to his fortunes rising and falling with the perpetually volatile swings of the nation's economy.
"Argentina has been in a labyrinth for years, and it can't get out," he said. "The country always seems to grow. Then there's a crisis, and we go backward. We go and come back and can never get anywhere."
In the slum in the southern reaches of Buenos Aires, Huanca's partner had recently reclaimed his old job at the nightclub, but rising prices for food and fuel had effectively diminished their income.
Then came a surge of new Covid cases in their neighbourhood. The government imposed new restrictions amid worries of variants spreading rapidly in neighboring Brazil. Her partner's employer reduced his hours, cutting his pay in half.
"I'm scared about what could happen now," she said. "Everyone is very worried."
Written by: Peter S. Goodman and Daniel Politi
Photographs by: Sarah Pabst
© 2021 THE NEW YORK TIMES