Argentina has recently been hit by the biggest drought in 60 years and 80% of businesses are experiencing import difficulties. Inflationary pressures have swept through the country, with inflation soaring over 100% in February, setting a new three-year high and making it one of the highest inflation rates in the world, while a deeper recession is looming.
Recently, data from Indec, Argentina’s official statistics agency, showed that CPI rose 6.6% in February from a year earlier, above market expectations of 6%, and soared 102.5% year-on-year, the fastest pace since the country emerged from a hyperinflationary crisis in the 1991. Ang 100% inflation figure makes Argentina one of the most inflationary countries in the world, behind Zimbabwe, Lebanon, Venezuela and Syria, and CNN commented that a rise in inflation to 4% would be cause for alarm for a healthy economy.
It is also worth noting that Argentina is currently experiencing the worst drought in over 60 years. According to Argentine media reports, one of the major “drivers” of the current round of inflation is the worst drought in decades.
This drought dates back as far as May 2022 and has been intensifying locally with climate change. Argentina has suffered at least eight heat waves in the 2022/23 crop year. Crops are Argentina’s main export and an important foreign exchange earner. The worrisome crop yields today have widened Argentina’s inflationary concerns and external debt risks. A lower harvest is bad news for the Argentine government, which relies on agriculture to drive the economy and soybean exports to shore up the central bank’s dollar reserves. Pati na rin, a lower crop would boost global soybean prices.
Jiayue reminded that given a combination of the current economic downturn, hyperinflation, debt problems and social unrest in Argentina, it is important to pay attention to the risk of collecting foreign exchange when exporting to the country.
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