Drought in the pampas is yet another plague for the Argentine peso

The day Ignacio Quirno found 25 of his cows dead in the pasture, he desperately threw up his hands and begged for rain. For months Argentina has been ravaged by extreme drought, the worst in sixty years. In February of this year, more than 40 percent less rain fell than usual, and it remained dramatically bad after that as well. The damage caused by the drought is especially great on the vast pampa, a two-hour drive from Buenos Aires, with a lot of livestock and agriculture. “Ten percent of my herd has already died,” says the chunky farmer. “Not a drop of rain falls. The soybean and maize crops have also failed.”

Flies buzz around the vulture-eaten cows. The farmer carefully pulls a piece of paper from the ear of one of the cows. There’s a number on it. “They were healthy animals. All destined for sale. Now it feels like a truckload of cows has been stolen from me. This is sad.”

Experts cite several causes for the extreme drought. According to some, the lack of rain is due to climate change, others point out that weather phenomenon La Niña is currently causing major droughts throughout southern South America because less rain is brought in from the Pacific Ocean. For an agricultural giant like Argentina – where three consecutive harvests have already failed – this means enormous financial damage. For example, an estimated loss of $ 10 billion in soy exports is expected.

Rising inflation

The crop failures exacerbate the country’s already severe economic problems. Because soybean exports have collapsed, less foreign currency is coming in and tax revenues are also falling. As a result, the budget deficit continues to increase. To solve that, the government started printing extra pesos.

Last year inflation was already 94 percent, in April it was 109 percent on an annual basis, the highest level in thirty years. The International Monetary Fund now classifies Argentina among the group of countries with very high inflation, such as Venezuela and Zimbabwe.

Because of this high inflation, more and more people put their money in dollars, causing the exchange rate of the Argentine peso to collapse. In response, the Argentine central bank has taken a number of measures. This week, for example, the bank raised interest rates by 6 percentage points, to 97 percent. The bank hopes to prop up the peso in this way, but analysts doubt whether this will succeed with this rate hike. The question is increasingly heard: Wouldn’t it be better to completely dollarize our economy?

The Argentine economy has been experiencing peaks and troughs for years. The country has gone bankrupt nine times. Different banks use their own exchange rate. In addition, there are the official rate of the central bank and the informal so-called ‘blue’ rate. At that ‘blue’ exchange rate, the most widely used, a US dollar last week yielded 487 pesos.

The crisis is not only felt in the pampas, but also in the capital Buenos Aires. The prices of bread, meat and other basic necessities are skyrocketing. About 40 percent of Argentines live in poverty.

In a soup kitchen in the center, run by a church, about thirty people queue for a meal and a drink. A mother with a baby on her arm scoops up soup and sits down at a table between other women. “I have to choose: buy diapers or eat,” she says. “Everything has become so expensive. I can’t get by on my salary. I can’t survive without these meals here.”

Argentina has been receiving emergency loans from the International Monetary Fund worth $44 billion since 2018. Minister Massa (Economic Affairs) said he hopes this week that the IMF will transfer the next tranche of loans earlier. This in the hope of slowing down the devaluation of the peso. Critics of the government deem it unlikely that this will succeed.

Elections

There is a lot at stake politically. Elections are held in October. The chances of the left-Peronist government of President Alberto Fernández and his powerful Vice President Cristina Fernández de Kirchner are slim, according to polls. The president is not running for a second term.

Who will be the candidate of the centre-right opposition is still unknown. And then there is right-wing populist anti-establishment candidate Javier Milei. This striking and idiosyncratic politician, who is rising fast in the polls, advocates abolishing the central bank and – like El Salvador and Ecuador – switching completely to the dollar.

Before that happens, farmer Ignacio Quirno hopes it will rain again. Because the farmers do not export, the government also receives less taxes. “Normally we have to pay 35 percent export tax to the state treasury. But because of the failed harvests, we don’t have to pay now. This drought is disastrous for everyone. We can only pray and hope for rain,” he says.