Economics (AS & A Level) · May / June 2026 · Paper 24 · Question 1

Economic problems in Argentina At the start of 2024, Argentina faced its worst economic crisis in two decades. The budget balance was in deficit at 4.4% of Gross Domestic Product (GDP). The International Monetary Fund (IMF) had suspended the provision of financial aid to the country due to Argentina owing it US$43bn. The Argentinian government decided to take drastic action to move the budget from a deficit into a surplus by the end of 2024. The Minister of Economics stated that the aim was to ‘solve the addiction to fiscal deficits’. Argentina’s budget had been in deficit for 113 of the past 123 years. The proposed package of economic reforms, intended to restore fiscal discipline in Argentina, included the following: • Annual government spending would be cut by 3% of GDP and annual government revenue would be increased by 2% of GDP • Argentina’s currency, the peso, would be allowed to depreciate • Subsidies would be reduced in certain industries, including electricity and transport • Certain government-owned firms would be privatised • Restrictions on many industries reduced • Many price controls, both in terms of a minimum price and a maximum price, would be removed • Tariffs on imported goods would be increased from 7.5% to 17.5% The Argentinian government was also seeking to increase the level of productivity in the economy. The President announced that there was no alternative to tighter fiscal policy and that tough times lay ahead. He stressed that it was crucial to Argentina’s economic future that improvements to the supply side of the economy were implemented. The size of the state and the extent of state influence in the economy should be reduced. The economic situation in Argentina at the start of 2024, however, was extremely difficult. Table 1.1 shows selected data for 2023. The inflation rate was one of the highest in the world, overtaking Venezuela as the country with the highest price rises in South America. Table 1.1 Selected economic data for Argentina, 2023 Change in Gross Domestic Product (% change over previous 12 months) –2.7% Increase in consumer prices (% change over previous 12 months) 254% Rate of unemployment 5.7% Current account deficit (% of GDP) –3.4% Source: Adapted from; Shock therapy: Resisting Mr Milei, The Economist, 20 January 2024

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