For years, Argentina maintained a fixed exchange rate with the US Dollar, a policy intended to stabilize expectations and curb the hyperinflation that plagued the 1980s and early 1990s. Argentina has never fully developed a reliable tax collection system, leading to a perennial shortage of state revenue.
Argentina Fiscal Deficit: When Tax System Failure Fueled the Crisis
Structural Weaknesses and Institutional Fragility Beneath the surface of currency and debt mechanics lies a web of structural issues. The economic slowdown in China, a major trading partner, combined with the 2018 US-China trade war, created a perfect storm.
Politically, attempts to cut spending or raise taxes have historically been met with fierce resistance. The government ran persistent fiscal deficits, funding generous subsidies and a large public sector without the tax revenue to match.
Argentina's Fiscal Deficit and the Systemic Failure of Tax Collection
Simultaneously, the Federal Reserve’s decision to raise interest rates in the United States drew capital back to Wall Street, triggering sudden stops in Argentine borrowing and accelerating the collapse of the currency peg. This stalemate created a vicious cycle where borrowing—first from international markets, then from the International Monetary Fund—became the only way to finance the gap between revenue and spending, merely kicking the can down the road.
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