BUENOS AIRES—It was a familiar scene for Argentines. As a financial crisis engulfing the country entered its fourth week in early September, residents were lining up at banks to withdraw dollars from their accounts, hoping to keep their savings safe.
They had yanked close to $6 billion when President
’s government took emergency measures. After implementing currency controls, it tapped the central bank’s dollar deposits at the U.S. Federal Reserve, airlifting some $4 billion in cash packed in compressed, heat-sealed pallets for protection, said a senior government official familiar with the emergency plan.
After jetliners carrying the greenbacks from Miami and New York touched down, armored trucks raced the money to the Argentine mint. The dollars were distributed to banks, which extended hours so panicky clients could access their money.
“It was a logistical challenge,” the official said, “to ensure there was enough cash at all branches so people would calm down, and avoid rumors, tweets or social media postings saying there was a shortage of dollars.”
Nearly four years after Mr. Macri took power, Argentina is repeating a pattern that has dogged Latin America’s third-biggest economy for over 70 years. It is running out of hard currency while grappling with high inflation and economic contraction. Again.
The country of 44 million is heading toward possible default on about $115 billion on foreign-currency bonds just 18 years after its last major crisis, when it defaulted on $100 billion. It owes at least $44 billion more to the International Monetary Fund, which it will try to restructure.
The country has received close to 30 IMF aid packages over the past 60 years, most with strict austerity conditions that it has often breached. Argentina has reneged on debt at least eight times in more than 200 years.
“Argentina seems trapped by its own history,” said
an Argentine economist who helped renegotiate its foreign debt in the early 1990s.
What economists consider perpetual mismanagement has inspired dubious titles. Argentina is the world’s most volatile large emerging market and its economy has clocked the highest inflation levels in recent history, a median of 220% annually since 1980, according to estimates from the Institute of International Finance, a Washington-based association of financial institutions. Argentina’s central bank has had 61 presidents, only one of whom completed a term—back in the 1940s.
The underlying problem is a country living beyond its means. The government routinely spends more than it makes through taxes and other income. In nearly every year since 1950—except for a few in the early 2000s when soy-export prices took off—Argentina has run a big fiscal deficit. Under the conservative Mr. Macri, this has averaged about 5% of annual economic output.
(The U.S. government had a deficit of 3.9% of gross domestic product last year, expected to widen to 4.5% this year, according to the Congressional Budget Office. But there is solid demand for U.S. government debt and the U.S. can print dollars, the global reserve currency.)
To make up the difference, Argentina often prints money that fuels inflation or borrows dollars from abroad, or both. Because it is a protectionist economy closed to free trade and riddled with inefficient companies, it struggles to generate enough dollars through exports to pay its dollar debts. Eventually, creditors demand higher interest rates, debt payments grow unsustainable and the whole thing crashes.
The familiar cycle distorts business economics for Argentines like Lino Stefanuto, co-owner of motorbike company Beta Motor Argentina SA. In stable economies, big inventories can cripple a firm’s profitability because high inventories increase costs such as warehousing. In Argentina, companies build inventory to preserve value.
During good years, Mr. Stefanuto, 65, fills his northern Buenos Aires warehouse with boxes of motorcycle parts from India and China. “The inventory allows you to absorb all of these hits from inflation so you don’t disappear from the market,” said Mr. Stefanuto, who tries to have inventory covering at least six months’ production.