Argentina, in sixth place in the 2021 world ranking of economic hardship

Despite the fact that its index fell by 9 points, from 95 to 86 between 2020 and 2021, Argentina was once again among the top 10 countries with the most “miserable” economy in the world, according to the Annual Misery Index, or Economic Misery Index” prepared annually by economist Peter Hanke, professor at Johns Hopkins University in Baltimore, The US, a supporter of convertibility systems, or “conversion box”, as a solution to countries with weak currency and high inflation.

In the 2019 edition, the country was in second place out of 95 computed and in the 2020 edition in seventh out of 156. In 2021, it climbed one position, to sixth place, also over 156 countries, behind Cuba, Venezuela, Sudan, Lebanon and Zimbabwe. Suriname, Angola, Brazil and Iran, in the Top 10 of the most economically miserable countries, surpassed Suriname, Angola, Brazil and Iran.

The index produced by Hanke arises from adding the inflation, unemployment and nominal interest rates, considered “bad” factors, and subtracting, as a “good” factor, the per capita GDP growth rate, all data at the end of the corresponding year. It should be clarified that the word “Misery” in English refers more to a situation of misery, unrest or occasional hardship than of extreme poverty or misery. The original Economic Misery Index was the brainchild of economist Arthur Okun, later refined by Harvard professor Robert Barro.

Hanke's methodology attaches a very strong weight to inflation, since this time it has an impact on the nominal interest rate, even if the real interest rate (i.e., discounted inflation) is positive. In a way, this doubles the same factor. In addition, and especially in unstable economies, these rates tend to be much higher and more volatile than those of unemployment and per capita GDP change, which change more slowly and are less likely to be double digits.

The rates that Hanke computed for Argentina are unemployment of 9%, inflation of 51% and nominal interest of 35%, from which the 9% that increased per capita GDP last year was reduced.

In the new ranking Cuba, which in the 2020 edition had appeared as the best positioned country in Latin America, now appears as the most economically miserable country in the world, due to a very high inflation rate of 1,221.8% resulting from a 95% devaluation of the Cuban currency. “Devaluations lead to higher rates of inflation, increase the price of producing goods and services, including export ones, which steals any competitive gains in the short term. That's exactly what happened in Cuba,” Hanke wrote. Although, he added, someone in Cuba does not live so miserably if he is favored by the communist party, the only one on the island.

The “descent” of Venezuela

Venezuela, which for six consecutive years had topped the ranking, came in second place, largely because inflation fell from 3,713.3% to 686.4%, although it remains the main cause of Venezuelan economic misery. The Caribbean country was also negatively affected by unemployment of 45% and a nominal interest rate of 53%, which is well above the increase in per capita GDP of 10.1% during 2021.

Sudan and Lebanon are still in the ranking, with Misery indexes of 397.2 and 248.7 points, which repeat the third and fourth places that, respectively, they had already had in the previous edition. The main event in the African country, Hanke said, was a coup d'état resulting in the inability of the civilian government to control the rate of inflation, something that the current military junta could not until now. In Lebanon, a new government took over, which failed to stabilize the Lebanese currency because, Hanke says, the proposal for a conversion box that he had proposed together with former IMF director Jacques de Larosiere in April 2021 was not heard.

Brazil's “rise” to ninth place in the ranking, thus appearing in the Top 10, is another novelty, although in the last edition Mercosur's senior partner had come very close, in eleventh place.

Libian happiness

More surprising, at the opposite extreme, is that Libya appears as the most economically “happy” country in the world, since in the previous edition it was among the ten most miserable. The civil war in that country went from extremely hot in 2021 to being of much lower intensity. As a result, crude oil exports, which in 2020 had been almost zero due to blockades and port closures, grew, along with revenues from this category, by a phenomenal 270% and drove a 62.6% increase in GDP per capita in a single year, accompanied by a notable reduction in inflation and interest rates. Second and third in the ranking of economic “happiness” appear Malta and Ireland. The island has the lowest inflation rates in Europe (0.7 per cent), accompanied by low interest and unemployment rates and strong per capita GDP growth (5.3 per cent). Meanwhile, in Ireland, the main force to climb the (inverted) podium in the economic poverty ranking was a very strong per capita GDP growth rate of no less than 14 per cent.

-That Libya appears as the most economically “happy” country after having been among the most economically “miserable” a year earlier and that Cuba, which in the previous edition was the least miserable in Latin America, appears now as the most miserable in the world, does it not question the quality of the index? Infobae asked Hanke.

“No. The numbers are the numbers,” the economist answered briefly.

Lessons from extremes

In the previous edition of the Infobae ranking, I had noticed that the “Misery Index” works better to describe extreme situations than intermediate situations and punishes in particular countries of high inflation. The ranking also makes it clear that this is a short-term indicator, not a structural one. Hence, take the unemployment rate and not the poverty rate, the change in GDP and not the competitiveness or soundness of an economy, the interest rate and not the degree of bankability, and leave aside health and education indicators, which do cover, by case, the UN Human Development Index or the World Bank's competitiveness reports and the Davos Forum.

It is doubtful whether the inhabitants of Libya this year or those of Guyana last year are more economically fortunate or have a better time than those in the Scandinavian countries, Australia or Canada. Rather, the index reflects the fluctuations resulting from situations of crisis or economic instability.

With regard to this type of indicator, this Sunday, December 20, the tenth edition of the “World Day of Happiness” declared in 2013 by the United Nations was celebrated. The World Happiness Report 2022, or World Happiness Report 2022, based on six criteria and different surveys more related to people's “feelings” and levels of satisfaction, this year included 140 countries. Finland, Denmark, Iceland, Switzerland and the Netherlands appear there as the 5 happiest countries in the world. At the opposite extreme, Afghanistan, Lebanon, Zimbabwe, Rwanda and Botswana are listed, at the opposite extreme and in that order, as the most unfortunate or unhappy in the world. In that ranking, Argentina appears in 57th position.

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