Argentina’s Economic Policies Are Failing
President Kirchner’s protectionism and economic policies are hurting competitiveness and driving up inflation.
Argentina managed to weather the global economic downturn relatively well. The country quickly recovered largely thanks to agricultural exports and rising commodity prices but its Peronist political class seems intent on making it impossible for foreigners to do business in the country. President Cristina Fernández de Kirchner, who is running for reelection this October, has enacted numerous protectionist measures that benefit her allies in the labor unions but undermine Argentina’s overall competitiveness.
Argentina is among the least economically free nations in Latin America. Regulations for businesses are burdensome and nontransparent. Tariffs, import and export controls, licensing provisions, restrictions on ports of entry and subsidies significantly distort trade while domestic preference in government procurement predated Kirchner’s administration.
Foreign investment is prohibited in certain sectors. The judiciary is notoriously slow and inefficient, forcing investors to resort to international arbitration. Corruption is endemic.
President Kirchner has only worsened Argentina’s predicament with her autarkic economic policy. Whereas the rest of South America is embracing free trade and prospering because of it, Argentina lacks behind.
Kirchner implemented a one for one trade policy, forcing companies that bring imports to the country to match their value with exports. She enacted specific trade restrictions against Argentina’s biggest trading partner, Brazil. According to the International Monetary Fund, the country “has introduced about one hundred restrictive measures since 2009” — “more than any other individual country” in the world.
Since 2006, Buenos Aires has refused IMF economists to audit its accounts which is otherwise required of Fund members. The government claims that inflation is under 10 percent but private economists estimate it to be running at nearly 25 percent. Kirchner has filed criminal charges against anyone who reports the true inflation rate however and ordered the Argentine central bank to purchase $500 million American dollars in an attempt to stop the appreciation of the peso.
Argentinians have largely accepted the misguided economic policies because they are matched by increasingly nationalistic rhetoric and because there is still growth. Kirchner’s population started to decline in early 2008 however when she tried to impose steep export taxes on soybeans at a time of fragile economic recovery, leading to mass protests in the capital. She also nationalized nearly $30 billion in private retirement savings to help pay for expanding welfare programs.
Kirchner’s ruling party lost its absolute majority in both houses of Congress during the 2009 midterm elections. It maintains a majority with a minor Peronist faction however while the largest opposition party is composed of radicals and socialists. Recent polling has Kirchner in the lead for the 2011 election with over 30 percent of the vote.