The “tragedy of Argentina” is not so much one of unfortunate economic circumstances as the failure of one particular ideology which the country refuses to shake off — Peronism.
The Economist this week studies the causes of the country’s century of decline as Argentina looks set for a repetition of the 1998-2002 financial crisis.
The newspaper notes that in the early twentieth century, the Argentinians were among the richest people in the world. Their income was 92 percent of the average of sixteen rich countries now in the Organization for Economic Cooperation and Development. In the four decades leading up to 1914, growth had averaged 6 percent per year. But, as The Economist puts it, “It never got better than this.” Today, income per head of the population is only 43 percent of those same sixteen countries.
One underlying cause is that even when Argentina was booming, it was overly reliant on commodity exports. It failed to educate its masses and build an industrial base of its own.
Argentina is still the world’s largest exporter of soy oil and a major supplier of corn and soybeans. High demand for agricultural products from Asia, especially China, fueled the country’s economic expansion in recent years. When growth there stalls, so does Argentina’s.
A vibrant economy could absorb such a bump. Argentina’s economy was still expected to grow 5.1 percent last year, after a disappointing 1.9 percent in 2012 — assuming these figures, unlike Argentina’s official rate of inflation, are accurate. But in a misguided quest for economic independence, the country has enacted numerous policies that hamper trade, the most recently example being a mandate from President Cristina Fernández de Kirchner that forces companies that bring goods into Argentina to match their value with exports.
This has forced a carmaker like Germany’s BMW to export Argentine rice. Hyundai sells Argentine soy flour in Vietnam. Porsche agreed to export olives and wine.
Goods are nevertheless backing up at the border as officials try to slow the impact of expensive imports. Trade on a major grains exchange has dried up as farmers stockpile their soybeans rather than taking pesos which are rapidly decreasing in value.
The government has deployed price caps and export curbs to try to reduce inflation, unofficially close to 25 percent. It has also imposed capital and currency controls, including a ban on dollar purchases — to little avail. The peso trades on the black market at a discount of more than 40 percent to the official exchange rate.
Argentina could have used the revenue from commodity exports to modernize its infrastructure and spent its time in the sun to thoroughly shake up its political system. Instead, the proceeds were used to pay for education, public housing and welfare. When growth inevitably stalled, as it had soon after Juan Perón first became president in 1946, the dictatorial tendencies of the political movement that is named after him, just as inevitably, surfaced again.
Perón jailed political opponents; Fernández persecutes economists who dare publicize inflation numbers that deviate from the government’s. Perón nationalized railways and utilities; Fernández nationalized Aerolíneas Argentinas in 2008 and relieved Spain’s Repsol of its majority share in the Yacimientos Petrolíferos Fiscales oil company in 2012.
Disregarding not only property rights but constitutional limitations on her executive power, Fernández toyed with the notion of seeking an unlawful third presidential term. She appears to have shelved those plans since her party nearly lost its majority in the Senate in last year’s election — for now.
The problem is not just one of poor leadership. Argentina’s political failures are institutional. “Short-termism is embedded in the system,” writes The Economist. “Money is concentrated in the center and the path to power goes via subsidies and splurging.”
Redistributive policies may help the poor but Peronism’s abiding confidence in the state’s ability to be an instrument of “social justice” has all too frequently led to thuggish government behavior when autarkic policies failed to produce the promised economic gains.
To escape this trap, Argentinians themselves must change. The Economist recognizes this will be difficult. “That is partly because the experience of the 1990s discredited liberal reforms in the eyes of many Argentines.”
At the time, President Carlos Menem tamed inflation, privatized industries and pensions and pegged the peso to the dollar. This restored confidence and brought back foreign investment and growth but when the dollar started to rise in value, and financial crises in East Asia, Mexico and Russia dampened growth globally, Argentina ended up in a depression.
But it is also difficult for Argentinians “because reform requires them to confront their own unprecedented decline. No other country came so close to joining the rich world, only to slip back. Understanding why is the first step to a better future.”