by John Ceisel, J.B., Brent
Argentina’s economic success over the last century can be described in one word: roller coaster. Never, in modern times, has a country done so well (10th wealthiest country in the world in 1913) and dipped so low (ranked 36th in 1998). The country’s history is littered with highs, lows, growth, and crisis. Entering the 20th century, Argentina was in its “Golden Years” and considered on the up and up among the developed countries of the world. Entering the 21st century, Argentina had its worst economic meltdown in its history. Now, having seemingly recovered from the disaster 5 years ago, Argentina has seen tremendous economic growth. Though foreign businesses looking to make a profit from the country’s successes are optimistic and claim Argentina has solved its problems, economists and even some of the citizens themselves are much more reluctant to declare Argentina the victor over its economic woes.
Argentina’s political history is about as glum as its economic past. There have been 7 military coups in the past 100 years. Some of Argentina’s economic turmoil can be blamed on this fact. If citizens of country don’t have faith in the stability of its government, it follows that they will be skeptical of its economy as well. Our friend, Douglas Williams, is one example of an Argentine disillusioned by previous economic suffering. He remembers the soaring rates of inflation around 1990, when consumers paid a different price for goods in the afternoon then they did in the morning. Then, in 1991 under Menem, the peso was pegged to the dollar. Douglas says everyone was happy when that happened because it almost got rid of inflation completely. But, he says, as the decade wore on, things began to get ugly. He and his grandmother recalled how expensive everything was during the 90’s. Very few luxuries could be afforded by their family, even though they were considered quite wealthy. Though gluing the peso to the dollar cured the immediate disease of inflation, it paved the road for further economic disasters later on. Economists point out that it’s never a good idea to have the value of a countries currency completely dependant on another countries economy. Argentina’s peso was so rigid that it was unable to follow the ups and (more often) downs of the economy in the country. So as the economy began a recession through the 90’s, products and services got more and more expensive, people bought less, which furthered the recession. And since the Argentine government was bound by the value of the US dollar, it was unable to print or invest pesos back into circulation to try and jump start the economy. It was a vicious cycle that spiraled out of control until reaching an apex in 2002, when Fernando de la Rua’s replacement (de la Rua resigned after 2 years in office), Eduardo Duhalde, took the peso off the dollar standard. Though this measure was sorely needed, that didn’t make it easy. Like an earthquake is caused by the sudden release of tremendous pressure, so was the economic earthquake in Argentina. Douglas tells the story of so many of the Argentine people. People who had worked so hard their entire lives to provide for themselves and/or their families and who had practiced financial “responsibility” by saving some of their paycheck each month, suddenly saw the value of their savings diminished by 60 percent or more. Douglas and other Argentines that we have spoken with say that the public remembers that. They remember the pain and hardship the financial decisions of their government out them through. Though the economy is in a period of amazing growth at the moment, most Argentines refuse to trust in a system that betrayed them only a few years ago.
When Duhalde took the peso off the dollar, he didn’t stop there. He went on to default on an $800 million payment to the World Bank. Recently, Duhalde’s successor, Néstor Kirchner, has been trying to get additional loans from the World Bank and IMF for longer term financing to pay off outstanding debts. Kirchner has run into some problems because of Argentina’s previous debt problems. The IMF is reluctant to loan money to a country that already has an extremely large international debt and who has defaulted on previous payments. They would have been easier to convince had Kirchner made strides to improve the Argentine economy. Instead, Kirchner has made some critical mistakes that the IMF has pointed out. First, he proposed a larger dependence on MERCOSUR, the South American common market. The countries that are members of MERCOSUR have some of the highest taxes on imports in the world, close to 13%. IMF economists are trying to persuade Argentina to open its markets to the international community with free trade agreements with countries outside MERCOSUR. Another mistake by Kirchner was, shortly after taking office, he praised Cuba and the reigning Communist regime. Not only did this make foreign investors wary, it also frightened some of the Argentine citizens. JB’s family here in Argentina compares Kirchner directly with Castro and accuses him of being a communist. They say if he is reelected in 2007, conditions in Argentina will soon be the same as those in Cuba. Kirchner should think about the dictators he praises and what effects such a statement will have for his country. The final mistake for Kirchner was his proposal to create jobs by creating positions in the state department. Though this idea might sound like a good thing, Kirchner took it too far. Federal jobs now make up one-third of the entire job market in the country. There are whisperings of state employees who come to work only once a month and then only to pick up their paychecks. People are cheating the system; reaping money from a government notorious for its corruption. Kirchner should reduce the number of federal jobs and also, make efforts to free the government of corruption. Both the treasury and the judiciary departments are very influenced by the executive branch. These 3 entities should be working independently of each other.
Looking at Argentina’s history and the mistakes the recent and current presidential administrations have made, the countries recent boom in economic growth is not sustainable. The tremendous recent growth and inflated promises of continued growth and economic miracles rescuing Argentina so quickly from its disaster are literally too good to be true. Quick fixes, especially when it comes to a country’s economy, are almost always a bad idea. Kirchner and whoever takes office in 2007 should follow the guidelines suggested by the World Bank and the IMF. Making visible efforts to change Argentina’s growth into something sustainable will do much to quite the fears of foreign investors and international lending organizations but also the Argentine citizens themselves. For a country like Argentina, having international support is important, yes, but it is absolutely imperative that a country’s residents have faith in its economy. If domestic consumers don’t trust the local market, they won’t invest in it and the nation will face another recession. Argentina must quell these doubts and the doubts internationally if the country wants any chance to regain its former glory in the global community. The current and following administration cannot be fooled by the current successes, but must make changes to allow Argentina to enter a stage of sustainable growth.
