Should the Chilean Economy be a Model for Argentina?
Buenos Aires Travel Blog› entry 3 of 4 › view all entries
Argentinaâ€™s economy has been steadily improving since the economic collapse of 2001. At this time, Argentinaâ€™s economy requires movement and diversification to continue to grow. The Chilean model, while it has its advantages, is not the model that Argentina should follow. The political culture of Chile has created an atmosphere of passivity, which parallels the hands off approach towards economic policies of the Chilean government. In contrast, the Argentine political culture, which fosters activism, makes the Argentine economic system less conducive to policies that are solely governed by the invisible hand of the market. The failures of the Chilean Model are demonstrated most notably by its dependency structure, underdeveloped domestic production capabilities, and income inequality.
While the presence of natural resources is a blessing or a misfortune can be debated, the fact that Latin America is abundant with a variety of natural resources is evident. Latin America has historically specialized in the exportation of primary commodities. The colonial period was dominated first by silver and gold, as this was Spainâ€™s primary interest, and later by agricultural products such as coffee and sugar. For many countries in the region, their first export product remains a primary commodity of high value today.
The Chilean model is no different; it is largely based on exports. In the Chilean case, Chinaâ€™s overwhelming demand for copper coupled by high copper prices has supported the economy. In Argentinaâ€™s case, the country would suffer from declining terms of trade, as they have no commodity to export that would perform similarly to Chileâ€™s copper at this time. Some analysts suggest that Argentinaâ€™s emerging soy industry could potentially play the role of Chileâ€™s copper, which is another reason that Argentina should be weary to adopt Chileâ€™s model. In fact, when copper prices fell between 1995 to 2002 revenue from copper sales fell, despite an increase in output by 85%. High dependence on soy in the future could make Argentinaâ€™s economy extremely vulnerable to fluctuations in the international market.
Another barrier to the success of the Chilean model involving trade dependency is MERCOSUR. Argentina holds full membership status in MERCOSUR while Chile is only an associate member. MERCOSUR is a multilateral trading bloc that creates tariff policies to regulate imports and exports. Since Chile is not a full member of MERCOSUR it is not obligated to adhere to the tariff policies. Talks of Chile becoming a full member where suspended when Santiago entered into a free-trade deal with the United States in 2002. Chileâ€™s economy revolves around bilateral trade agreements and the United States is an important trading partner for Chile. Some leaders of MERCOSUR are against the US backed Free Trade Area of the Americas because it will give the United States more control over the region. Chileâ€™s economy is strongly influenced by the United States while Argentinaâ€™s economy under MERCOSUR does not want heavy US influence. It is not feasible for Argentina to adopt Chilean economic policies because Argentina is bound in multilateral trading with MERCOSUR while Chilean trading is predominately bilateral with strong ties to the United States.
Creating an economy, whose success is wholly dependent on trade, makes it difficult to develop domestic markets and autonomously sustainable growth. This is clear in the stagnation of Chilean growth, which has floated just above three percent for the last decade. Chile has focused its economic policy on bilateral trade relations, effectively forging relations with Europe and the United States. But the value of these agreements is questionable. Integration with the US market, specifically, may hurt the agricultural industry in Chile due to the competitiveness of US farm products. If Argentina began to pursue similar policies, their oil and agriculture dominated exports would not sustain the economy.
A glaring issue in the Chilean economy is their inability to produce value added products and services. Currently, only 1% of the copper mined in Chile is processed or turned into manufactured products in the country. In a study of 15 similar nations, the United Nations ranked Chile next to last in its index of technological capabilities, and 13th in terms of expenditures on research and development by private firms. Argentina has recently begun to explore fields in value added markets and technological fields, such as INVAP (Investigaciones Aplicadas Sociedad del Estado). Without the assistance of the state, which the Chilean model condemns, companies such as these would not continue to develop in Argentina.
The ability to attract sustained foreign investment is important in domestic development. One aspect of Chileâ€™s policy includes the enforcement of short-term capital controls. If Argentina were to adopt Chileâ€™s model, these capital controls could be beneficial. Short-term capital controls might discourage foreign investors to invest in the economy of an emerging market, because the government of that emerging market has imposed taxes on short-term capital inflows. This negative is countered by the reduction of the vulnerability of these emerging markets to fall into a financial crisis as the investors would be less likely to pull money out of the market at the first signs of economic decline. Argentinaâ€™s turbulent economic history with foreign investors might make this policy appealing to the Argentine government.
Although Chile has progressed leaps and bounds in eradicating poverty, their gini coefficient, as of 2003, was still at 53.8. This suggests an increased standard of living fueled by the expansion of GDP, but reveals an economy structured so that national income flows to a select few of the population. The economic policies of Chile hinder the governmentâ€™s ability to address this growing income inequality. If this inequality is not addressed, some believe that the economic growth will not be able to be sustained, as overall consumer purchasing power will not increase in time. Argentinaâ€™s gini coefficient as of 2006 was 48.3. This is partially due to the governmentâ€™s attention to the poorer sections of society. If Argentina were to adopt the Chilean model, allowing the market to determine income distribution, it would hinder their ability to address these socioeconomic issues and possibly takes steps backward in equality.
The Argentine economy is approaching a pivotal moment with the opportunity to follow in the economic footsteps of the neo-liberal Chileans or adopt a policy that strengthens the domestic economy by focusing on development of human capital and value added products and services, while maintaining social policy that promotes equality. The Chilean model represents a certain future of declining terms of trade, an unstable reliance on international demand, and an economy marked by income inequality. Adopting the Chilean policy could potentially hinder Argentines and their country, as the two countries stem from different histories, and have grown into distinct societies with their own culture and economy.
Which is the better city for a fast and cheap meal? Is it in Atlanta or Buenos Aires? As far as cheap goes it seems that Buenos Aires is the clear winner but only if you do not feel like having a beverage. In Buenos Aires the glasses of free tap water do not come to your table. Buying a bottle of water will cost you about three to four extra pesos. I think both cities have different ways of having fast meals. A short walk down the street in Buenos Aires can put you in a cafĂ© in under 5 minutes. However, the short walk is cancelled out by the time you spend sitting in the cafĂ©. For example at Henriâ€™s, one of the nearby cafes we usually venture out to, the waitress never comes to your table after you have received your food. In order to pay and leave we have to go search for the waitress. People in Buenos Aires utilize the cafes to sit, relax, enjoy coffee, and spend quality time with friends. I have noticed that the cafes are very conducive for long visits because several of them have couches and cushions replacing wooden chairs. I have learned that in Buenos Aires the waitress is not going to rush you so that she can turn the table over to new customers. The waitress will not come take your order until everyone has shut his or her menus and the check is never brought until you ask for it. In Atlanta walking a short distance for food is rarely possible and so you must sit in traffic. However, time spent in the restaurant is very short because people are too busy to give up an hour or three. The restaurant staff is more inclined to rush you and bring you the bill before you get a chance to ask for desert. I think it is a toss up over which is the best city for cheap and fast food. For a fast and cheap meal in Buenos Aires I would get a super poncho and in Atlanta I would go get fast food somewhere. On the subject of food, being in Buenos Aires makes me miss ice, free tap water, and spicy food.