Argentina: Slow Motion Trainwreck

5 February 2010

Friday


In the nineteenth century Argentina was one of the most successful countries in the world, with a booming economy built on an enormous agricultural industry. Argentina is a vast country, and this vast country produced a vast industry at a time when a nation-state could become rich through agriculture. Argentina still produces agricultural commodities for the world, but its economy is a wreck, a slow motion train wreck that continues to grow worse even while nothing is done to improve matters.

Argentina was once a place of great wealth.

On the outside, Argentina looks a lot like other South American nation-states. Recently I wrote about Chile in The Map of South America Changes. Chile has had a successful democratic transition of leadership, and an economy that is strong and stable. Argentina, next door to Chile, seems to have had a democratic transition of power in its recent elections and, as a large country, it has a large economy. But appearances can be deceiving.

Juan Domingo Perón and wife Eva.

The presidency of Argentina is at present a family affair. Néstor Carlos Kirchner was succeeded by his wife, Cristina Elizabet Fernández de Kirchner. There is nothing surprising in this. Argentina has a very interesting political history. it also has a long history of populist policies. The long Perón era in Argentine history was a saga of populism, as is the present Kirchner era. And Perón, too, was succeeded by his wife.

Cristina Elizabet Fernández de Kirchner, President of Argentina.

As a large economy with established institutions, Argentina has many policy options. The Kirchners have been using these options in a creative way, but the options they have been pursuing have been digging Argentina ever deeper into a hole, and at some point even the most durable institutions will break down under the unsustainable demands that are being made upon them.

Sacked: Martín Redrado in happier times with President Fernández.

There have been numerous defections from the present administration, some voluntary, others forced. Most recently, Cristina Fernández has replaced the governor of Argentina’s central bank. The government of course put a predictably happy spin on the replacement, but what it comes down to is that the former governor of the central bank refused to go along with the administration’s plan to make routine debt payments out of federal reserve funds. The new governor of the central bank, Mercedes Marcó del Pont (apparently known for her radiant smile), will provide no such resistance to administration policies.

Mercedes Marcó del Pont, newly appointed governor of Argentina's central bank.

This latest move, which predictably gave pause to the international financial community (gate keepers to further loans to Argentina, that it might spend itself even deeper into debt with populist social programs), is only the latest in a series of unsustainable policy initiatives. Argentina’s once mighty agricultural industry has been devastated by administration policies. In 2008, the government nationalized private pension funds to pay its debts.

The size and intrinsic strength of the Argentine economy has allowed it to continue soldiering on despite these disastrous policy decisions, but at some point the bill must come due. The good news is that the same size and intrinsic strength of the economy will allow it to recover relatively rapidly if ever the populist policies that are looting the country could be stopped. But the populist policies themselves are like a political addiction.

The Kirchners, first Néstor and now Cristina Fernández, have been relentlessly pursuing the policies of subsidy in a vicious spiral. The subsidies put into place inevitably cause harm to some group, and the response is order further subsidies, which in turn cause further harm and are the occasion of further subsidies. The Kirchners have even changed the way government economic statistics are compiled. It may outrage one’s sense of justice, but it is likely that the Kirchner team will be out of office when the jig is up.

Chile is no longer yellow in this version of my political map of South America.

In a couple of posts I have shown a map of South America with the most left-leaning nation-states colored red and the mildly left-leaning nation-states colored yellow. It is no surprise (it should be no surprise) that the most left-leaning nation-states are those with economies in the worst conditions and pursuing the most unsustainable policies. Of these countries — Bolivia, Venezuela, Ecuador, and Argentina — Ecuador is perhaps the least damaged. When I was in Ecuador last year, I was told that despite Rafael Correa’s strong public leftist stance, in private he is not particularly combative. He may well be taking the talk for political reasons. But Hugo Chavaz continues to plunder the economy of Venezuela as utterly as the Kirchners have plundered Argentina. And it will be interesting to see next week how the Morales administration in Bolivia spins the Qhara Qhara Suyu protest march.

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7 Responses to “Argentina: Slow Motion Trainwreck”

  1. Hi. I genuinely liked reading your article! Very good written content. I would have to advise you to do articles even more frequently. By doing this, with such a helpful blog I think that you will certainly rank better in the search engines 🙂 . I also subscribed for your RSS feed. Carry on this good job!

  2. María Mercedes Máscolo said

    Born in Argentina, and living here for the last 25 years (my entire life) can tell you that Argentina is a large an beautiful country. And so is its people, that has to suffer the consequences of an unfair system that pushes them to a sad situation in which they lack of what is essential. I love my country, and it hearts. so, please, I suggest that before objecting the only policies that make the suffering people, suffer less, come by. An asado an empanadas will be waiting for you, because, even poor we have high quality food. 🙂

    • geopolicraticus said

      Dear Ms. Mercedes Máscolo:

      It makes me very happy to have a comment from someone from Argentina, who likely knows much more about the situation than I do. Thanks for your contribution, and in fact I agree with what you wrote.

      After I wrote the above post I traveled for two weeks in Argentina, driving from Cordoba to the Tropic of Capricorn (in May 2010). I was present for Argentina’s bicentennial, and attended a parade in Las Lanzas, near Salta. This experience of the country caused me to revise some of my views, though in the main I stand by what I wrote above.

      And you are right about the high quality food! I enjoyed all of the wonderful food I had, and since you mention empanadas I should say that the empanadas I sampled in Las Carreras (near Tafi del Valle) were the best I’ve ever had. Fate willing, I will return to Argentina to see the lake district around San Carlos de Bariloche.

      Best wishes,

      Nick

  3. María Mercedes Máscolo said

    Thank you for your response, Nick. I live in Buenos Aires. You are welcome anytime ;).

    • geopolicraticus said

      You can count on it that you will see me some day. I’ve haven’t seen Buenos Aires yet.

      Best wishes,

      Nick

  4. Pamela said

    It’s a pity you know so little about the world, and I don’t say it only because of this post. I’m tired of hearing and reading North Americans repeating everything they see on the CNN, it’s so sad… you are so NOT free and you don’t realise it.

    As the Argentinian and Latin American I am, I can tell you you are completely wrong.

    • geopolicraticus said

      Dear Pamela,

      Thanks for your input. I can assure you that I never watch CNN nor any North American media outlet.

      It is a lifelong effort to learn something about the world, and one often goes wrong and makes mistakes, but the important thing is to keep trying, and to be willing to make it right when we find out we are wrong. So I hope that you will help to set me straight, rather than to only tell me how wrong I am without telling me how I might better understand.

      Best wishes,

      Nick

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