The Argentine economy in a few words


Contrary to conventional economic wisdom, rich countries tend to remain rich and poor countries tend to remain poor. The exceptions tend to be those "economic miracles," such as Japan, that have risen from the ranks of the poor to the ranks of the economic elite.

The Argentine economic history contrasts with this pattern. At the beginning of the 20th century, Argentina was one of the richest countries in the world, with a per capita income higher than that of France or Germany. And while Argentina still enjoys many of the fruits of wealth, such as a highly educated population and a modern infrastructure, per capita income had fallen to a scant 43% of the rich world average for 1987. In the wake of the economic collapse of 2001 -2002, more than half of the population was below the poverty line and more than a quarter were classified as indigent.

Roots of wealth

From 1880 to 1914, Argentina experienced a massive population boom when European immigrants came looking for land to settle and make productive. Many ended up in the fertile Pampas region of Buenos Aires, and with the help of railway links built by the British, an export economy soon began to operate. In addition to a wool and leather industry that was already vibrant, Argentines soon exported corn, wheat and flour to European cities that eagerly fed. But the real money was in meat exports, made possible by the invention of the refrigerator ship in 1876; Argentina has been famous for its meat since then.

The long decline

While Argentina was enriched, Buenos Aires made the transition from a drowsy backwater to a completely modern city: "The Paris of the South", which boldly drove Latin America into the new century. Unfortunately, the twentieth century did not fulfill the great hopes of any Latin American nation, let alone that of Argentina.

The problem began with the Great Depression of the 1930s, which began a downward spiral towards economic and political instability that lasted the next sixty years. A military coup in 1930 was the first of many, and the civil governments that emerged occasionally were barely more competent than the military juntas.

The government of Juan Domingo Perón (1946-1955) left an indelible mark on the Argentine economy, making it less open to foreign trade, nationalizing key industries and greatly expanding the benefits of workers. While Peron was able to compensate in some way for the great inequalities that permeated the country, it also left a legacy of state control of the economy, repressing private entrepreneurship and creating an environment conducive to corruption.

In the years after Perón, governments depended more and more on deficit spending to solve social problems. To cover the difference between fiscal expenses and revenues, they simply printed more money, creating inflation. In the 1980s, inflation was out of control; In 1989, the inflation rate was higher than 5,000 percent.

The 90s boom

Enter Domingo Cavallo, who assumed the position of Carlos Menem's economy minister in 1991. The cornerstone of Cavallo's economic recovery plan was to curb inflation with something called convertibility, a legal guarantee that the Argentine pesos they could be exchanged for US dollars in a ratio of 1 to 1. Inflation was tamed and investor confidence skyrocketed as Cavallo steadily opened the economy to foreign trade and capital. In tune with the fervor of the free market of the 1990s, the most inefficient companies controlled by the state were sold, sometimes to Menem's friends at bargain prices.

Even so, the Argentina It was clearly getting richer. The gross domestic product grew vigorously from 1991 to 1998, with the exception of 1995, when the financial crisis in Mexico shook Latin America. Much of the new wealth accumulated in the country's elites, but the poor and the middle class were also improving. The Argentine debacle was beginning to resemble the Argentine miracle; Carlos Menem became an international celebrity and Argentina in a cartel for the liberal economy.

The crisis of 2001-2002

Image result for The crisis of 2001-2002 argentina

Ironically, Argentina's blatant disregard for a fundamental principle of the "neoliberal" economy proved to be a decisive factor in its demise. As the 1990s boom advanced and government tax collection increased, fiscal discipline would suggest setting aside a "rainy day" fund for the event of a recession, because recessions are inevitable in any economy. Instead, the money was spent and new debts accrued even in good years. When the economy reached a difficult point in 1999, the government found itself in an extremely difficult situation; I needed money fast and I was already significantly in debt.

Fortunately for Menem, his term was ended and the new president, Fernando de la Rúa, he had to collect the pieces in 2000. He could try to balance the budget by cutting spending or raising taxes, but this would aggravate the recession and reduce tax revenues. Faced with this catch-22, De la Rua chose to borrow his way out, hoping that the recession would fade quickly and silently. Unfortunately, this approach often leads to a downward spiral of its own, known as "explosive debt dynamics," in which investors begin to fear debt default, raising interest rates and deepening the recession, which increases the debt even more. This is exactly what happened in the case of Argentina.

As a last effort, De la Rúa appointed his minister of economy, Domingo Cavallo, now a national legend, in a measure that electrified the country. But neither the mystique of Cavallo nor the fortuitous intervention of the IMF could avoid the next breach. As the dollars began to flee Argentina, the government enacted restrictions on bank withdrawals that became known as the corralito, or small nearby. In public opinion, this was the last thing, and massive street protests shook Buenos Aires and other large cities, forcing De la Rua and Cavallo to renounce shame at the end of December 2001. The government collapsed; Argentina stopped paying its debt a few days later.

One of the first acts of Eduardo Duhalde, the new president elected by Congress in early 2002, was to discontinue the convertibility system by which the peso was linked to the US dollar. With the shortage of dollars in the country, the system could not be maintained; There simply was not enough dollars to negotiate for pesos. In freedom, the peso fell to around 4 per dollar in the next six months, which was a ruin for those who had taken loans denominated in dollars. The banks stopped functioning as unpaid individual debtors and now cynical savers refused to deposit money. The poverty rate skyrocketed as incomes plummeted. The Argentine financial crisis has been compared in its scope with the great crisis of the United States in 1929.

After the crisis

The very dark cloud of Argentina's collapse had a silver coating. The peso recovered slightly and remained stable at around 3 per dollar, a level that makes Argentina's products (and Argentina as a travel destination) much more attractive to the rest of the world. In fact, some have argued that one of the causes of the crisis was the overvalued exchange rate, which made Argentine exports less competitive. The economy grew again in 2003 and, since then, has been driven in part by the high world commodity prices. In 2005, GDP exceeded its previous maximum (in 1998), and many economists believe that Argentina is on firmer ground than in the 1990s due to the fiscal responsibility of Nestor Kirchner, the current president.

Looking to the future, growing inequality is a concern that many Argentines feel deeply. The recovery has put more wealth in the hands of the rich, such as the soy producers who lead the new export boom or those who were lucky enough to get their money before the devaluation. On the positive side, employment has increased, and a fiscally solvent state will be in a much better position to help those on the lower rungs of society rise.

TAGS: argentina, economy


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