Argentina’s Wobbly Economic Walk in the Democratic Era

Despite a return to democracy, Argentina's ruling class has pursued decades of bad economic policy.

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Argentina’s presidents have shared a tendency for bad economic decision making (Twitter).

Raúl Alfonsín, known as “the father of democracy” arrived to the presidency in 1983 with a clear slogan: “with democracy you eat, you heal and you educate.” The former president, from the Radical Party, and the first to defeat Peronism in national elections, considered that the democratic system was the guarantee for Argentines to improve their standard of living. Unfortunately he was wrong.

Today, 35 years after the beginning of the Constitutional process, many of the issues that worried the leader of the Radical Civic Union are worse. Although it is positive that interruptions via military rule have ended, the truth is that we must recognize that the democratic institutions in Argentina have left much to be desired. While this is not an excuse to abandon them, the truth is that we must be honest about their inadequacy.

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The failure of radical statism

The Alfonsín administration, which had unquestionable achievements such as the trial of the military juntas, unprecedented in the world, and the consolidation of the democratic system, also had its dark side. The statist economic policy, with “public” companies, hyperinflation and international isolation, led Alfonsin to abandon power before his presidential term ended. The “Austral plan”, his last economic program, began with a currency with a higher nominal value than the dollar and ended shortly after reaching an exchange rate of over 10,000 australes to each US dollar. In the midst of the disaster, he passed command to Carlos Menem.

The “neoliberal” experiment

With a world that witnessed the collapse of the Soviet Union and the fall of the Berlin Wall, Peronism was encouraged by an alternative program in Argentina in the early nineties. The same Carlos Menem who until recently advocated a return to the Constitution of 1949 (a text that even ignored the inviolability of private property), privatized all public service companies and aligned with the United States. With a speech that seduced the purest orthodoxy, the former governor of La Rioja presented his “Menemist reform” that had as its guiding principle the reduction of the State. The “Convertibility Law”, which took place after a confiscation of bank deposits, completely eradicated inflation in Argentina, which enjoyed its longest period of stability in recent history.

But although the left describes the Menem government as “neoliberal”, the truth is that what caused the system’s infeasibility and the 2001 explosion was not the “liberal” agenda, but the bad statist practices. Although neither convertibility nor privatization obeyed a free market model, since the exchange rate was fixed by law and public utility companies went from being public monopolies to private monopolies, the fact is that the country experienced notable improvements. But the fiscal deficit remained the order of the day and the IMF together with the World Bank financed the party. Having made a reform of the public sector and accommodated the accounts in the nineties, today Argentina would be an economic power. However, the politically-connected corporation maintained its privileges, with harmful effect.

2001: el golpe de Estado tabú

Although since 1983 there has been no return to military rule, in line with the reality of almost the entire region, the truth is that the end of the government of Fernando de la Rúa was a coup d’état. Not perpetrated by figures that came out of the barracks, but of Peronism and the same radicalism, which had sectors that did not want to know anything about the president of his own party.

Before the change of doctrine of the IMF, which failed to come to the aid of Argentina in the worst moment, diverse economic groups stoked the fall of the democratic government with the purpose of “peso-ifying” their debts in dollars.

In 2002, after several transitional presidents, the Peronist Eduardo Duhalde devalued the currency and embraced the rebound in international prices of agricultural products. In the middle of the crisis, the Argentines once again lost their banking deposits.

Kirchnerism and the present

Recent history in Argentina showed an authoritarian tendency, which returned to the worst manifestations of the original Peronism; that resulted in great political persecution.

After the collapse of 2001-2002, Argentina took the wrong path. A misinterpretation of the problems of the 90s dragged the country into a populist experiment that came along almost by chance. During the years of the Néstor and Cristina Kirchner periods, the country missed an extraordinary opportunity in the international economic context and dedicated itself exclusively to financing a short-term populism.

Support for Cambiemos and Mauricio Macri was mandatory three years ago. Had it not abandoned the Kirchnerist process in December 2015, Argentina would not have been able to undergo democratic institutional change in 2019. But since recent democracy has not shown greater achievements than merely the end of military dictatorships, Macrismo did not have the formula for success.

The pending challenge of Argentine democracy is an economic reform that embraces international trade, within the framework of a reduced and efficient State. If Argentina can consolidate changes in this sense, the future is promising.

* Mamela Fiallo Flor collaborated on this article.

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