Argentina losing it’s boat to debtors is nothing new. They’ve been stuck in the water for decades.
- by ALBERT FISHLOW
- Jan. 17, 2013
In 1913, Argentina’s per capita income was among the five highest in the world. In the interim, it has slipped to 69th place, behind most of Eastern Europe and just ahead of Botswana, Gabon and Lebanon. It’s safe to say that no other modern economy with a democratic government has made so little from so much.
This relative decline has proceeded in cyclical fashion. Policies have ricocheted between extremes, reflecting conflicts between economic interests that were all too often resolved by military coups. However, the military has stayed in the barracks since its humiliation in the Falklands/Malvinas in 1982. Nonetheless, Argentina has since been beset by out-of-control budget deficits, hyperinflation and debt defaults, even as civil society has been battered by unprecedented poverty and inequality.
In a global economy that has consistently rewarded free-market policies, Argentines have increasingly opted for a greater state role, relying on trade protectionism to stimulate industrial expansion and blaming everyone but themselves for the consequences. Actually, in recent decades, luck has largely made up for bad policy choices. During much of the husband-wife reigns of presidents Nestor and Cristina Kirchner, Argentina has had the good fortune to be a major commodities exporter in the midst of a global commodities boom.
Now, as commodity prices sag and the global economy seems poised on the edge of recession, Argentina has again chosen to go it alone. Imports are being tightly restricted and transactions in foreign currency are subject to rigid controls. President Cristina Kirchner’s announcement last April of the nationalization of Repsol, the Spanish oil company, suggests more of the same to come. Indeed, the question du jour is whether the ritual squandering of Argentina’s economic prospects in a show of incompetence and opportunism is about to be repeated.
Argentina became wealthy selling grain and meat to Europe after the revolutions in steamship and rail transportation in the late 19th century. Its economy grew at a blistering pace of seven percent annually between 1903 and 1913, only to be hammered by the collapse of global commodity markets in World War I. But it recovered briskly thereafter, averaging 6.4 percent growth from 1918 to 1929 on the strength of foreign direct investment and burgeoning global demand for farm commodities.
The Great Depression sent Argentina (and every other market economy) into the skids. It’s worth noting, though, that fortune favored Argentina — the 14 percent decline in GDP was modest by comparison to the 30-50 percent declines experienced by most heavily industrialized countries. And the recovery was faster: Argentina output regained its late 1920s level in 1935, and it was never forced to default on its debts.
The real divergence of the Argentine economy from other promising New World economies dates to the 1940s, to the rise of Juan Peron. Like Fascists and Stalinists, Peronists believed (and maybe still do) in top-down direction of the economy. Their single economic goal, though, was not growth but redistribution — first from Argentina’s rural oligarchy to the owners of highly concentrated urban industries protected against competition from imports, and then from industry to its heavily unionized labor force.