An oft-cited bit of wisdom in the field of international economics is a quote by Nobel laureate Simon Kuznets, who argued that there are four types of countries in the world: developed, underdeveloped, Japan, and Argentina. For decades, the case of Argentina has confounded economists, political scientists, and observers of international politics alike. A pendulum has swung from liberal democracy to military dictatorship and back, overseeing rapid transformation from late 19th-century growth to 20th-century depression and hyperinflation. Once thought to challenge Brazil for regional primacy, Argentina now more closely resembles a boomerang. When Argentines went to the polls on October 27, they voiced their displeasure with the center-right regime of Mauricio Macri and declared that the boomerang will come back again in the form of president-elect Alberto Fernandez. With mounting anti-democratic, right-wing populism on the rise in Peru and in power in Brazil and countervailing anti-corruption movements sweeping the region, establishing sound democratic and economic institutions is as crucial as ever if Argentina is to be spared from the same fate of turmoil.
A Short History of Argentine Economics
In the early 1900s, the future of Argentina appeared promising. Just this mere century ago, Argentina rivaled an upstart and industrializing United States, as both rode the first wave of globalization in the 20th century. Its economy, facilitated by livestock exports to Europe and the labor of immigrants from Europe, entered World War I among the ten largest in the world, and its average per capita income was vastly superior to that of Italy, Portugal, and Spain. The idea that the Argentine economy would see anything less than an absolute boom given its potential at the time would seem to have been unbelievable.
Yet the economy is worse off today than it was in 1913. While the early 1900s were a tremendous time to be a farmer in the Americas, it would not last forever. When the United States followed the British model of industrialization, it was set up to take advantage of the new economy while its Argentine counterpart, still dependent on borrowing foreign cash to distribute beef to foreign markets, was not. As soon as 1930, meat exports to continental Europe had decreased by two-thirds from their 1924 level.
The Great Depression further exacerbated things. Between 1929 and 1932, the country’s gross domestic product (GDP) fell by 25 percent. Yet the elite political class in Argentina, with its deep distrust of government intervention in the market, refrained from taking the dramatic social-democratic actions that were undertaken by American president Franklin Delano Roosevelt and the economy continued its decline.
The controversial reign of Juan Perón presented a mixed bag for Argentina later. From 1945 to 1955, the Perón administration nationalized key industries, such as the Central Bank and the railways, and instituted generous social welfare policies. Inflation rose and persisted, averaging 26 percent from 1944 to 1974, but the modest GDP growth the country experienced during this time was quite well-distributed. Enforcement of minimum wage laws and the expansion of health insurance programs led to increases in real wages and the development of the largest and most unionized middle class in South America at the time. By the time the military dictatorship of 1976-1983 left office, the labor rights instituted by Perón were wiped out and the anti-democratic behaviors he engaged in were further legitimized.
What followed over the next few decades was a period of neoliberal, market-based reforms that focused on opening Argentina to the global economy via agricultural exports and drastically reducing spending in accordance with the recommendations of the International Monetary Fund (IMF). Each time this path was undertaken, the results were disastrous, with foreign debt accumulating and increased poverty and unemployment. The worst of these crises came in 2001; after the economy contracted by 15 percent in less than two years, more than half the population fell into poverty, and the country defaulted on almost $100 billion in foreign debt.
The election of Macri, a businessman and former president of legendary football club Boca Juniors, energized conservative hopes for economic recovery. Yet as his presidency comes to a close, it is evident that no such economic recovery manifested. Even after he instituted market-oriented reforms, anxiety among foreign investors mounted, and ultimately, foreign capital dried up. He piled on foreign debt and sought the largest bailout in the history of the IMF, some five times the size of the package approved to stave off economic collapse in Egypt. With budget cuts constricting economic growth and equality, GDP is expected to decrease by three percent while the very inflation he sought to curb has increased to over 55 percent, a higher number than any other country in Latin America besides Venezuela. Furthermore, Fitch, one of the Big Three American credit rating agencies, changed Argentina’s credit rating from B to CCC, indicating a significant increase in financial precarity. Once a safe bet for economic development, Argentina is now in full free-fall.
Persistent Challenges: Corruption and Weak Institutions
At the root of Argentina’s economic issues are its struggles with corruption and unstable democratic and economic institutions. Declining faith in government and institutions like the central bank and the judiciary have sustained the country’s state of crisis. Despite the common umbrella of Peronism, the members of the political movement were fiercely divided. Perón himself deemed left-wing Peronists immature and enlisted his right-wing guerrilla allies to target them. This manifested in the fascist Minister of Social Welfare Jóse López Rega forming the Triple-A alliance, a far-right death squad that carried out acts of terrorism against moderate and left-wing opponents of the regime. Furthermore, in its later days, the Perón regime began detaining people indefinitely without a trial, a drastic shift in human rights in Argentina. With dissent stifled and liberal values like human rights cascading off the Argentine political map, faith in democracy reached a low point. This would be exacerbated by the U.S.-backed military coup that installed a military dictatorship from 1976 to 1983. While approval of the military and more independent civil-military relations was previously high, the human rights abuses (torture and forced disappearances) carried out by the military during the period known as the Dirty War (or the “Época de los desaparecidos”) resulted in a decline in approval of these hallmarks of democratic states and democracy itself. But broad disapproval of liberal values alone does not explain the instability and lack of sufficient development in Argentina. Corruption continues to be a major issue impeding development. Nowhere is this more evident than in the judiciary, which is independent of both politics and outside interference in name only. Odeberecht, the Brazilian construction company in the midst of a multinational bribery scandal (including an estimated $35 million in bribes paid in Argentina, including donating millions to Macri’s campaign), has faced almost no legal recourse. When state-owned enterprises were privatized in the 1990s by President Carlos Menem, fraud and kickbacks were an open secret. Yet today, Menem is a legislator, not a prisoner. Impunity is the norm rather than something that is to be avoided.
Declining faith in the judiciary is yet another lightning rod that amplifies the class conflict in Argentina. When powerful politicians and multinationals get away with committing fraud and bribery, it sends a message to ordinary civilians that the elites will always win, a message the Argentine people are all too familiar with. The legacy of politicians more concerned with an ideological crusade against socialism than supporting their citizens during a global economic depression looms in this regard. The chief factor holding back the independence of the judiciary and corruption reform is a poorly-designed plea bargain system. The 2016 law reforming the plea bargain system regrettably limits cooperation agreements to a small group of crimes, excluding such important and major crimes as criminal fraud. Cooperating witnesses are also rewarded only for evidence related to the case in which they are charged, though they may have evidence of unrelated crimes. These pointless restrictions make responsibly prosecuting corruption next to impossible and they must be dropped if Argentina is ever going to establish a viable liberal democracy for, by, and of the people. The central bank is another issue of institutional credibility. Turnover has plagued the institution, thereby inhibiting its consistency in monetary policy. It has had 23 different presidents in 36 years. Furthermore, even as most central banks in Latin America enshrined independence from the federal executive branch into their central banks during the regional hyperinflationary crisis, Argentina resisted the trend. Macri’s own selection for chair of the central bank blamed the current economic struggles on government interference in monetary policy.
Argentina was once a rising economic star on par with the United States. Yet the downward trajectory of Macri’s political career is all too familiar to the Argentine people, who have spent the last half-century constricted by austerity and an insufficient social safety net while their elites escaped accountability for their misdeeds. Their frustrations were heard in the election of Fernandez and maybe, just maybe, their concerns will be reflected in the new administration’s policies.