Argentina’s Slow-Motion Disaster
Massive capital flight and high inflation presage a future economic crisis. (Read this article in Spanish here.)
March 8, 2012 - 12:00 am
Meanwhile, many Argentines are still fuming over the tragic February 22 train accident that killed 51 people in Buenos Aires. Reports indicate that the accident was caused by official neglect. Argentina’s auditor general has said it was entirely preventable. So why didn’t the government take action sooner against the railway company that caused the crash? Blame corruption in general and the Kirchners (both Cristina and Néstor) in particular. “Over the past eight years,” noted one Argentina-based journalist, “the Kirchner government has repeatedly turned a blind eye to the deteriorating rail network, pumping millions of dollars into the system while demanding little in the way of upgrades or safety improvements in return.”
To be sure, Cristina Kirchner easily won reelection last October, garnering more than 54 percent of the vote. But she was competing against a weak and divided opposition, and in many ways she bought her victory through lavish, fiscally irresponsible government subsidies. “Irresponsible” is the best description of her economic policies, which include foolish import restrictions aimed at protecting Argentina’s foreign-exchange reserves. (Automakers such as BMW and Porsche have been forced to start exporting other products, including meat, leather, rice, and wine, in return for import permits from the Argentine government.) Don’t be misled by commodity-driven GDP growth: Kirchner is accelerating her country’s relative economic decline — which, admittedly, began long ago.
That decline is nothing short of remarkable. On the eve of World War I, Argentina was richer than France and Germany. But after World War II, it entered a period of populism and dictatorship, punctuated by political violence and hyperinflation. The Galtieri regime fell shortly after Argentina’s defeat in the 1982 Falklands war, but the return of democracy was not enough to help the country escape another episode of hyperinflation in 1989. Nor was it enough to prevent a historic debt default in late 2001.
According to the narrative promoted by Kirchner and her left-wing supporters, Argentina’s default was a result of free-market economic policies. But that’s nonsense. As journalist Michael Reid has explained, “What killed Argentina’s economy in 2001 was not ‘neoliberalism’ or the free-market reforms, but a fiscal policy incompatible with the exchange-rate regime, and a lack of policy flexibility.” Indeed, the policy mix that triggered the crisis “was in direct contravention of the Washington Consensus.”
Today, after several years of appallingly bad economic mismanagement, Argentina is facing yet another looming crisis. For now, high commodity prices are camouflaging a slow-motion disaster. But those prices won’t stay high forever. And in the words of Daily Telegraph commentator Jeremy Warner, the country “is once more an economic basket case.” Sooner or later, its next crisis will erupt.
Read this article in Spanish here.