Viewpoints on Energy, Geopolitics, and Civilization
Jose Clavijo/World Politics Review:
Can Argentina Free Itself From Its Past?
Natacha Pisarenko / AP
President Alberto Fernandez and Vice President Cristina Fernandez de Kirchner after taking the oath of office.
Argentina once the ‘Country of the Future. Populism and
complacency have squandered its still considerable potential.
In December 2019, a new Argentine president was sworn in amid considerable upheaval, promising to wrest the country from its endless cycles of boom and bust. His predecessor's efforts to reform the economy and finally unleash the country's great potential had to come to naught. On almost every economic indicator, Argentina was actually worse off than when he had taken office four years before and, once again, the country faced the dreaded specter of foreign debt default.
Though that brief summary refers to the presidential transition from Mauricio Macri to Alberto Fernandez, change the names and dates and this could just about describe any transfer of power in Argentina in recent memory. It wasn't always the case.
One hundred years ago, Argentina was the land of the future, one of the 10 richest countries on the planet. It had for decades recorded the fastest GDP growth rate in the world and had a higher per capita income than either France or Germany . In its dynamism and potential, Argentina was a hemispheric rival of the United States. Massive investments in infrastructure and innovation propelled its prosperity. By 1914, it enjoyed more than 20,000 miles of railway tracks, which, combined with refrigerated storerooms, facilitated exports of its world-famous meat on an unprecedented scale. The production and export of grain also grew multifold.
For the time, Argentina was an educational trailblazer, possessing arguably the best public school system and the lowest illiteracy rates in Latin America . In its architecture, demographics and lifestyle, it was—and in many ways considered itself—a European country tucked away in the Southern Cone of South America. Remnants of this past still survive. Argentines still play the sports that European immigrants brought with them, like rugby and field hockey. The traditional coffee shops that line the streets of Buenos Aires could blend in easily in any European capital. On traveling to Buenos Aires for the first time in the 1960s, the Nobel Prize-winning writer Mario Vargas Llosa marveled at its rich cultural life, noting it had more theaters than Paris.
This golden, if fleeting, moment of the country's history plays a central role in its identity and how it is perceived, both at home and abroad. Successive generations of Argentines have looked back on it with a mixture of nostalgia and regret, while other parts of the world have pondered how a country with such an abundance of natural resources and such an educated population could fall so far behind.
Out of Touch and Out of Time
The century since that time has been one of recurring crises, brought about by government mismanagement and an overdependence on fluctuating commodity prices . Unlike the meteoric decay of Venezuela brought about by the so-called Bolivarian Revolution of former President Hugo Chavez and his successor, Nicolas Maduro, Argentina's decline has been a slow-moving, seesaw process that, nevertheless, reveals a general pattern of mistakes and missteps . And though international economic conditions played a role, the country's current condition is largely self-inflicted, with governments either unwilling to modernize and diversify the economy or unable to do so, and a population too willing to heed the bounteous promises of populist politicians.
In a way, Argentina over the past 100 years has often found itself out of sync with prevailing global economic trends . Its export-led, commodity-driven economy was hit hard by the protectionism of the Great Depression of the 1930s. A resulting fall in foreign demand and customs revenues led to the first of many financial crises and the first of six military coups. But when the world economy began to embrace free trade in the late 1940s and 1950s, Argentina turned inward under the leadership of Juan Domingo Peron, a military officer whose impact on the country's political landscape has endured to this day.
Elected president in 1945 amid a renewed cycle of political turmoil, Peron pursued a policy of national self-sufficiency, embarking on a drawn-out process of import substitution, nationalizations and a focus on large state-owned industries. Autarky was accompanied by corporatism, the result of Peron's sympathy toward Mussolini and Italian fascism dating back to his time as a student in Italy in the late 1930s.
Peronism, as the eclectic political movement he forged came to be known, incorporated groups as diverse as industrialists, labor unions, nationalist military officers and conservative regional political bosses . Peron gained popular support by improving wages and working conditions for the urban working class, and implementing progressive social programs such as universal free education and mandatory social security. In what became a frequent trend in Argentina's turbulent history, Peron's economic and social policies were supported by the favorable conditions for commodity exports following World War II.
Argentina used to be the country of the future. Populism and complacency have squandered its still considerable potential.
But economic mismanagement and less favorable economic circumstances began to tarnish his political luster, especially after the death of his charismatic and enormously popular young wife, Eva Peron. The government began to print money, causing a spike in inflation. During his second term, Peron shifted toward a more conservative agenda, while fighting with the powerful Catholic Church over its political influence in Argentina. Widespread corruption and Peron's authoritarian leanings created discontent and further weakened his grip on power. He was eventually ousted in 1955 and went into exile. Although the Peronist movement subsequently fractured into squabbling factions, it remained a dominant political actor, in no small part due to the infighting between civilian politicians and the military leadership—and to Argentina's ongoing economic troubles.
Peron briefly returned from exile in 1973 to win a third term as president, but governed for less than a year, until his death. This fleeting period was marked by renewed political violence, this time among the diverse and irreconcilable factions that the Peronist movement comprised. As the unwieldy movement began to splinter, Peron sided with its right-wing factions against the far-left wing. Conflict intensified after his death, leading to further political polarization and a leftist insurgency that destabilized the country. In 1976, the military once again took over in a coup.
Peron's last months in power highlighted his movement's internal contradictions, particularly the fact that it did not represent a coherent ideology, but rather a vague and multifarious combination of nationalism, laborism and corporatism. That it subsequently became a political “brand,” subject to the passions and ambitions of its leaders, has not diminished its allure over time. Despite its personalist nature, or perhaps because of it, Peronism not only survived Peron's 18-year exile, it also survived—and has even flourished—after his death.
Since the advent of Peronism, Argentina has oscillated between bouts of liberalization and state interventionism in the economy, with the latter largely predominating. In that time, there have been periods of prosperity, but recurring fiscal imbalances, instances of hyperinflation and high levels of sovereign debt have disrupted economic growth. Argentina has endured the most macroeconomic crises of any country in Latin America over the past 70 years , spending roughly one-third of that time in recession, with downturns that have been deep and prolonged .
Peron's late political metamorphosis played a role in the country's renewed slide into military dictatorship and repression. The junta that ruled between 1976 and 1983 was the most brutal in Argentine history, using torture and “disappearing” roughly 30,000 people to crush any political opposition. The military's opportunistic and ill-fated invasion of the British-administered Falkland Islands, claimed by Argentina as the Malvinas, brought further national grief and humiliation.
Despite its contentious legacy, Peron's malleable and enduring brand of populism has left an indelible imprint on Argentine society, and Peronism retains a wide popular appeal among Argentina's poor and lower-middle classes, due mostly to policies that reinforce their social and economic security. Over the past three decades, three politicians claiming the Peronist mantle have successively dominated party and national politics: Carlos Menem, Nestor Kirchner and Cristina Fernandez. Each is inextricably linked to Argentina's most recent cycle of recurring economic crises.
In the 1990s, in an effort to tackle hyperinflation and a recession, then-President Carlos Menem broke with traditional Peronist policies to embrace free market reforms, attracting foreign investment and privatizing inefficient state-owned industries. But economic volatility remained, and social discontent grew as wages fell and unemployment soared.
Argentina was subsequently hard-hit by the Asian financial crisis in 1997 and the Russian financial crisis in 1998, causing capital flight. By the time Menem left office in 1999, the country was again facing a severe recession . An overvalued fixed exchange rate and high foreign debt contributed to the devastating economic crisis of 2001-2002, when the economy contracted by 20 percent and the country defaulted on $100 billion of debt, the biggest sovereign debt default in history at the time. At the nadir of the crisis, Argentina had five different presidents in the span of a few weeks.
AP photo by Walter Astrada
Demonstrators throw stones at an armored vehicle in Buenos Aires, Argentina, Dec. 20, 2001.
The socio-economic consequences were even worse than the political crisis. Unemployment affected 25 percent of the labor force, while 55 percent of the population fell below the poverty line, with 27 percent living in extreme poverty. Riots and looting were widespread. Millions of Argentines saw their savings decimated through a currency devaluation accompanied by a bank withdrawal freeze, the vilified “Corralito.” Hundreds of thousands of skilled professionals left the country in search of a better life abroad.
By 2003, the economy was no longer in freefall, but the situation remained dire. Nestor Kirchner, the winner of that year's presidential election, is credited with further stabilizing the economy and ushering in recovery, though he benefited from the sound economic and fiscal policies implemented before he took office. Kirchner pursued generous redistributive policies, funded by the commodity boom of the 2000s and a controversial tax on exports. The economic recovery allowed Kirchner to strong-arm foreign creditors into accepting the largest-ever debt “haircut” in the value of the principal, and to pay back Argentina's debt to the much-loathed International Monetary Fund early.
These measures, along with a wide array of social spending programs, endeared Kirchner to large swathes of the population. But true to Peronist form, he harassed the media as well as political opponents and private companies when they crossed him. Economic statistics were tampered with to hide rising inflation, and pension and central-bank funds were seized . The end of his term was also tainted by corruption scandals.
Despite his popularity, Kirchner stepped aside in 2007, succeeded by his wife, Cristina Fernandez. After Kirchner's death from a heart attack in 2010, Fernandez became the dominant figure in the Peronist movement, but she proved to be a more polarizing figure.
A more radical populist, Fernandez mismanaged the economy and alienated factions of the Peronist movement. When she left office in 2015, she left behind a controversial legacy of institutional, social and economic decay . As a result of her refusal to seek a final resolution with the last remaining private debt-holders, Argentina remained isolated from international capital markets. The country's global competitiveness withered as economic liberalism and the ease of doing business weakened. Like her husband, Fernandez intimidated independent media and blatantly doctored official economic statistics to maintain the illusion of a sound economy. During her presidency, too, cronyism and corruption grew rampant.
Kirchner and Fernandez's demagogic and authoritarian inclinations did considerable damage to the country's already weak institutions. In the end, they squandered the historic commodities boom of the 2000s. Instead of using its tailwinds to regenerate the country's economy, they maintained an unsustainable maze of social expenditures that extended to almost half the population. Most public spending went—and still goes—to pay for pensions, state salaries and subsidies.
Macri's Ephemeral Place in the Sun
A constitutional limit of two consecutive presidential terms forced Fernandez to sit out the 2015 election, opening the way for Mauricio Macri, the center-right mayor of Buenos Aires, to break the 12-year Peronist grip on power. Macri took office amid great hopes that he would finally lead Argentina on a path of reform and sound growth. But he inherited a colossal mess. Profligate and reckless spending had led to budget and trade deficits, high inflation, low foreign exchange reserves, a bloated public sector and massive and unaffordable subsidies. To his credit, Macri attempted to strengthen the workings of democracy so badly tainted under Fernandez, supporting the independence of the judiciary, launching an anti-corruption drive and upholding transparent government statistics.
Argentina has endured the most macroeconomic crises of any country in Latin America over the past 70 years, with downturns that have been deep and prolonged.
But his government was overwhelmed by the magnitude of the challenges it faced and ultimately failed to deliver on urgently needed structural reforms. He initially adopted a gradualist approach to mitigate the pain his policies would impose on a subsidy-dependent populace. While justifiable from a political and social standpoint, it proved insufficient to stimulate economic growth quickly enough. These piecemeal polices were further undermined by unfavorable developments at home and abroad. A severe drought shrank government revenue from agricultural exports, while the end of quantitative easing by the U.S. Federal Reserve Bank accompanied by a rise in interest rates on U.S. treasury notes made Argentina less palatable to foreign investors, resulting in capital flight.
Midway through his mandate, Macri was in trouble. As the economy deteriorated, he turned to the IMF for a $56 billion standby loan, the largest in the institution's history. It proved an unpopular decision to an electorate still wary of the IMF due to its perceived role in the 2001 crisis. Toward the end of his term, the country was worse off on almost every economic indicator than when Macri took office.
Fernandez Versus Fernandez
Macri lost the presidential election of October 2019 in the first round of voting to the Peronist presidential candidate, Alberto Fernandez, who took office in early December. But while Alberto Fernandez occupied the office of president, whether or not he would really govern the country during his four-year mandate was another matter. In a political masterstroke, Cristina Fernandez anointed Alberto—no relation—as her party's presidential nominee, choosing to run instead as his vice-presidential running mate. In contrast to Cristina, who remains an influential but divisive figure, Alberto was seen as a moderate and conciliatory leader within the fractured Peronist movement. During the campaign, he was able to reconcile its estranged factions, and the return to the fold of the more moderate elements of the party facilitated his electoral victory.
In the early months of his presidency, however, it was uncertain whether Alberto had either the political will or acumen to face the overwhelming challenges ahead. More a discreet political operative than a frontline politician, he had served as Nestor Kirchner's chief of staff before falling out with Cristina when she first became president. It was even questionable whether he could govern autonomously, as Cristina is the recognized leader of the more radical left-wing factions of the party and still the most powerful politician in the country. He needs her support, and that of her allies and followers, to govern.
More recently, Alberto has proven to be a skillful and determined leader. He took early and drastic steps to stem the dangers of the COVID-19 pandemic. And after early misgivings, he has taken a constructive stance to restructure part of Argentina's unsustainable debt. Even though the country formally defaulted on May 22 when it missed a deadline on a $503 million interest payment —the ninth default in Argentina's history, and the third this century—the negotiations between the government and the groups of private bondholders holding $65 billion of sovereign debt have been extended several times. Although details concerning grace periods, cuts in interest payments and new “haircuts” still need to be fine-tuned, there is cautious optimism a deal will be reached, despite some recent bluster from both sides.
Alberto's willingness to face this latest debt crisis head on is facilitated by the changed political circumstances this time around. As opposed to 2001, when the population supported defaulting on the country's crippling debt burden, Argentines are now weary of the socio-economic impacts of delinquency and mostly favor a settlement . And in contrast to the animosity and nationalist posturing that characterized negotiations with creditors under Cristina and Nestor Kirchner, the current talks have been mostly cordial and conciliatory, with both sides apparently willing to reach a compromise. There is also widespread support for the deal among Argentina's political class.
The deft handling of the pandemic and debt restructuring have boosted Alberto's approval ratings and strengthened his political standing, allowing him to sideline Cristina and the radical elements of the party—at least for now. It remains to be seen whether he will challenge her authority down the line if his position further solidifies.
AP photo by Natacha Pisarenko
A shop owner during a coronavirus lockdown in Buenos Aires, Argentina, June 26, 2020.
Argentina can ill afford a default , which would again isolate the country from much-needed international capital markets at a critical time. As opposed to the early 2000s, when record high commodities prices bolstered Argentina's negotiating position, a global recession is now pushing commodities prices even lower than they had already fallen since their peak in 2011. The economy, in recession for a third year in a row , is expected to contract 6 to 7 percent in 2020.
But current negotiations with the private bondholders of sovereign debt are only part of the story. Argentina's combined federal government debt—which includes debt held by the IMF, other official creditors, private creditors and other public sector bodies—stood at a whopping $323 billion at the end of 2019, equivalent to 88 percent of GDP . In April, the government declared a unilateral moratorium until 2021 on repaying $10 billion of dollar-denominated debt issued under local law. In May, the province of Buenos Aires defaulted on $7 billion in debt when it missed a payment. Alberto will also have to negotiate a debt-relief deal with the IMF, whose loans are due between 2020 and 2024. Although this won't be a problem for now, as the IMF along with the United Nations and the World Bank have spearheaded initiatives aimed at relieving the payment burden of heavily indebted countries , Alberto reiterated in March that Argentina cannot resume payments to the IMF for another five years .
The Eternal Quest for Reform
Debt relief alone will not assuage Argentina's plight. The country is in urgent need of a credible and concerted economic recovery program that will create growth, which can then generate revenues to service its debt down the line. That is a tall order. The deepening global recession is intensifying deglobalization, thus dampening Argentina's growth prospects. Even more uncertain is the government's willingness, and capacity, to embark on a path of sustainable reforms. For an electorate with a bent toward contrarianism, a narrative has taken shape of successive governments failing to bring positive change, whether with a populist-interventionist approach or with more orthodox center-right market-oriented policies. The danger now is a lack of politically palatable economic recipes, as both have been discredited in the eyes of Argentines.
Alberto's government faces another quandary, as the severity of the economic crisis will further circumscribe his policy options. The administration will struggle to provide the myriad social benefits it has promised—and that the population clamors for—which already absorb a whopping 75 percent of the government budget and are set to rise as the state boosts health and social spending to battle the pandemic. Yet the country is still in urgent need of structural changes, including pension, labor and tax reforms .
Combined, that makes for an uphill battle. Argentines resisted Macri's attempts at reform. The powerful pro-Peronist labor unions will likely defy any effort now to liberalize the labor market and reduce the number of public sector jobs . And with only 6 million workers in the formal private sector financing the huge state apparatus , tax reform offers limited respite. So far, tax increases at the beginning of Alberto's term have been aimed mostly at the middle and upper classes.
Argentina needs urgent changes, but most of all, it must put an end to its penchant for muddling through with alternating governments of different stripes offering piecemeal reforms.
Argentina also needs to diversify its economy and look for comparative advantages that provide added export revenues. But streamlining for the sake of productivity and competitiveness means going against the entrenched inward-looking policies of the Peronists, who mostly favor protecting inefficient domestic industries and state enterprises from foreign competition. Even the pragmatic Alberto Fernandez has advocated protectionist measures to support local industries , a reflection of how deeply the protectionist instinct runs in the movement. In any case, Cristina and the leftist Peronist factions would probably oppose even the temporary pain caused by economic reforms meant to promote productivity and competitiveness.
A return to the protectionist measures that Macri partly dismantled would also strain relations with Brazil, Argentina's biggest trading partner, and imperil the yet to be ratified free trade agreement between the European Union and Mercosur, the Southern Cone trade bloc of which Argentina and Brazil are the leading members. Alberto has in the past been skeptical of the pact. To his credit, he has mended relations with Jair Bolsonaro, Brazil's fiery far-right president, who supported Macri's reelection bid. Argentina will need a close partnership with Brazil within the framework of Mercosur to foster other free trade agreements that would enhance its export markets.
All of these reforms, however, will require a drastic change in the mindset of Argentina's political class and its population. For the country to move forward, it needs to finally overcome two deep-rooted challenges. The first is a chronic tendency to opt for short-term but illusory cures to the country's severe ailments. Successive governments have been unable or unwilling to implement long-term structural reforms due to ideological and electoral considerations, as a complacent population seems unwilling to bear the transient hardships involved. Thus, the continued search for easy solutions to enduring challenges.
The second is Argentina's historical inability to develop strong and independent institutions to serve as a counterweight to the upheavals of the political system. Such institutions could serve to counteract short-termism in support of long-term state policies , but the intermittent and erratic nature of governance has precluded them from emerging. Macri tried, but his mandate was too brief to have any lasting effect. The Peronists seem less inclined, and they have a history of manipulating and weakening the country's institutions to their benefit.
One of the paradoxes of Argentina is that despite the chronic political instability and recurring economic crises, it historically has had one of the most resilient middle classes in Latin America, and arguably the most educated and talented population. No more. Inequality is increasing. Poverty has been rising and now affects roughly 35 percent of the population. More than half live in a state of social vulnerability. Decades of underinvestment have hobbled the public school and university system. Argentines no longer look down on their neighbors—Chileans and Uruguayans are better off.
Argentina used to be the country of the future. Populism and complacency have squandered its still considerable potential. It's a valuable lesson for other countries struggling to provide good governance. Argentina needs urgent changes, but most of all, it must put an end to its penchant for muddling through with alternating governments of different stripes offering piecemeal reforms. Another century of decline is not an option.
José Clavijo is a retired Venezuelan career diplomat whose postings abroad included Tunisia, Denmark and—as chargé d'affaires—India, Japan, Dominican Republic, Philippines and Morocco. He was also formerly the head of the Asia Department for the Venezuelan Foreign Ministry.
The views and opinions expressed in this article are those of the author.
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Jose Clavijo is an early retired Venezuelan career diplomat. He was posted in Tunisia, Denmark, India, Japan, Dominican Republic, Philippines, and Morocco. He was also the head of Asia and Oceania Department in the Foreign Ministry. Clavijo studied Political Science at the University of New Orleans, United States, and at the American University in Cairo, Egypt. He earned his Masters of Science in International Politics from University of Bristol, UK. He can be reached at firstname.lastname@example.org. Petroleumworld does not necessarily share these views .
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