Lessons from Latin America
There is arguably no place more emblematic in Argentina than the Plaza de Mayo, the city’s independence square. At the one end is the seat of government, Casa Rosada, the “Pink House” with the balcony from which Eva Peron famously did her thing. On one side of the white obelisk independence memorial fly various banners railing against the government and proclaiming solidarity with the “disappeared”—the 10 000 or so people who were killed by security forces during the bitter civil war in the mid to late Seventies, and other victims of war.
Claiming to be a Peronist remains the most likely route to the Casa Rosada and, after the failure of the last non-Peronist government of Fernando de la Rúa in December 2001, perhaps the only probable one.
The story of Argentina since 1945 has been of a cyclical nature: crisis followed by austerity and then boom, and once more bust and recovery. For example, following the last military junta, which collapsed in the aftermath of the Falklands-Malvinas war in 1982, the government of Raúl Alfonsin (1983-1989) encountered hyperinflation as it tried to tackle a debt problem. The economy shrank by 7% that year, with per capita gross domestic product falling to its lowest level since 1964.
Alfonsin was followed by Carlos Menem, another to claim a Peronist label. The first of his two terms as president is generally regarded as the most successful, the second being characterised more by corruption allegations and less by reform.
During Menem’s first term his finance minister, Domingo Cavallo, introduced a series of reforms in 1991. These included pegging the value of the peso to the United States dollar one to one in a “convertibility” plan to end runaway inflation. Pegging should have been a short-term measure to establish a new framework for investment and growth. Instead, because the peg was politically popular, it went on for a decade, swelling debt as a way of increasing consumption. This is not unlike what is happening in southern Europe today.
After Menem’s attempt to run for a third term in 1999 was ruled unconstitutional, opposition candidate De la Rúa defeated the president’s nominee, Eduardo Duhalde. De la Rúa inherited an economic crisis. After several tumultuous leadership changes, Duhalde took over the presidency, unpegging the faltering peso and overseeing the biggest sovereign debt default ever of more than $60-billion.
The political stage was thus set for rule by the Kirchners, Nestor and Cristina—husband first and then wife, from 2003 until today.
The first priority of former president Nestor (2003-2007) was to reschedule $84-billion debt with international organisations. By the time Cristina won the election in November 2007 the country seemed to be well on the path to recovery, but its stability had less to do with the government than with other sectors. During the 1990s, the private sector made considerable investment in new farming techniques, notably “no-till” seeding and the extensive use of herbicides and genetically modified seeds. Coupled with a surge in Chinese demand, the country was experiencing an agriculture export boom on the back of soya by the mid-2000s. In 1995 Argentina exported two million tonnes of soya; by 2010 this figure had increased to 56-million tonnes.
The government was quick to recognise this windfall, imposing a 35% export tax—officially known as a “retention”—that has brought in an estimated extra $8-billion this year from soya alone. In 2008 the government vainly tried to raise this tax to 44%, leading to demonstrations by farmers. At the same time, the Argentinian economy has shown every sign of overheating, reflecting rampant consumerism and low public and private investment.
To be a contemporary Cristinista is to follow the traditionalist route of Peronism: a strong centralised government with authoritarian traits acting in a corporatist fashion, with pliable business interests, strong sentiments against foreign interference and distribution to favoured groups through subsidies and welfare payments. It has strong populist urges, explaining, for example, the president’s Fútbal para Todos (Football for All), a $170-million project for the free broadcasting of games, and the public works scheme known as Plan Trabajar, which comprises gas and fuel subsidies. The intention behind all of these is to stay in power, not to diversify or grow the economy. Just as Peron ran down the country’s record foreign reserves in 1945 by funding pet projects, Cristina’s government has spent an estimated $30-billion annually on social projects and subsidies.
‘Today,” says Eduardo Menem, the brother of the former president and a 22-year veteran senator and Peronista, “we have a subsidy for gas, electricity, public transport, even some types of food, all paid for by the retentions. But what happens if the demand for soya changes?”
Argentina is a redistributive economy similar to contemporary South Africa. Where the latter has mining, the former has soya. As Cavallo observes: “The government is somewhat leftist, somewhat statist, somewhat populist and definitely opportunist.” Or as Menem reflects: “Our economic problems have deep political roots. Each government that takes office tries to change everything. This makes it impossible to feel safe as an investor because we lack the legal conditions to encourage this. Only in the 1990s did investors return because of the right legal conditions.”
Yet so long as China (and a few others) continue to buy, the party continues. As Alfonso Prat Guy, the former central bank governor under Nestor Kirchner observes: “Argentina remains a natural resource producer—worse than that, a single-crop exporter, and with none of the attempts of previous eras to build a manufacturing sector.” The failure of industrialists to invest and the high pace of consumption together explain why the manufacturing balance of payments deficit has leapt to $24-billion, or 6% of GDP.
If and when foreigners stop buying, or other cheaper producers or natural resource substitutes are discovered, it will be over and crisis will ensue. And so the cycle repeats itself in Argentina. Many Argentines apparently believe this will happen, hence the estimated $1-billion in monthly capital flight during the past eight years.
The hope for politicians taking a longer-term view resides in the emergence of a new generation—one less vested in the traditional divides between protectionism and free trade, less interested in the use of power for power’s sake. Eduardo Menem argues that this generational change will be an inevitable consequence of having “30 years of democracy, the longest era in our history, which is generating a new kind of leadership”.
Until then, there is little Africa can learn from Argentina. On the upside is the democratic-mindedness of Argentines, willing to take their rights to the streets; on the downside lie the cost of politics to economic reform initiatives and the weakness of institutions. For some African countries, the growth of farming and the management of Argentina’s natural resources offers some guide to future opportunities. But this had little to do with the government—rather with a private sector making progress in spite of government.
Dr Greg Mills, who heads the Brenthurst Foundation, has been researching a book in Argentina