Reflections on Argentina – Part Three

Reflections on Argentina – Part Three

 

Argentina (with its capital of Buenos Aires) was a Spanish colony, secondary in importance to Peru and Lima where the Spanish Viceroy for South America was based. Peru was the center of silver mining and the inherited wealth and development of the Inca Empire, and Colombia was a center of gold mining. Their wealth was pre-eminent in the eyes of the Kingdom of Spain. Argentina was underdeveloped, lightly populated and lacked the easy exploitation of natural resources; its wealth was centered on the important Rio de la Plata and the port of Buenos Aires.

 

Jose de San Martin was the military leader who booted the Spanish out of Argentina, Chile and Peru early in the 19th Century and helped the nations become independent. He decreed freedom for the slaves in Argentina, Chile and Peru. He was influenced by the French and American Revolutions and the 18th Century thinkers of the Enlightenment. He’s the equivalent of George Washington for three South American countries, but he never took political power, retiring to France after leading the liberation struggle.

 

Simon Bolivar was the leader of the Revolution in the northern portion of South America -- Colombia, Panama, Peru, Venezuela and Ecuador. Bolivar was heavily influenced by the French and English Enlightenment writers and thinkers and the American and French Revolutions. He is the other Washington of South America. Bolivar tried to develop a government comprising all the nations he had helped to liberate in the northern part of South America, but was ultimately not successful.

 

After Argentina’s independence was secured by 1820, the nation was split between those who wanted a strong central government based in Buenos Aires with its control over the nation’s trade and customs houses and those who preferred strong provincial control, a republican form of government more comparable to the states that initially comprised the United States. Sixty years of civil wars ensued between the two factions until the issue was finally resolved by force in 1880 in favor of a republican form of government with strong provincial control. In Chile, on the other side of the Andes, there was agreement to form a strong central government. A series of wars between Argentina, Uruguay, Paraguay and Chile formed the nation of Argentina’s borders

 

Argentina was highly attractive to waves of immigrants from Europe and was settled by Italians (the dominant nationality), Welsh, Germans, English and many others from across Europe. The English settlers, for example, created huge sheep ranches throughout the steppes of Patagonia. The indigenous people were slaughtered in both Chile and Argentina – a contrast from Peru and Bolivia where they were instead exploited for hard manual labor in the mines and agriculture – and more akin to the US treatment of Native Americans.

 

By the start of the 2oth Century, Argentina was the 7th wealthiest nation in the world, based in large part on its strong agricultural sector, but also on its growing industrialization. Argentina is now ranked in the mid 50’s in per capita GDP; its per capita GDP is about 1/4th of the US. This is a huge, beautiful and under-populated nation of 46 million; most live in and around Buenos Aires (14 million). What happened to its economy over the last 120 years? The fatal turning points are identified as 1913, just before the First World War when global trade collapsed, the Great Depression of the late 20’s and 30’s, the Peronist period after the Second World War, and the mid 70s to early 80s under the military dictatorship. A New Economic History of Argentina at https://books.google.com/books?id=1PxjcoYAohcC&pg=PA5&lpg=PA5&dq=argentina%27s+economic+malaise&source=bl&ots=WXlcb6l4oa&sig=ACfU3U1nCV1nrLneH16mncDaBmIioFsC6g&hl=en&sa=X&ved=2ahUKEwickueAhILhAhXjPn0KHXwADLsQ6AEwA3oECAcQAQ#v=onepage&q=argentina%27s%20economic%20malaise&f=false

 

Throughout the 20th Century Argentina had a series of elections followed by military coups, which installed right wing dictatorships. This interrupted the ability of democratic elections to self-correct the mistakes of the nation’s leaders. Many dissenters were killed.

 

After the 2nd World War, Juan Peron rose to power through elections; he nationalized many industries and improved the conditions for workers, reduced the national debt, but then overspent. He also provided sanctuary for Nazis escaping Europe after the Second World War. He was deposed by a military coup in 1955. A series of coups, then elections, typically won by Peronistas, then new military coups persisted until 1982 when the military launched the Falklands War against the British and was humiliated, and the dictatorship fell. The US military and intelligence agencies were complicit in the coups, the deaths and disappearances of leftists and Peronistas (Operation Condor). https://en.wikipedia.org/wiki/Operation_Condor#U.S._involvement Since 1982 the Argentine economy has gone through dizzying periods of fast growth, hyperinflation, World Bank bailouts, and stringent austerity measures.

 

In Bahia Bustamante we started a discussion about why the Argentinian economy was in such relative decline and has been for nearly 100 years. Part of the difficulty has been poor economic decision making with high levels of debt and inflation and difficulties repaying loans leading to IMF and World Bank bailouts and forced austerity measures and protectionism. Part could be widespread political corruption, leading to cynicism, despair and a sense that nothing works. Part could be the failure of successive governments to invest in the infrastructure truly needed for the nation’s economic growth, and the disinvestment in what was once a very strong system of public education. Part could be the Peronista-led takeover of large segments of the economy so they no longer operated as a free market. Government spending accounts for 40% of the Argentine economy, compared to 25% in Chile, but 40% in the UK and 35% in the US. Our nation devotes a far higher percent of its budget to economically unproductive defense spending than does Aregentina. Part could be a failure to innovate and adjust to and take advantage of new economic conditions, which made its overall economy ever less competitive  – the same disease that impacts the coal based economies of our nation’s Appalachian region.  Some toxic combinations of corruption and greed, the alternating cycles of Peronism and right wing military dictatorships might be to blame.

 

In Patagonia where we spent most of our time, the dependence on sheep raising and wool trading, whale harvesting, the marine mammal fur trade and shipping via Cape Horn of the late 19th Century has been replaced in part by lots of tourism, the oil and gas industry, but not much else that I could see in the very tiny slice of life I saw. In the north of Argentina, there is a thriving highly competitive agriculture sector with worldwide beef and wheat exports and soybeans to China. What other big roles does Argentina now play in world markets? Is it primarily agriculture? Why didn’t it more fully industrialize? Comparing to Chile, Argentina does not appear to have strong global imports or exports, but it does have a better trade balance than the US. Did Argentina’s economy simply fail to evolve, modernize and develop over the past century at the same rates as other developed nations and why? Was it protectionist policies that inhibited its growth?

 

Why has the neighboring Chilean economy thrived recently and why has its recent economic growth far surpassed Argentina? https://www.theguardian.com/business/economics-blog/2013/nov/22/chile-prosper-argentina-flounders; and https://www.forbes.com/sites/hbsworkingknowledge/2016/03/08/an-economic-mystery-surrounding-argentina-and-chile/#64044a043bc8 and https://countryeconomy.com/countries/compare/argentina/chile

Some credited the economic reforms in monetary and fiscal policies introduced during the Pinochet dictatorship as setting the foundations for Chile’s growth and faulted the Argentina’s populist economic policies, first pioneered by the Perons and ever-lingering, as hindering Argentina’s economic policy making and the nation’s growth. Others pointed to roller coaster economic decision-making in Argentina, compared to a more stable, stay the course monetary and fiscal decision-making in Chile. One could also point to the strength of Chile’s copper mining industry and strong exports and China’s need for its raw materials, but Argentina has had very strong agricultural exports to China as well as globally. Some pointed to the strength of German economic influences and immigrants in developing Chile, but Argentina had many more German immigrants who played key roles in the nation’s agricultural, artistic and economic development.

 

My impression was that Peru’s economic growth seemed far stronger than Argentina as well, albeit from a far lower per capita GDP starting point – Peru is very poor, much poorer than Argentina but on the upswing. Lima seemed really thriving and bustling while we were there. https://santiagotimes.cl/2018/10/28/paraguay-peru-and-chile-star-economies-of-2018-and-2019-according-to-spanish-bank; and  https://countryeconomy.com/countries/compare/argentina/peru

 

Argentina has not been keeping up with other developed nations for the past century; its economic development should look more like Australia or Canada, but it doesn’t, and its voters and policy makers and investors need to make good decisions to realize its potential and end its relative stagnation. But what the heck should Argentina be doing? Should they open up to global markets? Develop wind farms to harvest the heavy Patagonian winds? I have absolutely no idea.

 

Up in the Andes Mountains, I had a long conversation with a young Argentinian, and he’s fed up with hyper-inflation, corruption, and public programs that don't work. He’s become a self-taught fan of the Austrian and Chicago schools of economic thinking, particularly of Frederick Hayek and to a lesser degree Milton Freidman. He was a big fan of the Chilean economic recovery led by the Chicago school under Pinochet and continued by subsequent leaders from both the left and right, as contrasted with the series of economic difficulties that Argentina has experienced. He contrasted Chile’s recent success with Argentina’s economic travails. His view was that “socialism” led inexorably to the misery and economic distress of Cuba, Venezuela and North Korea and he worried that Argentina was on the same path, although he had difficulty reconciling that perspective with the extraordinary economic surges of the Chinese and the Vietnamese under the leadership of the Communists. His complaints about the economic conditions and opportunities were common complaints among the young Argentines I met, though not his solutions.

 

The current President Mauricio Macri came in with promises of less government interference and more free markets and lower taxes, so far as our young friend can see “its higher taxes and more government interference; corruption remains unabated”. He’s thinking of immigrating for a better way of life (as were some other young Argentines yearning for a better life and opportunity in Europe). The US under President Trump had very little appeal for the Argentines I met.

 

Part of Argentina’s current economic distress is a history of price controls and large public subsidies to keep their public utilities affordable to their citizens. This has produced disinvestment and economic inefficiencies.

 

Argentina also has had some pretty high trade tariffs (35%) that keep the price advantages of global free trade away from the Argentine consumer. It has been protectionist and therefore more isolated from the benefits of the global economy. Argentina does belong to Mercosur, a South American free trade zone, including Brazil, Uruguay and Paraguay; Venezuela’s participation has been suspended due to the economic mismanagement of President Maduro. Mercosur is negotiating with the EU for reciprocal trade advantages.

 

While we were there, we benefited from a strong dollar. Our meals, medical supplies and accommodations were costing us about 1/3rd or less than an equivalent meal or a B and B or medical supply in the states. Argentines however were reportedly paying very high prices for consumer goods like computers and cars imported from Europe and the US; the tariff on computers was recently lifted. Most of Argentina’s imports and exports are with Brazil, Chile, the US and China.

 

I deeply loved this country in our short stay and hope the next century will produce better prosperity for its people. The people we met on our travels were strong, vibrant, healthy, outgoing, thoughtful, hardworking and omni-competent – their nation’s greatest resource.

 

Lucien Wulsin

Dated: 3/14/19

 

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