A poll in Argentina (CC Presidencia de la Nación)
There are only five months remaining of President Alberto Fernández’s (Frente de Todos) term. The numbers show soaring inflation that hit 108.8%, sinking the country into alarming levels of poverty, with 40% of the population below the poverty line. Four Argentine economists offer their opinions on the origins of the problem and the need to rethink the country’s economic policy, regardless of who wins the next elections.
On Sunday, October 22, Argentines will head to the polls to elect their next president. There’s a feeling of déjà vu amidst voters: talk of inflation has been the storyline for more than seven decades and hyperinflation is the ghost that could come back to haunt the nation.
The latest data from INDEC (National Institute of Statistics and Censuses) indicate that inflation in the country could reach 130%, while other studies show that 62% of the poorest children face food insecurity. Argentines will go to vote, once again, as their country grapples with yet another deep economic crisis. The classic tale of the interminable return to the polls with the hope that this time something will change.
What changed some years ago was the name of the opposition alliance led by Mauricio Macri, who came to the presidency in 2015 with the promise of carrying out the structural reform that the country needed to end its chronic stagnation. The Macri administration’s failures, the return of Kirchnerism with policies that only deepened the roots of the crisis that Alberto Fernández’s government has since exacerbated, begs the question: What happened? So that it doesn’t happen again…
A mammoth government
What’s going on in Argentina to bring a country that a century ago offered top projections for development based on its food and energy production capacities, to today’s alarming levels of poverty?
“The mother of all problems in Argentina is the creation of a gigantic government that no economy is capable of paying for,” explains Aldo Abram, economist and director of Libertad y Progreso, a public policy research center that’s been lobbying the values and principles of a Federal Representative Republic for 12 years in Argentina.
The origin of this model of an autarkic State goes back to the years following World War II. “While the developed countries were opening up their protectionist policies and benefiting from a phenomenal recovery in international trade, Argentina – already under Peronism – deepened its insular industrial growth, focusing on its internal market and discouraging all export incentives,” explains Martín Lagos, former Vice President of the Argentine Central Bank.
The protectionist policies introduced by Peronism have led to the economy’s stagnation
Seven decades went by, with varying forms of governments, but few changes were implemented to Argentina’s economic policy and the 1946 model introduced by Peronism. “The results are clear as day: soaring, uncontrolled inflation, and general stagnation that’s pushed the country backwards on all fronts, not only with respect to the most developed economies, but also to our neighbors, with shameful levels of poverty, and especially for the thousands of young people who emigrate or dream of leaving the country,” Lagos concludes.
World champions
The government model is not the problem; there are other countries which have gone the same route and are successful, according to Roberto Vassolo, professor of Economics at IAE Business School. “Our problem comes from the way in which we decided to finance this strong government presence, exerting maximum tax pressures on business profitability,” he clarifies. According to him, this pressure is so great that it goes against the very National Constitution itself, because one’s private property in Argentina, under “a redistributive system, leveraged by unions, and an overly powerful State, prevents by design any existence of a strong business sector,” he explains.
In his diagnosis, Vassolo satirizes the last World Cup that crowned Argentina victorious, and three previous wins before that: “We are the world champions in collecting taxes from companies, in inflation and labor regulations.”
“We have labor legislation that constantly disincentivizes”
Aldo Abram agrees –– according to the World Bank, the nation ranks 21st among 191 countries when it comes to corporate tax –– and says one of the most important battles that the next president must face is a labor reform: “We have labor legislation that constantly disincentivizes. More than 50% of Argentines who want to work were unemployed, in the informal sector or on unemployment benefits. And there are more than 67,000 regulations that suffocate the private sector,” he explains.
There’s consensus that Argentina must redesign its policies to break the inertia of its stagnant economy. The current system that squeezes taxes from companies has created a growing informal market. And while this market has created new jobs and gives the formal economy a slight breather, it comes with its own limitation: without official billing, access to credit or the banking system for many is impossible. Paradoxes of a model that’s touted for safeguarding companies and creating formal work.
The “divide” excuse
“La grieta” (or “the divide,” in English) is another long-heard mantra that rings in the ears of Argentines getting ready to vote in October. It’s the expression popularized by the media to refer to a long-standing division: Peronists and anti-Peronists.
Time gone by, crises and conflicts have loaded the term “la grieta” with meaning to such an extent that it seems to be uniting Argentines in a shared hope: to end the division and solve the structural problems that are breaking the country.
“La grieta,” though, suits those who are not willing to take on the political feat of leading the deep reform that Argentina so needs. According to Vassolo, herein lies the key to understanding the failure of the Macri administration: “His mistake was his impatience, not willing to face the challenges that come with change and falling into polarization between former President Cristina Kirchner. Politically, polarization worked for him, but not for the markets.”
As for Martín Lagos, he points out that the Cambiemos government was quickly faced with pressing issues such as the unification and liberalization of the foreign exchange market, resolving the remaining conflicts of the 2002 default, and readjusting energy and electricity prices. In turn, he believes that when it comes to other areas such as the reduction of public spending, the fiscal deficit and reduced protectionism, the path Macri took was too slow. “In 2018, Argentina had once again exhausted foreign credit, and despite the help received from the International Monetary Fund, the improvised adjustments that Macri was forced to make led to Alberto Fernández’s 2019 victory.”
A gradual approach or an economic shock?
As of December 10, when the new president takes office, an opportunity will open for Argentina to abandon what Aldo Abram defines as an adolescent culture, rooted in “caudillo-like tradition that leads us to delegate responsibilities and expect everything from one candidate.” According to Abram, the current political landscape shows signs of a maturing democratic system. The opposition is divided, even within the Cambiemos alliance, but they share a common diagnosis of the underlying problems the country is suffering from, and this makes the possibility of a serious reform more likely and sustainable.
There is consensus that Argentina needs profound change, but not on the speed at which it should be carried out
Juan José Llach, an economist and sociologist, and former Minister of Education, does not hesitate in affirming that the next administration will have to use economic shocks to help the country’s growth, and sees the opposition candidates running on different platforms regarding the pace at which to carry these shocks out .
Within the Cambiemos alliance, Patricia Bullrich looks the most determined candidate to immediately apply a shock policy to halt inflation, while Horacio Rodríguez Larreta’s approach is more gradual, perhaps too gradual, according to Llach. On the opposite end of the spectrum, we have Javier Milei, from the La Libertad Avanza Party: “His plan is ultra-shock, because he wants to dollarize the country and that’s something that Argentina is not in a position to do. First, we need to reduce spending and increase returns.”
Since President Alberto Fernández announced a month ago that he would not seek re-election, his party, the Frente de Todos, has shown itself to be increasingly undecided: without a candidate, without a plan and leading the country into an abyss, it’s hard to imagine that Kirchnerism will carry over after the next elections.
On August 13, the PASO (Open, Simultaneous and Mandatory Primaries) will take place, whereby the definitive candidate of each party will be elected. A large electoral survey that helps the government gauge the political scenario and the immediate future of the country.
“Argentina is suffering the labor pains of taking itself in a new direction,” Aldo Abram says, and with similar realistic optimism, Martín Lagos believes that the more hard work put into 2024, the better the following years will be.
Translated from Spanish by Lucia K. Maher