Argentina’S Permanent Crisis

2021-02-27   |   by CusiGO

Argentina’s economic activity collapsed in the crucial year 2020. Official data show that if the disaster in Venezuela is excluded, the economies of the African continent and Peru will shrink by 10%. In 2002, when Argentina collapsed, the decline was slightly higher: 10.9%. Inflation is high (up 38.5% in the past 12 months), the currency continues to depreciate, the central bank reserves are less than $3 billion, and four out of ten Argentines live in poverty. The macroeconomic situation is very worrying.

However, Argentina is used to bankruptcy and recovery and relative decline. Since 1921, a whole century ago, when it was one of the richest countries in the world (at that time, the per capita GDP was equivalent to the GDP of France or Germany), its annual average inflation was 105%, and it was forced to change its currency five times: the peso national currency before 1969, the peso law before 1983, Argentine Peso to 1985, southern Peso to 1991, current peso. Since 1980, it has suspended its foreign debt repayment five times (no one in the world can compare with it). At present, it is a major debtor of the International Monetary Fund (IMF), with us $44 billion to repay.

In December 2019, when Alberto fern á ndez, a Peronist, became president, the situation was very bad. Argentina defaulted again and fell into recession for three years. A few weeks later, the epidemic broke out. Economy Minister Martin Guzman had to fight on two fronts. On the one hand, it renegotiated its debt with private creditors at long telematics meetings, delayed payments, and slashed interest rates. It means rest. Now, he’s trying to get the IMF to agree to postpone the repayment.

On the other hand, it seems more complicated: how to subsidize enterprises and citizens affected by the coronavirus epidemic? Unable to access the credit market, Martin Guzman had to turn to pure money manufacturing. In 2020, the central bank issued more than 1.2 trillion pesos (the printing houses in Brazil and Spain are employed because the two Argentine money factories have been working 24 hours), and there is a risk of rising inflation. It’s like something happened. In January last year, prices rose by 4%.

Still, the country is operating. Galfione Y C í a, a textile company founded by Hugo galfione in 1947 under the leadership of Juan Domingo per ó n, is a good example of continuity in the face of all the difficulties of the past and the present. Luciano galfione, Hugo’s grandson, is today the director of the company. The galfione family has overcome almost unimaginable conditions, such as hyperinflation or the post-2001 barter phase. Luciano galfioni pays 150 paychecks a month, runs three factories and lives on the domestic market.

The domestic market is one of the key factors that make it difficult for Argentina to maintain sustainable growth, which partly explains the huge inflationary pressure: Argentina’s economy has little connection with international trade. Compared with Chile, Chile has a population of 19 million, while Argentina has a population of 440000, which is enough to reflect this phenomenon. Chile’s exports are about US $500 billion and imports are about US $600 billion; Argentina’s exports are slightly more than US $60 billion, mainly grain and meat, with the same import volume. “Look at how rich this country is, it can resist the Argentines,” merchant galfian joked In 1984, when Argentina got rid of its most terrible dictatorship, Nobel laureate Paul Samuelson (1915-2009) did not jokingly express a similar view: “Argentina is a typical example of an economy, and its relative stagnation does not seem to be the result of climate and ethnic division, Malthus is poor or technologically backward. It seems that it is their society, not their economy, that is sick. ”

Alberto fern á ndez’s Peronist government believes that the last government of the liberal Mauricio Macri (2015-2019) is responsible for the current crisis. In fact, in 2018, the peso depreciated by 40%, and the huge loans from the IMF disappeared into desperate fiscal deficit hedging and speculative trading (most of the $44 billion eventually went overseas or to the safe); When the primaries in August 2019 found that Peronism would return to power, the stock market plummeted, the peso devalued by 38%, and exchange rate control (the so-called “trap”) had to be reestablished to avoid collapse. But mcchry inherited serious problems from her predecessor, Cristina fern á ndez de Kirchner.

“This is the sum of a crisis,” said Diego Sanchez anchochea, a professor of political economy for development at Oxford University. “Argentina never got out of the crisis: it increased its debt in the 1980s, tried to solve the problem through privatization in the 1990s, and then through exchange rate crises in 2001 and 2002. A quiet space was created, but the structural problems were never solved. Crises come back because they never disappear. ”

The local crisis is the weight crisis. Decades of high inflation and currency erosion, coupled with the trauma of “coralito” in 2001-2002 (Argentines could not get bank deposits for almost a year, and when they were able to do so, they found that their dollar savings had become devalued pesos), They made Argentina a dual currency country. For example, prices in the real estate market are in dollars.

“The dollar is no longer a variable, but a thermometer reflecting economic and political development and a saving tool,” said Marina luzzi, co-author of El dollar history of Argentina monetary with Ariel wilkis. Argentina has never received as many dollars as it needs, so, according to Luzi, foreign exchange controls (individuals buy no more than $200 a month) are necessary. The disappearance of tourism aggravates the lack of green tickets. The problem is so serious that high-end cars and expensive distilled spirits have been banned.

Argentina has failed to overcome the historical contradiction of its agriculture. Agriculture is a huge producer of US dollars and highly competitive in the international market. Therefore, it supports free trade and its industry, At least from the beginning of peron’s first term (1946-1955), it operated under a kind of protectionist and almost autocratic logic, which can be summarized by a Peronist’s repeated words: “live with us”.

“Argentina suffers from a unique form of agricultural raw material curse,” explains Douglas Southgate, a professor of Latin American Studies at Ohio State University. Its agriculture has a strong comparative advantage, employs few workers, and the best rural land is concentrated in relatively few hands. As a result, the sector is a tax target designed by politicians employed by voters in other sectors of the economy. Taxation of Argentina’s agriculture has led to long-term poor performance of the national economy, including frequent and serious crises. ”

In fact, directly or indirectly, Argentina employs more than 2 million people in rural areas, accounting for 14% of the workforce and only 10% of GDP. Its real strength, and the root of its conflict with Peronism in taxes and withholding taxes, lies in its competitiveness: for every $10 that goes into the country through exports, $7 goes to agriculture. Without the export of agricultural products, foreign exchange will hardly flow in.

Calvion, the entrepreneur, has his own views on this matter. “My grandfather Hugo, the founder of the company, used to work in Santa Fe’s playground, the most expensive and productive area, Polo sojero in Argentina. In 1947, he said the future was industry. He sold all his land in Santa Fe and came to Buenos Aires to build a sock factory. If I see my grandfather today, I’ll shoot him five times. But really, this is not a wrong direction, because no developed country is not an industrial power. ”

The problem is that Argentina has never been an industrial power. He made a big bet on import substitution policy, starting to produce all kinds of goods in the mid-20th century, so that he didn’t have to buy them abroad. This is the approach proposed by the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) to the entire African continent for economic development, trade balance and current account balance. Argentina’s industry was encouraged and protected until 1976, when the dictatorship broke the policy. “Industrial logic died with milicos,” Luciano galfioni said.

In 1976, when the world suffered from the oil crisis, Argentina’s GDP reached 51 billion US dollars. South Korea, 30 billion. Today, Argentina’s economy “weighs” more than $80 billion. South Korea (half a century ago, South Korea accelerated the process of industrialization due to almost slave working conditions and exchange rate manipulation) weighs US $1.4 trillion, which is an export phenomenon.

What happened in Argentina? Galfione, an entrepreneur who tried to launch a nanotechnology project in 2016 to produce yarns with special crystal structures that can resist heat, insects or bacteria, explains this. He needed public assistance, but he didn’t get approval from the makeri government. “I don’t have a machine that is worse or better than anywhere in the world. My productivity is on a global scale. But they killed my cost. Sales in China or India are lower than the cost of raw materials. I’m cheaper than Italy or Spain, but they’re already made in the East. ”

Other issues related to energy and transport prices are also increasing: “logistics costs are huge. It’s cheaper to transport containers to China than to transport trucks from catamaka. ” The result is a dense industrial cluster, but on the whole, it can not be measured with the industries of other countries. If there is no external competition, because they hardly care (tariffs are high), their products tend to be mediocre. High tech capabilities in very specific sectors (genetic engineering, nuclear power, pharmaceuticals) are not enough to raise the average level, and brain drain continues.

“The lack of consistency in macroeconomic policy is a fundamental problem,” said n é stor Castaneda, a professor at Central University in London and a member of the Inter American Institute. “The structure of production is very unbalanced and requires external sources of capital. It all depends on the external currency. Whenever Global trade shrinks or foreign investment inflows decrease, there will be a reserve problem. There is no way to solve this problem. On the one hand, Argentina’s default on payments limits its access to the capital market; on the other hand, there is a lack of coordination among exchange rate, fiscal and monetary policies. It grew for ten years, then it fell down again, back to the starting point. ”

The 1980s are generally regarded as the “lost decade” of Argentina’s economy. With the end of dictatorship, Raul Alfonsine brought democracy, but hyperinflation followed. In the textile mill, Luciano galfioni’s father did not balance by weight, but by kilogram, because it was impossible to know the value of the product. However, considering the development of macro-economy, although money was easy in the 1990s, President Carlos Menem’s peso was equivalent to one dollar at that time, although n é stor Kirchner’s golden age (2003-2007) was not easy, Argentina has lost decades of growth in the context of low inflation due to harsh health conditions and rising soybean prices caused by the collapse of 2001-2002.

Economist Martin rapetti estimates that Argentina’s per capita GDP today is almost the same as it was in 1974. Inequality between the rich and the poor is even more serious. Nearly half a century of losses. In an interview with the trumpet, liperti made a pessimistic forecast: it is impossible to expect Argentina’s economy to grow by 6% in 2021, and then continue to grow at an uninterrupted rate of 4.5% a year. The living standard in 2011 will not recover until 2027.

Working with Mar senera, Federico Rivas Molina and Ignacio FARIZA

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