Re: More on Argentina

["Charles Jannuzi" <jannuzi@xxxxxxxxxxxxxxxxxxxxxxxxx>]

I wouldn't emphasize the dependence on canned meat and weetabix exports as
very explanatory. Of course it might have helped had Brazil also not been
such an agricultural producer.

Even if Argentina hadn't kept pace with Australia, it offered a fairly high
standard of living as of the 1960s. Argentina, btw, is a significant
exporter of agricultural commodities to Japan, but Japan's shifting more
business its way to benefit it would upset the rickety, politicized trade
cart policy vis-a-vis that food superpower, the USA (the USA is over 120%
self-sufficient in food production, clearly an overproducer).

Next, consider what was written in the late 80s about Argentina
(Multinational Monitor  is an excellent publication, with many articles
archived online, though I have to seriously consider a subscription):

http://multinationalmonitor.org/hyper/issues/1988/01/mm0188_06.html

Argentina's Embattled Economy  [Note well, this is a 1988 article)

BUENOS AIRES, Argentina--According to economist Javier de Villanueva, "If
there isn't a way to grow out of the debt, then there's a problem."

In Argentina, where per capita income has been eroded to 1960- era levels,
there is a problem. In 1987 people showed their growing discontent with the
government of President Raul Alfonsin in the September elections. Alfonsin's
party, the UCR (Radical Civic Union), which started out with a broad base of
support, suffered a grave setback in the elections when Peronist candidates
gained enough congressional seats to end the UCR's control of Congress.

Critics of the government, pointing to monthly inflation rates above 10
percent, assert that the government's Austral plan to control hyperinflation
by controlling prices and wages has failed. Each week there are strikes and
rumors of strikes as disgruntled employees in all segments of the economy
express their dissatisfaction with the state of the economy.

Argentina, with its well-developed economy, infrastructure and social
service system, is not a stereotypical impoverished, "Third World" debtor
nation struggling to provide essential services for its citizens. Indeed, a
visitor to Argentina could be forgiven for thinking that Buenos Aires was a
West European city. But no West European city has a black market for dollars
where one can receive 50 percent more for a dollar than the official
exchange rate. The economy's hunger for dollars, along with the strikes and
the demonstrations in the streets, reveal that Argentina, despite its
relatively mature economy and society, struggles with the debt problem as
much as any other debtor nation. What makes the economic problems of
Argentina even worse is the fear that the military will seize power once
more if the democratically-elected government cannot take the political and
economic measures necessary to ease Argentina's woes.

Experts in academia, government and finance all agree that there is a
problem with Argentina's economy. They are, however, baffled when it comes
to proposing a solution. The essence of Argentina's economic woes lies in
the sluggish economy's inability to generate sufficient activity and
surpluses to produce growth and hard cash. "The country wants to pay its
debt," said Villanueva, who works at the Instituto Torcuato DiTella. "It
always has. But there is a growing preoccupation about our ability to do so.
Our democracy has to cut the deficit and reduce spending, but that means
cutting wages, and that's what produces strikes."

Some critics argue that Argentina's problem stems from excessive government
involvement in the economy (45 percent of the GNP comes from
government-owned companies). They point to the fact that the government
bureaucracy has produced an underground economy that is so large that the
official economic statistics account for only 60 percent of the country's
actual GNP. These critics argue that "privatization," the sale of government
assets, is the only way to get the country growing once again. "The central
issue in this controversy," according to Villanueva, "is the restructuring
of the state in a form that will be acceptable to the unions." At this
point, however, the unions appear opposed to restructuring.

Carlos Rodriguez, an economist at an economic consulting group, CEMA, is one
such critic. He blamed the government for not taking stronger measures to
increase the economy's surplus. "The government uses the debt as a whipping
boy. They blame all of the country's problems on the debt, but the situation
is not as bad as they say. The real burden is the trade surplus: our $70
billion economy is generating a $1 billion surplus. The economy, if
privatized, could generate a $4 billion surplus, but that is a political
impossibility." The deterioration in the balance of payments, plus the
public debt and tensions created by the Austral plan will, Rodriguez
predicted, result in a rollover of Argentina's debt by mid-1988. "By then,
Argentina must get fixed interest rates and a cut in the principal to get in
line with reality."

Jose Luis Nicolini, an economist at the Finance Ministry, reflected
criticism of the Austral plan and proposals for privatization as simplistic.
Such radical changes, he maintained, "would not take Argentina anywhere.
Calls for privatization are a signal that something has to be done because
as it is now, the problem has no solution. But they are not the appropriate
responses." Nicolini defended the government' s handling of the economy and
predicted that the government could continue to work toward a negotiated
solution with Argentina's creditors.

The director of a money center bank's branch in Argentina also expressed
dismay about the current political and economic situation in Argentina.
"Alfonsin missed an opportunity with the Austral Plan because he didn't
reduce the state's role in the economy." While he freely acknowledged that
banks erred in the 1970s by trying too eagerly to recycle petrodollars
through liberal loans to Latin American countries, he also maintained that
there is more than enough blame for the debt crisis to go around. "No one
expects the debt to be repaid in full," he said. "I do hope, though, that
Argentina can generate dollars to pay interest on its debt in a free market
system. There wouldn't be any discussion in Argentina about the debt if the
country could continue to pay interest, but even this is stopping."

The banker was especially critical of the government's involvement in the
economy. "It's time to give employees more of a share in the company."

At this point, the banker was at a loss for solutions, and he expressed a
sentiment that has overtaken many people in Argentina: "Everyone wants to
keep the system going, but a fatigue has set in. Nobody has been able (in
the past five years) to change things." Nobody can avoid concluding that
Argentina cannot pay.

-J.C.