“Don’t cry for me Argentina” – Returning from Economic Disaster

This spring, the south American country named after silver once more defaulted on its debts. This is the ninth time since Argentina’s declaration of independence from Spain in 1816 that the country defaulted. While in the early twentieth century the country was among the world’s richest, a tumultuous century later the country’s economic development has earned it the dubious honour of being one the most famous growth disasters of the twentieth century. Peronism, a diffuse ideology sprung from former President Juan Perón and his popular second wife Eva Perón (subject of 1978’s musical Evita, from which this article’s title) has left deep ideological imprints on the country. Argentina emerged in 1983 from a political system in freefall, but how has the country adapted economically since then?

Looking back, the outlook was not always gloomy. Argentina emerged as a united country in the early 1860’s following a period as a confederation after the war of independence against the Spanish empire in 1810-20. Things were looking pretty good for one of the largest South American countries. The currency was fully backed by gold or foreign currency and the economic development between 1860-1929 constituted the Argentine Gold Age. For example, in 1913 it was the tenth richest country in the world in per capita terms, having the fastest growth rate in the world for the 43 years prior to 1914 and was richer than both France and Italy. 

Governed by liberal or conservative elements during the 19th century, Argentina’s first democratic election in 1916 saw the election of Hipólito Yrigoyen from the Radical Civil Union (UCR), a centrist social-liberal party. Less than fifteen years later, democracy was overturned by a military coup that marked the start of what was to become Argentina’s Década infama. This was in turn followed by almost half a century of political and economic instability.

Fast-forward 50 years, and no less than six military coups had been carried out. President colonel Juan Perón’s ideology Peronism had drawn Argentina into economic isolationism that cut the country off from development abroad. Military rule and fragile civil governments had replaced one another in quick succession. However, the loss of the Falklands War against the United Kingdom in 1982 sunk the legitimacy of the military once and for all. 

Civil government returned and marked the start of a 40-year period of unbroken democracy that continues to this day. It is, however, a 40-year period mired by trouble adjusting to a world that moved on after Argentina dissolved into unstable governments. 

For while the military was no longer a threat to the Argentinian government (made up of the UCR), the effects of decades of isolationist economic policy certainly were. Debt had tripled merely between 1978 and 1981 and would at the end of the decade amount to about 75 percent of GNP. In the period between 1975 and 1991, inflation averaged 300 percent each year – the cumulative effect being that at the end of the period prices were 20 billion times higher than in the start. Real incomes fell by 20 percent during the period and approximately thirty years of economic advances were lost. 

After the challenges of the 80’s, the left-leaning Justicialist Party (the largest of the Perónist parties) under Carlos Menem won the election in 1989 and oversaw free-market structural reforms. To increase competitiveness, government-owned companies (that had struggled to cope with the rough 1980’s) were privatized. The process of privatization was, however, suspected of being influenced by corruption.

The new policies did not manage to guarantee stability, with economic crises in both 1994 and 1998-2002 (caused in part by a fall in the price of agricultural goods and Brazil’s devaluation of its currency). The events proved a catastrophic strain on the economy and GDP fell by 20 percent between 1998 and 2002, while unemployment reached 25 percent and the government was unable to make its debt payments, defaulting on 100 billion dollars’ worth of loans in 2001.

The period 2003-2015 was markedly better, with growth fueled by a rebounding agricultural sector increasing its exports. Menem’s successor, Néstor Kirschner (also from the Justicialist Party) let public spending surge from 14 percent of GDP in 2003 to 25 percent in 2011. But with the expansive fiscal policy came inflation, which Kirschner attempted to prevent by imposing price controls – to no avail, inflation stood at twenty percent.

In 2007, Kirschner was succeeded by his wife Cristina Férnandez de Kirschner. She would come to face critique after official Argentinian statistics significantly underreported inflation figures and independent assessors of the inflation rate were threatened with prosecution. Private forecasts in 2014, when the government defaulted on its debts once more, put the inflation rate at just under 40 percent, which was among the highest in the world.

The election in 2015 , saw the victory of centre-right Mauricio Macri that was from neither of the two main parties (PJ and UCR). Reforms introduced fell short of their targets  and improvements to keep creditors at bay failed to materialize; Mr. Macri  had to negotiate a new repayment plan with the IMF. Mr Macri subsequently lost the following election and was replaced by the new head of the leftist Justicialist Party (PJ), Alberto Férnandez. The earlier president Cristina Fernandez de Kirchner (no relation) returned to government, this time as vice-president. Having reached the present, some of the most defining points in Argentina’s history have been highlighted below:

As for the debt, after falling from its peak of 166 percent of GDP in 2001 it has doubled between 2010 and 2020, from 43 percent to 89 percent of GDP. In May this spring, the government failed to keep up on a 500 million dollar interest payment on its loans and thus defaulted, now for the ninth time in the country’s history. This fall, another settlement with lenders was reached, but the future remains highly uncertain.

So, what will happen to Argentina? Can the country finally overcome its troubles? Is the tenth time the charm? How Férnandez’ government will address the problems that had accumulated already before covid-19 hit the country is unclear, but it’s not going out on a limb to assume there will be no easy days on the job. Hopefully, stability will be maintained and growth return. If not, Argentinian voters may need to find out if eleven is a luckier number than ten.

Rasmus Paulson