Arresting Argentine Decline

Argentina has more natural resources per person than any other major economy in the world. It is almost the size of India, yet has to share that land with just 43 million inhabitants compared to the 1.3 billion in the Asian giant. In particular its agricultural land, unconventional oil and gas fields and its mineral deposits stand out as world-class commodity assets. If Argentina’s natural assets were managed in a fair, sustainable way they would make its people among the richest in the world, while also providing the capital for Argentina to develop other industries.

Unfortunately Argentina spent most of the last century embroiled in bitter political dispute, while the economy was chronically mismanaged. As a result, today Argentina imports energy, exports less beef than Belarus and is a mining minnow. Its manufacturing and technology sectors showed promise, for example Argentina made aeroplanes and nuclear power stations, but suffered from constant inflation, dramatic exchange rate contradictions and insufficient local investment.

If Mauricio Macri is to really herald in a new era in Argentina, he will have to address many of the same problems that his predecessors have struggled with for the last decade.

End of the golden age

In the early 20th century, at the very height of Argentina’s golden period, when it was the world’s tenth-richest nation, the underlying problems were already becoming apparent. The economy was driven by agricultural exports, most of which were produced by major landowners. This rural elite, combined with their trading peers in the large cities, controlled Argentina’s political system. Yet by 1910 the majority of Argentines were poor, urban workers, most of whom were Spanish or Italian immigrants and brought with them anarchist activism from Europe. A series of protests led to electoral reform in 2012, which created universal male suffrage.

“Over the next few decades economic policy swung on a pendulum…”

It signalled the end of the old order and now the agro-mercantile elite had to share power with the middle and working classes. Over the next few decades economic policy swung on a pendulum – at times offering concessions to the working classes before swinging back to favouring the exporters. The basic problem was that any concessions to the working classes had to be paid for by the country’s main revenue – agricultural export earnings. So when times were good there was enough money to do that, but when prices fell the government felt it had to protect its only economic driver. The lack of balance created economic uncertainty but it also angered both sides of the political spectrum.

The impact of the Wall Street Crash, and the subsequent political discontent led to Argentina’s military first coup d’etat and intervention in politics. The governments that the military connived to keep in power actually did a decent job of shielding Argentina from the worst of the global economic crisis, yet a worrying precedent of Army involvement in politics had been set. Another trend that became apparent was the growing antipathy of the middle and working classes towards the flood of international, mostly British, investment. It established a notion that international investment was invariably a stitch up between foreigners and local elites that endure until today.


In 1943 another military coup installed a young colonel, Juan Domingo Perón, as Minister for Labour. He set out his stall with virulent attacks on the two beneficiaries of free trade – the agricultural elites and the international investors. He also adopted a pro-union approach that was to save him later on. When other members of the military jailed Peron in 1945 a mass protest by the unions forced his release and he subsequently swept to power in the following year’s elections. The incident showed the power of the street and explains why, even today, Argentine presidents get so nervous when mass protests approach the Casa Rosada.

Combining elements of socialism with nationalism was a clever way of guaranteeing support of Argentina’s biggest constituency – the working class. However, it created inherent contradictions in Peronism that still impact the movement today. As Professor Edwin Williamson, notes in his History of Latin America, “this was to give Peronism a hybrid, not to say schizoid character, which would contribute to policy incoherence and internecine feuding, thereby preventing the movement from generating a truly unifying vision of national destiny.”

“This was to give Peronism a hybrid, not to say schizoid character…”

Perón got off to a good start, with buoyant food sales to post-war Europe fuelling a boom in export earnings that allowed him to pay of the country’s national debt, nationalise telecommunications, ports and railways, subsidise local industry and launch welfare projects. He also brought agricultural exports, although not production, under state control. However, the good times were short-lived. Subsidised US grain started to take share from Argentina in Europe, while the agricultural elites tired of his price controls and cut production. Without its main export earning the Argentine economy went back into debt while inflation and unemployment rose. Crucially industry, despite the help it received, had proved unable to take some of the economic burden from agriculture. So, like many of the governments before him, Perón completed a volte-face. He imposed an austerity package on workers, courted international investment and reduced protection for local industrialists.

The about turn wasn’t enough to save Perón, who was eventually removed by yet another Army coup in 1955, yet it highlighted the need for Argentina to find a balanced way to manage its natural resources. Many of his unorthodox economic measures, and their subsequent failure, would be repeated by Cristina Fernández de Kirchner in the 21st century.

Post Peron

Perón might have been gone – he was living in exile in Spain – but the state he created remained. As Williamson puts it: “The state bureaucracy served a vast array of government monopolies and nationalised industries, which consumed huge amounts of public money and remained geared politically to satisfying urban political interests regardless of the nation’s overall economic performance.” It meant that the state was set up to produce budget deficits, trade imbalances and chronic inflation.

Anyone trying to fix that state would come up against another Perón legacy – his movement was incredibly popular. In the years following his exile the military excluded Peronism from the limited democracy that existed. But that created the lack of political legitimacy that even the agro elites at the beginning of the century had realised was unsustainable. So, various attempts were made at allowing the Peronists to return. Yet, much to the military’s chagrin, every time Peronism was allowed to compete in an election, it won convincingly.

Eventually Perón was allowed to return. But, a shadow of his former self, he was unable to deal with the splits in his movement before he died halfway through his term. He was followed by a brutal military dictatorship that proved as incompetent in managing the economy as it was cruel in murdering its own people. The dictatorship essentially faced the same challenges of all the governments before it. Modernising Argentina’s economy invariably meant inflicting pain on various interest groups and, with a lack of a national consensus, this was implemented by force. Defeat in the Falklands War, itself an attempt to garner nationalist support ahead of more privatisations, led to the end of military rule.

“Since then Argentina has clung admirably to democracy…”

Since then Argentina has clung admirably to democracy. Yet its economy has broadly followed the same patterns. A period of orthodox economic policy from Carlos Menem – a Peronist who surprised everyone once he came to power – was let down by a disastrous decision to peg the Argentine peso to the US dollar and the obscene levels of corruption surrounding the privatisations of state assets. When commodity prices began to fall, so too did the Argentine economy. Exacerbated by the dollar peg, Argentina suffered its worst economic recession in its history, while its $80billion default was the world’s biggest at the time.

In the first part of the 21st century the successive, Peronist governments of first Nestor Kirchner, then his wife Cristina Fernández de Kirchner, enjoyed sustained economic growth. However, towards the end of Fernández de Kirchner ‘s rule she employed a number of unorthodox economic policies straight out of Perón’s playbook. Just like him she found that when commodity prices fell there was no amount of intervention that could get the economy moving again.

When Macri came to power he immediately took measures to reduce some of the unorthodox economic controls that had been established by his predecessor. However, just like Perón’s successors in the 1950s, he has had to move cautiously to avoid inflicting unnecessary pain on sections of society that are dependent on various subsidies. His recent electoral victory gives him a mandate to enact further reforms. Moreover, the fact his coalition holds all five of Argentina’s largest voting districts suggests that he has a national consensus for reform that eluded so many of the country’s presidents over the last 100 years. If the recent signs of economic recovery hold, and Macri wins re-election in 2019 he has a real chance to finally arrest Argentina’s decline.