The Enigmatic Economics of Argentina

An oft-cited bit of wisdom in the field of international economics is a quote by Nobel laureate Simon Kuznets, who argued that there are four types of countries in the world: developed, underdeveloped, Japan, and Argentina. For decades, the case of Argentina has confounded economists, political scientists, and observers of international politics alike. A pendulum has swung from liberal democracy to military dictatorship and back, overseeing rapid transformation from late 19th-century growth to 20th-century depression and hyperinflation. Once thought to challenge Brazil for regional primacy, Argentina now more closely resembles a boomerang. When Argentines went to the polls on October 27, they voiced their displeasure with the center-right regime of Mauricio Macri and declared that the boomerang will come back again in the form of president-elect Alberto Fernandez. With mounting anti-democratic, right-wing populism on the rise in Peru and in power in Brazil and countervailing anti-corruption movements sweeping the region, establishing sound democratic and economic institutions is as crucial as ever if Argentina is to be spared from the same fate of turmoil. 

A Short History of Argentine Economics 

In the early 1900s, the future of Argentina appeared promising. Just this mere century ago, Argentina rivaled an upstart and industrializing United States, as both rode the first wave of globalization in the 20th century. Its economy, facilitated by livestock exports to Europe and the labor of immigrants from Europe, entered World War I among the ten largest in the world, and its average per capita income was vastly superior to that of Italy, Portugal, and Spain. The idea that the Argentine economy would see anything less than an absolute boom given its potential at the time would seem to have been unbelievable. 

Yet the economy is worse off today than it was in 1913. While the early 1900s were a tremendous time to be a farmer in the Americas, it would not last forever. When the United States followed the British model of industrialization, it was set up to take advantage of the new economy while its Argentine counterpart, still dependent on borrowing foreign cash to distribute beef to foreign markets, was not. As soon as 1930, meat exports to continental Europe had decreased by two-thirds from their 1924 level. 

The Great Depression further exacerbated things. Between 1929 and 1932, the country’s gross domestic product (GDP) fell by 25 percent. Yet the elite political class in Argentina, with its deep distrust of government intervention in the market, refrained from taking the dramatic social-democratic actions that were undertaken by American president Franklin Delano Roosevelt and the economy continued its decline. 

The controversial reign of Juan Perón presented a mixed bag for Argentina later. From 1945 to 1955, the Perón administration nationalized key industries, such as the Central Bank and the railways, and instituted generous social welfare policies. Inflation rose and persisted, averaging 26 percent from 1944 to 1974, but the modest GDP growth the country experienced during this time was quite well-distributed. Enforcement of minimum wage laws and the expansion of health insurance programs led to increases in real wages and the development of the largest and most unionized middle class in South America at the time. By the time the military dictatorship of 1976-1983 left office, the labor rights instituted by Perón were wiped out and the anti-democratic behaviors he engaged in were further legitimized. 

What followed over the next few decades was a period of neoliberal, market-based reforms that focused on opening Argentina to the global economy via agricultural exports and drastically reducing spending in accordance with the recommendations of the International Monetary Fund (IMF). Each time this path was undertaken, the results were disastrous, with foreign debt accumulating and increased poverty and unemployment. The worst of these crises came in 2001; after the economy contracted by 15 percent in less than two years, more than half the population fell into poverty, and the country defaulted on almost $100 billion in foreign debt. 

The election of Macri, a businessman and former president of legendary football club Boca Juniors, energized conservative hopes for economic recovery. Yet as his presidency comes to a close, it is evident that no such economic recovery manifested. Even after he instituted market-oriented reforms, anxiety among foreign investors mounted, and ultimately, foreign capital dried up. He piled on foreign debt and sought the largest bailout in the history of the IMF, some five times the size of the package approved to stave off economic collapse in Egypt. With budget cuts constricting economic growth and equality, GDP is expected to decrease by three percent while the very inflation he sought to curb has increased to over 55 percent, a higher number than any other country in Latin America besides Venezuela. Furthermore, Fitch, one of the Big Three American credit rating agencies, changed Argentina’s credit rating from B to CCC, indicating a significant increase in financial precarity. Once a safe bet for economic development, Argentina is now in full free-fall. 

Persistent Challenges: Corruption and Weak Institutions 

At the root of Argentina’s economic issues are its struggles with corruption and unstable democratic and economic institutions. Declining faith in government and institutions like the central bank and the judiciary have sustained the country’s state of crisis. Despite the common umbrella of Peronism, the members of the political movement were fiercely divided. Perón himself deemed left-wing Peronists immature and enlisted his right-wing guerrilla allies to target them. This manifested in the fascist Minister of Social Welfare Jóse López Rega forming the Triple-A alliance, a far-right death squad that carried out acts of terrorism against moderate and left-wing opponents of the regime. Furthermore, in its later days, the Perón regime began detaining people indefinitely without a trial, a drastic shift in human rights in Argentina. With dissent stifled and liberal values like human rights cascading off the Argentine political map, faith in democracy reached a low point. This would be exacerbated by the U.S.-backed military coup that installed a military dictatorship from 1976 to 1983. While approval of the military and more independent civil-military relations was previously high, the human rights abuses (torture and forced disappearances) carried out by the military during the period known as the Dirty War (or the “Época de los desaparecidos”) resulted in a decline in approval of these hallmarks of democratic states and democracy itself. But broad disapproval of liberal values alone does not explain the instability and lack of sufficient development in Argentina. Corruption continues to be a major issue impeding development. Nowhere is this more evident than in the judiciary, which is independent of both politics and outside interference in name only. Odeberecht, the Brazilian construction company in the midst of a multinational bribery scandal (including an estimated $35 million in bribes paid in Argentina, including donating millions to Macri’s campaign), has faced almost no legal recourse. When state-owned enterprises were privatized in the 1990s by President Carlos Menem, fraud and kickbacks were an open secret. Yet today, Menem is a legislator, not a prisoner. Impunity is the norm rather than something that is to be avoided. 

Declining faith in the judiciary is yet another lightning rod that amplifies the class conflict in Argentina. When powerful politicians and multinationals get away with committing fraud and bribery, it sends a message to ordinary civilians that the elites will always win, a message the Argentine people are all too familiar with. The legacy of politicians more concerned with an ideological crusade against socialism than supporting their citizens during a global economic depression looms in this regard. The chief factor holding back the independence of the judiciary and corruption reform is a poorly-designed plea bargain system. The 2016 law reforming the plea bargain system regrettably limits cooperation agreements to a small group of crimes, excluding such important and major crimes as criminal fraud. Cooperating witnesses are also rewarded only for evidence related to the case in which they are charged, though they may have evidence of unrelated crimes. These pointless restrictions make responsibly prosecuting corruption next to impossible and they must be dropped if Argentina is ever going to establish a viable liberal democracy for, by, and of the people. The central bank is another issue of institutional credibility. Turnover has plagued the institution, thereby inhibiting its consistency in monetary policy. It has had 23 different presidents in 36 years. Furthermore, even as most central banks in Latin America enshrined independence from the federal executive branch into their central banks during the regional hyperinflationary crisis, Argentina resisted the trend. Macri’s own selection for chair of the central bank blamed the current economic struggles on government interference in monetary policy. 

Argentina was once a rising economic star on par with the United States. Yet the downward trajectory of Macri’s political career is all too familiar to the Argentine people, who have spent the last half-century constricted by austerity and an insufficient social safety net while their elites escaped accountability for their misdeeds. Their frustrations were heard in the election of Fernandez and maybe, just maybe, their concerns will be reflected in the new administration’s policies. 

President Bukele’s Firm Rule: When Being Authoritative is Expected of You

When Nayib Bukele was sworn in as president of El Salvador on June 1, 2019, he knew he had a huge burden. He became a leader of a nation struggling with poverty and extreme gang violence. Of course, Bukele did not come into this position unprepared. He is prepared to continue tackling corruption and stabilizing the economy, a mission he began as a mayor of San Salvador, El Salvador’s capital, where he stood behind many urban development projects. His campaign was also unique and promising. Instead of engaging in traditional presidential debates and going on tours around the country, he chose to use social media like Facebook and Twitter to reach as many people as possible. Indeed, this approach gave him a large platform, making him the first president in the last 30 years to not come from one of the two parties associated with the civil war that occurred during the 1980s. No other president since the turbulent era of the civil war has had such an overwhelming majority in the polls; Bukele reached 53 percent. Bukele’s populist campaign, overwhelming public support, and belief that every citizen of El Salvador deserved security, parks, and a reliable income sounded like a dream come true to many individuals. More importantly, Bukele has been able to follow through on most of his promises by making a robust anti-corruption body, mercilessly combating the violence and horror brought by gangs, and strengthening ties with the United States (U.S.) and the Organization of American States (OAS). However, all of this was done through very firm, authoritarian-esque actions, which, though they seem to come from the best intentions, may easily push El Salvador into yet another dictatorial era.

Corruption is one of the strongest underlying issues within the Salvadoran government. There is a lengthy list of past presidents accused of corruption, with notable examples including Elias Antonio Saca who, as Al Jazeera observes, is still jailed serving a 10-year sentence for corruption, as well as an additional two years due to bribery during his court proceedings. Furthermore, Mauricio Funes, his successor, is in exile in Nicaragua due to corruption charges, which proves that El Salvador has faced substantial governance issues. As Bukele himself noted, things cannot get much worse, and striking down the ridiculous corruption levels must be a priority. Interestingly, Bukele has already involved the OAS in his effort to combat corruption in El Salvador. As the Americas Society/Council of the Americas explains, the executive branch of the Salvadoran government, in partnership with OAS, created the International Commission against Corruption and Impunity in El Salvador (CICIES), which will operate in a similar manner to bodies in both Honduras and Nicaragua and aims to include international efforts to stop corruption within the highest levels of government. While this will surely shed light on current malpractices, a United Nations (UN) High Commissioner for Human Rights has tweeted concerns about the fact that no journalists or media outlets were allowed in the room where the agreement was being signed. Additionally, Bukele has yet to involve the UN as a larger, more international body in the process, although this is certainly not a required step in the process seeing as how Bukele’s choice to involve the OAS is already a significant step considering the country’s governance history. Thus, while there are important steps being made, there are also some fairly concerning aspects regarding transparency and engagement given that the press and the UN are not as engaged in the agreement process.

Furthermore, there were similar trends of effective, determined actions taken by the president as he was arranging and rearranging key officials. More specifically, Bukele has fired a significant number of officials through Twitter. These are all relatives of the previous presidents, most notably Claudia Sanchez Villalta, daughter of former president Sanchez Ceren, which shows that the president is battling nepotism very well. However, the fact that all of these “orders” have been given out over Twitter and during the first week in his office could be red flags that the president’s office is preparing to normalize these sudden changes. If this is the case, then such actions can result in the banning of opposition and even more authoritative actions. Considering that he is barely past 100 days into his presidency, it would be difficult to predict the outcomes, but one can see that he is ready for bold strategic steps, which both aid the realization of his revolutionary projects and require independent decisions on his part, allowing him quite an authoritative position. 

Finally, there is the infamous problem of gangs in the country, and Bukele is as determined and effective in this field as in others. He has installed, as AS/COA notes, a $31 million Territorial Control Plan, which has awakened a greater sense of security among the population. While El Salvador rarely sees a day pass without a homicide, there is a slow but steady decline in the average number of homicides per day. This trend may not be related to Bukele’s administration alone as it has been ongoing since 2016, meaning that there is a greater chance that it is related to gang truces and gang behavior independent of the administration or police action. In any case, the fact that the public feels safer and that there are more patrols on the streets makes Bukele’s decision worthwhile. 

Continuing with this trend of taking bold action, Bukele has also appointed Mauricio Arriaza Chicas as the new director of the National Police. While Arriaza Chicas largely contributed to the revival of the armed forces post-civil war and is someone who is capable of getting the job done, it is worth noting that he is also accused of procedural fraud and human rights abuses. This naturally brings concerns as to how Bukele’s strict policy with gangs is going to play out. Given that gangs are born out of violence and that previous aggressive policies, such as Franciso Flores’s “Mano Dura,” have resulted in more violence, stronger responses from the youth population, and clogging of the courts, it is questionable whether such a strict stance and tackling violence with violence is even an effective solution. Of course, this is where President Bukele’s authoritarian behavior is best understood. Combating gangs and violence is obviously the most immediate issue to address, and it is not one that can be solved easily and without exerting greater control. However, the fact that the national force is so centralized and there is seemingly little regard for human rights in the process may not be the most sustainable solution.

Recommendations

To solve the immediate and overwhelming concerns such as corruption and gang violence, some authoritarian behavior is necessary as effective and immediate actions are preferred in that situation, but where the limit is to be set and how firmly the president’s actions need to be put in check is a sensitive question. What is true is that a healthy democracy often needs checks and balances to ensure the protection of minorities and prevent president-elects from turning dictatorial. El Salvador likely needs a president with firm principles and readiness for action, qualities that Bukele holds, but no nation needs a dictatorship with little regard for the processes of law and human dignity. This is why authoritarian behavior, even if welcomed in certain instances, needs to be carefully questioned and put in check. 

One way to address this issue is by focusing more attention on El Salvador’s Legislative Assembly and making sure that, while some more immediate concerns are left to the president’s discretion, it is a larger, representative collective that chooses the specific paths of action. The efficiency of such a body must also be increased, especially at times where there are extreme levels of corruption and violence, which may require creating separate chambers to address these issues. This would be similar to El Salvador’s CICIES that Bukele rushed to create and proudly put on display during the first 100 days in the office. However, CICIES, though currently still in the process of getting organized, is yet to show that it is not relying overwhelmingly on the executive branch. Current overalliance of the anti-corruption body on the executive branch puts the current administration in a position to act at its will and potentially overlook instances of its own corrupt officials and practices, thus encouraging the administration to spiral into an authoritarian regime. In order to ensure the transparency that the public deserves and that everyone, including the current administration, can be investigated, such body should rely on the legislative, elected body, not just the president and the national police. These new offices also have to be made up of skilled professionals and given some autonomy in order to produce effective results and be held accountable to the state rather than just be for political show. This way the government would increase its efficiency without relying so much on the presidential powers and checks and balances among the multiple government actors would be more effectively preserved, avoiding the establishment of an authoritarian regime. Even if the creation of such an investigative, anti-corruption body takes longer than the 100 days of the president’s office, it would surely be worthwhile if the result is a well-organized body, accountable to the public, and able to effectively tackle instances of corruption among politicians, not just the opposition to the current administration.