A brief introduction to the economy of Argentina – Paulina Vazquez, Argentina

Talking about the economy has never been easy – even more so when we talk about Argentina, where economics has always been mixed with politics. Thus, we can’t understand the economy without explaining and having a look at politics through recent history.  

Argentina’s economy has constantly been changing. In the past, it once felt something close to stability, being considered among the top ten economies of the world. Within 50 years of this point, it declined greatly, to the point of being considered one of the three worse economies alongside Iran and Venezuela.

The Argentine economist and policymaker Aldo Ferrer explains that the original mistake is directly related to the restriction of foreign exchange and the result of an unbalanced productive model, dependent on importation and not innovative enough. So, a review of our economic history will allow us to understand the present situation.

There are six periods marked in our history that are the key to understanding our present.

The neoliberal age

Everything began when Buenos Aires got its port in 1880 and established an  economic relationship with the United Kingdom. Argentina was a producer of raw materials and the UK had a lot of industry. The UK used to sell us the finished products made from our own raw materials. Argentina received a lot of foreign money and that helped us to make our economy stronger.

The origin of the problem was the management of the economy and a lack of investment in education or healthcare, which created problems in society. People were starving and unemployment rate was extremely high.

The government at that time had a grand vision of European-style Argentina and  decided to invest their money in infrastructure, architecture and art.

In 1930 there was a worldwide crisis known as the Great Depression. This was a period of international national economic downturn. Its beginning was in the United States, after the fall in stock prices and mass recall of loans.  The crisis crushed the economies of all countries and made foreign trade and exchange difficult.  

Changes in UK economic policy were especially drastic and this stopped the investments being made in Argentina. Our dependent economy’s most important economic relationship came to an end.  

These problems were reflected in society, so the government eventually decided to improve and invest in healthcare, education and to also create more jobs for people.

The “Peronist” era

This era is dubbed after the erstwhile president, Juan Domingo Perón (1985-1974).

After the second world war, Argentina was in a very favorable situation, as there was a demand for its exports to European countries who needed more resources in the postwar years.

This era saw the formulation of a very clear plan for Argentina. The aim was to build an industrial nation, creating a very marked division between the raw material producers and manufacturers. Imports from other countries were banned and all products were made by the nationalized industry.

The first step was the “five-year plan”, which aimed to regulate all the measures related to exports and imports and the classification, packaging and certification of quality of export products. Due to these measures, the industrial sector saw a big boom during this period.

They also wanted to balance all the necessary investments to ensure the equal development of every area of the economy,  although this goal was not reached.

The agricultural and farming work sector went into decline because its work was limited and reduced by government investment policies. The sector was not allowed to international economic aid and thus farm workers struggled. While the farm workers were struggling, the industrial sector was booming and the government could afford to invest in education, technical education and create jobs. Unemployment fell and education was properly organized for the first time in Argentine history.  

The other side of these policies were to nationalize all services, including transport, health, education and communications. The other side of this was to nationalize all the services, communications, transport, education, health and jobs.  

Source: Wikimdia Commonse

During the second electoral term of Juan Domingo Perón, they elaborated the second “five-year plan” which focused on investments and planned to make the industrial area even stronger – but rural economy fell apart, creating inequality and and less tolerance between people.

All this instability caused the “Liberating Revolution” wherein the people overthrew the second term of Juan Domingo Perón.

The economic plan during the dictatorship

In this time, we went back to the liberalism model for economy – its aim was to decrease inflation and incentivize foreign investments. In reality the result was an increase in external and public debt, which reached an all time high. It rose from $7,875 million at the end of 1975 to $45.087 million dollars at the end of 1983.

1990s: liberalism and privatizations

All the reforms in these years maintained the liberal ideology; the government sold the industries and properties of the government to the private sector, losing businesses such as the oil extractors, petrol manufacturers, Aerolíneas Argentinas (Argentine Airlines) and YPF (Treasury Petroleum Fields).

Another important reform came in the form of the Argentine Currency Board, aimed at pegging the Argentine peso at the same value as the US Dollar to stop hyperinflation and stimulate economic growth.  This was another failed policy as it increased poverty among ordinary people.

2001 : Banking Crisis

Source: Wikimedia Commons

These problems eventually culminated in the 2001 banking crisis which developed into a recession as banks held onto their reserves and would not furnish loans.  A measure known as Corralito was imposed which prevented people from taking their savings out from banks. This generated protests all over the country. The international Monetary Fund decided not to rescue or repair the debts. By 2002, poverty, unemployment, civil unrest and unhappiness were at their highest.                  

The recovery

In 2003, the president Nestor Kirchner talked to international organizations such as the United Nations and the IMF about the importance of a new plan to prevent future crises and resolve the current problems.  After a long negotiation with the IMF, Kirchner finally had the entire value of the external debt paid. 93% of its bonds were no longer defaulted in 2010, and the bondholders of the remaining 7% were later also repaid.

Distressed securities fund (Vulture fund)

In 2013, Argentina defaulted on its debts to private investors from the United States – who were described as “vultures” by the president, Cristina Fernandez de Kirchner. They tried to negotiate on the debt and create a new agreement of payment since the one that they decided a few years ago is not suitable for the current Argentine situation due to the financial shortfall of the Central Bank.

The parties could not come to an agreement and the president launched a campaign, dubbed “Homeland or vultures”, to announce and cement the fact that Argentina would not cooperate with these private organisations. Axel Kicillof, Argentina’s finance minister, announced at a public conference that they were not going to pay anything – not even a dollar that was not included in the negotiations.

Source: elsalvador.com

Source: elsalvador.com

These statements influenced the United States Court to rules that Argentina would have to pay what it owes in the previously decided terms, or the debts would immediately be defaulted.

At present, Argentina has not made much progress, or any payment. Since the presidency of Cristina Fernandez de Kirchner ends in December 2015 it is likely she will leave this problem to the future government.

How is this affecting Argentines’ reality?

The economy has always been a problem for our people; we have always struggled against inflation, corruption, lack of products and many other difficulties. The inflation in the 2010s has been high and recent research shows it has reached 34%.

We are not allowed to buy foreign exchange, are subject to many restrictions when trying to buy it, and must pay heavy taxes.

We are convinced that we cannot develop economically in our country and this is increasing the brain drain – people are leaving for good. Both young and old people are unhappy to think that they have studied and worked to earn in one year what the average waiter earns in a week in New Zealand or Australia.

People agree that even great efforts from individuals will not bring about great results because of the stagnation of the economy, increasing levels of crime, corruption and drug trafficking. The future seems precarious and uncertain.  

Although the situation is challenging and saddening, it is not impossible to overcome. We trust in our people and in future governments and leaders who will bring about a more sustainable economy and prosperous country.

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