Cover image for Dictatorship, Democracy, and Globalization: Argentina and the Cost of Paralysis, 1973–2001 By Klaus Friedrich Veigel

Dictatorship, Democracy, and Globalization

Argentina and the Cost of Paralysis, 1973–2001

Klaus Friedrich Veigel


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ISBN: 978-0-271-03464-5

$34.95 | Paperback Edition
ISBN: 978-0-271-03465-2

248 pages
6" × 9"
2 b&w illustrations

Dictatorship, Democracy, and Globalization

Argentina and the Cost of Paralysis, 1973–2001

Klaus Friedrich Veigel

“Veigel’s book addresses an issue that has been at the center of much research in the past. What does explain the steady economic decay of Argentina, particularly from the 1970s onward? Many scholars ascribe the recurring economic crises of that country to the International Monetary Fund and the World Bank’s imposition of misguided policies. Veigel’s thesis challenges this view, as it contends that the seeds of the Argentine decline rest in the socioeconomic disintegration that began to affect that country from the 1940s on as vested interest groups engaged in a zero-sum-game struggle. If things went terribly wrong in Argentina in the twentieth century, it is not because that country was the victim of an international conspiracy. Instead, much of the blame is to be placed squarely on the Argentine political and economic elites. Through the use of new archival data and personal interviews, Veigel traces the historical evolution of Argentine policymaking as resulting primarily from endogenous rather than external factors. Veigel’s work is an excellent contribution to the scholarship on the political economy of Argentina and will make an important point of reference for future works on this controversial subject.”


  • Description
  • Reviews
  • Bio
  • Table of Contents
  • Sample Chapters
  • Subjects
The collapse of the Argentine economy in 2001, involving the extraordinary default on $150 billion in debt, has been blamed variously on the failure of neoliberal policies or on the failure of the Argentine government to pursue those policies vigorously enough during the 1990s. But this is too myopic a view, Klaus Veigel contends, to provide a fully satisfactory explanation of how a country enjoying one of the highest standards of living at the end of the nineteenth century became a virtual economic basket case by the end of the twentieth. Veigel asks us to take the long view of Argentina’s efforts to re-create the conditions for stability and consensus that had brought such great success during the country’s first experience with globalization a century ago.

The experience of war and depression in the late 1930s and early 1940s had discredited the earlier reliance on economic liberalism. In its place came a turn toward a corporatist system of interest representation and state-led, inward-oriented economic policies. But as major changes in the world economy heralded a new era of globalization in the late 1960s and early 1970s, the corporatist system broke down, and no social class or economic interest group was strong enough to create a new social consensus with respect to Argentina’s economic order and role in the world economy. The result was political paralysis leading to economic stagnation as both civilian and military governments oscillated between protectionism and liberalization in their economic policies, which finally brought the country to its nadir in 2001.

“Veigel’s book addresses an issue that has been at the center of much research in the past. What does explain the steady economic decay of Argentina, particularly from the 1970s onward? Many scholars ascribe the recurring economic crises of that country to the International Monetary Fund and the World Bank’s imposition of misguided policies. Veigel’s thesis challenges this view, as it contends that the seeds of the Argentine decline rest in the socioeconomic disintegration that began to affect that country from the 1940s on as vested interest groups engaged in a zero-sum-game struggle. If things went terribly wrong in Argentina in the twentieth century, it is not because that country was the victim of an international conspiracy. Instead, much of the blame is to be placed squarely on the Argentine political and economic elites. Through the use of new archival data and personal interviews, Veigel traces the historical evolution of Argentine policymaking as resulting primarily from endogenous rather than external factors. Veigel’s work is an excellent contribution to the scholarship on the political economy of Argentina and will make an important point of reference for future works on this controversial subject.”
Dictatorship, Democracy, and Globalization melds several compelling strands: trend-break changes in the world economy, the interaction of domestic and international politics in the United States, and Argentinean relations with the international financial community. The integration of these themes is subtle, convincing, and innovative. Veigel’s critical take on globalization and the political economy of development, along with his thoughtful insights into Argentinean economic history and politics, sets a new benchmark for appraising the rise (and decline) of the so-called Washington consensus.”
“This book should appeal strongly to anyone interested in Latin American political economy, the role of international financial institutions in the 1980s debt crisis, or recent Argentine history more generally.”
“The publication of Klaus Veigel's book comes at an opportune time, for it provides a valuable guide through the complexities of contemporary Argentinean economic history--in particular the politics of economic policy making from the mid-1970s to the early 2000s. This book should appeal not only to country specialists but also to a wider cohort of readers. . . .
[Veigel's] book goes farther than most previous works in connecting domestic trends with international conditions as the narrative tacks skillfully between politically divided Argentina and global players like the International Monetary Fund and the Federal Reserve Bank.
Dictatorship, Democracy and Globalization ultimately offers a cautionary tale about Argentina's economic trajectory and future prospects, one that reaches conclusions not all readers will share but that is thoroughly researched and worth considering carefully.”

Klaus Friedrich Veigel lives and works in Washington, D.C.


List of Figures and Tables

Author’s Note and Acknowledgments

List of Abbreviations


1. The Crisis of the 1970s and the Search for a New Economic Order

2. Global Markets and the Military Coup

3. The Origins of the Foreign Debt

4. The Self-Destruction of the Military Dictatorship

5. The International Debt Crisis and the Return to Democracy

6. Can Democracy Feed a Nation?

7. False Dawns: Failed Stabilization Plans, 1985–1991

8. From Miracle to Basket Case, 1991–2001

Conclusion: The Cost of Paralysis




The air was filled with tear gas and the smell of burning tires as Fernando De la Rúa and two bodyguards appeared on the roof of the Casa Rosada, the presidential palace in downtown Buenos Aires. Keeping their heads low, the three men ran toward the waiting presidential helicopter. Only minutes earlier, De la Rúa had resigned the presidency in the midst of the country’s most severe economic crisis and following a week of violence that had left more than twenty people dead and hundreds wounded. At 7:52 P.M., the helicopter lifted off into the dark clouds amid cheers from tens of thousands of angry protesters, who had gathered in front of the building on the Plaza de Mayo on this hot summer day, defying mounted police, armored vehicles, tear gas, and water cannons. Two days later, provisional president Adolfo Rodríguez Saá declared the suspension of all debt payments. Lawmakers cheered the largest sovereign debt default in history by rising to their feet and chanting “Argentina, Argentina.”

The images of a legally elected president escaping from the roof of the Casa Rosada were fraught with symbolism. Throughout the twentieth century, the Plaza de Mayo had been the center of Argentine political life. Populist politicians, popular uprisings, peaceful protesters, and military coups had all attempted to claim the public space in front of the government house for themselves and their causes. Juan Domingo Perón held rallies that attracted hundreds of thousands of his followers to the square during the late 1940s and early 1950s and again after his return from exile in the early 1970s. His opponents were keenly aware of the symbolic importance of controlling the Plaza de Mayo. In June 1954, a military uprising following Perón’s excommunication from the Catholic Church resulted in hundreds of deaths as navy fighters bombed Plaza de Mayo in order to disperse a pro-Perón demonstration. During the late 1970s and early 1980s, the Plaza de Mayo again became highly contested. In defiance of the repressive military government the Madres de la Plaza de Mayo protested every Thursday against the disappearances of their children. In early 1982, the plaza also became the site of the first large-scale demonstration against the military dictatorship and for a return to democracy. Shortly thereafter, the military managed to rally its supporters to the square as well. Following the invasion of the Falkland/Malvinas Islands in the South Atlantic in April 1982, hundreds of thousands of Argentines filled the Plaza de Mayo to cheer the dictator Leopoldo Galtieri.

The Casa Rosada itself is emblematic of Argentina’s former prosperity, long economic decline, and the superficial nature of its economic success during the 1990s. The presidential palace was inaugurated at the zenith of the Belle Époque, the export-driven economic boom at the end of the nineteenth century. By the late 1980s, it was in urgent need of renovation, renovation that was repeatedly postponed because of the notorious emptiness of the public coffers. In 1997, President Carlos Menem finally decided to apply only a cosmetic makeover to the venerable building. The front of the building facing the Plaza de Mayo—the perspective most frequently depicted on postcards—was painted in the original bright pink. Behind this shiny façade, the building continued to crumble. This structural instability made it impossible for the presidential helicopter to set down completely on the roof of the building on the fateful December evening in 2001.

Explanations of the unparalleled crisis have largely focused on corruption and economic policymaking during the heady 1990s and the alleged incompetence of the hapless president Fernando De la Rúa. Critics of the policy of economic liberalization pursued during the presidency of Carlos Menem argue that Argentina had become another victim of “neoliberalism,” which had been actively promoted by the U.S. government and the International Monetary Fund (IMF) under the “Washington Consensus.” Others insist that Argentina had failed to implement neoliberal economic reform with enough determination. They argue that Carlos Menem and his successor Fernando De la Rúa had been unable or unwilling to control public spending and had been forced to borrow from abroad to continue to govern. Foreign debt combined with the fixed exchange rate of the Convertibility Program made Argentina vulnerable to the sudden reversal of financial flows. If the IMF was at fault, proponents of this view argue, it was not because they had imposed “orthodoxy” but rather because they had failed to do so consistently.

This focus on the 1990s misses important long-term developments in Argentina. Twenty-five years before De la Rúa’s unscheduled departure, another president was whisked off the roof of the Casa Rosada. At 12:49 A.M. on March 24, 1976, an air force helicopter with Isabel Perón on board rose into the night skies over Buenos Aires. The military coup had just begun, and the military would arrest the president shortly thereafter at the Aeroparque, the city’s domestic airport. This time, the Plaza de Mayo was not filled with protesters; the trade unions had not responded to calls for a general strike to defend the embattled constitutional government. While patriotic military marches blared out of the radio, the military started rounding up and arresting opposition leaders around the country.

This study focuses on the quarter century between Isabel Perón’s and Fernando De la Rúa’s hasty departures from the roof of the Casa Rosada. It argues that these two departures were not just the results of cyclical political and economic instability. Rather, both were part of an epic struggle over the very model of economic and political order. The military coup that ousted Isabel Perón marked the end of the corporatist and inward-oriented model, which had dominated Argentina since the 1940s, and the troubled emergence of a new paradigm driven by the desire to participate in the worldwide economic integration, now commonly known as “globalization.” De la Rúa’s resignation was closely linked to the failure of this new model to solve the long-standing problems of the country. Both departures highlight the conflictual nature of policymaking in Argentina, where veto players—such as the military, trade unions, provincial governors, and even rival politicians within the ruling party—can paralyze the country and bring down the government without offering a viable alternative.

The Argentine postwar social and economic order had its origins in the experience of depression and war, when the country had turned its back on the world in the face of the economic crisis and the exclusion from its traditional export markets. In response, Argentina adopted inward-oriented economic policies aimed at building a modern industrial country and moved toward a corporatist polity with strong and combative trade unions and a growing public sector. This strategy initially bore fruit. During the 1950s and 1960s, the economy grew almost as fast as during the last decade before World War I and substantially faster than during the interwar years.

The combination of corporatism and inward-oriented economic development laid the foundations for continued economic and political instability. Import-substitution industrialization failed to eliminate the country’s dependence on imports because modernization required ever larger investments in advanced technology not available domestically. At the same time, the domestic industry—sheltered from international markets by high tariffs—became less and less competitive and therefore less and less able to generate much-needed foreign exchange. The consequence was continued economic instability as balance of payment crises led to “stop-go” cycles with periods of sharp downturn alternating with periods of rapid economic expansion. By the late 1960s and early 1970s, economists and politicians in Argentina had reached a broad consensus about the nature of the economic impasse; however, they found solutions much more difficult to agree upon and even harder to implement.

This internal struggle coincided with a severe worldwide economic and political crisis. The 1970s saw the end of the postwar social consensus throughout the Western world. This loss of consensus threatened the political stability to which governments had grown accustomed in previous decades. Social and political unrest rocked capitalist countries from Japan to Europe and throughout the Americas during this critical historical juncture. The situation in Argentina was especially dramatic. Excluded from power for almost two decades, the Peronist movement had become increasingly radicalized and violent. The military and right-wing organizations regarded all left-wing militancy as part of a communist campaign to infiltrate the country and responded with repression and violence using counterinsurgency tactics they had learned from the United States. The result was a vicious circle of increasing political violence in the early 1970s that left hundreds dead.

The 1970s were also a period of crisis and transformation for the world economy. The postwar economic order was based on nation states with strong welfare systems. They protected themselves from the vagaries of world financial markets through capital controls and fixed exchange rates and relied on the financial, political, and military strength of the United States in times of crisis. During the late 1960s and early 1970s, both layers of protection started to fall apart simultaneously. Capital market liberalization during the late 1960s allowed for larger global capital flows and destabilized the system of fixed exchange rates. Following the devaluations of the dollar in 1971 and 1973 and stunned by the twin humiliations of the withdrawal from Vietnam and President Nixon’s Watergate Scandal, the United States was experiencing an unprecedented crisis of confidence. The oil shocks, which rattled the world in 1973, added to the sense of gloom. By mid-1974, the world economy was in the throes of rampant inflation, economic growth was decelerating, and a massive disequilibrium emerged in international payments.

How developing countries would react to this new international environment was far from preordained. Their choices were to deepen their economic integration with the West or to attempt to break free from it. The first option offered the opportunity to finally overcome the problem of exchange bottlenecks and achieve what W. W. Rostow called “takeoff into self-sustained growth.” As capital markets expanded, foreign loans offered a seemingly painless way of overcoming the structural impediments to industrialization that had held them back during the postwar decades. However, this required both political stability at home and support from the United States and international financial institutions abroad, preconditions democratic governments often found difficult to fulfill during this turbulent period. The second option, proposed by critics of the existing international economic system, was based on the assumption that the crisis of the capitalist center presented an excellent opportunity for peripheral countries to break out of their economic and political “dependency” by reducing economic ties to the West.

Over the course of the 1970s, Argentina attempted both these strategies and failed, despite the fact that its near self-sufficiency in energy production placed it in a significantly better position than most Latin American countries to cope with the new global economic environment. Yet Argentina not only endured the bloodiest dictatorship in Latin America with between twelve and thirty thousand dead and disappeared; it turned in the worst economic performance by far of any major Latin American country. While Brazil enjoyed a long economic boom starting in the late 1960s, the “Brazilian miracle,” and Chile enjoyed strong growth driven by foreign borrowing in the second half of the 1970s, in the early 1980s the Argentine military dictatorship had nothing to show for high inflation and staggering foreign debt. To make matters worse, Argentina’s sufferings continued during the international debt crisis of the “lost decade” of the 1980s. Between 1970 and 1990, Argentina’s per capita income fell by almost a quarter, while Brazil’s doubled and Chile’s rose by nearly half (see fig. 1).

Why did Chile and Brazil perform much better than Argentina despite having been faced with similar political, social, and economic problems in the 1970s and despite having also been governed by military dictatorships over a long period of time? This study argues that Argentina’s dramatic political, social, and economic disintegration was caused by political paralysis over how to respond to the challenges of a rapidly changing global environment during the critical decades of the 1970s and 1980s. When the postwar consensus crumbled, no new strategy could muster enough support to replace it. The reason for this was another legacy of depression and postwar economic growth, namely the emergence of two new centers of power in Argentina: the Peronist trade unions and the armed forces.

The power of the Peronist trade unions dates back to 1943 when Juan Domingo Perón became minister of labor in the military government of Pedro Ramírez Machuca. Only two years later, the trade unions won a showdown with the military government. On October 9, 1945, Perón’s opponents in the military government forced him to resign and imprisoned him on Martín García Island in the Rio de la Plata delta. However, they were obliged to release him shortly thereafter when his supporters staged mass protests. With this political victory, the Peronist trade unions established themselves firmly as a political power to be reckoned with. Neither repression under military dictatorships nor trade union reform under democratic rule succeeded in eliminating them as a power over the course of the subsequent half-century.

The military became an active participant in politics because of the Great Depression. In September 1930 Hipólito Irigoyen, the first Argentine president elected by broad popular suffrage in 1916, also became the first to fall to a military coup. Over the course of the next half-century, the military intervened directly or indirectly in the political process during every major economic downturn or political crisis. When tanks rattled through the streets of Buenos Aires on March 24, 1976, this was a familiar sight. The CIA described the unfolding events as a part of a political cycle in which “the military intervenes to take power from an ineffectual civilian government, only to give it back when they cannot govern effectively either.” While this prediction that the dictatorship would return power to civilians after failing to solve the problems itself ultimately proved to be correct, the military government of 1976–83 marked a clear departure from its predecessors. It was not only more repressive and violent than any previous military regime in Argentina; it was also more revolutionary.

Military coups in Argentina had often proclaimed themselves to be revolutionary. The anti-Peronist coup in 1955 called itself the Revolución Libertadora, the “liberating Revolution,” and the coup that overthrew Arturo Illia in 1966 proclaimed the “Revolución Argentina.” However, neither of the two military coups had revolutionary implications. They aimed merely at keeping Juan Domingo Perón and his followers from power while continuing to pursue an inward-oriented development project within a corporatist political framework. The leaders of the Proceso de Reorganización Nacional, the “Process of National Reorganization,” by contrast, believed that they had to abandon the postwar economic model in order to break out of the cycle of political instability and eliminate Peronism as a political force. They hoped to achieve these goals with the help of brutal repression on the one hand and economic opening and liberalization on the other.

In Brazil, the military had played a similar role during the postwar decades. They saw themselves as the incarnation of their country’s corporatist national project, which encompassed a strong political as well as economic component. The military repeatedly intervened in the political process when it felt that democratically elected governments threatened their vision of the country’s future greatness. At the same time, the military had become tightly intertwined with the country’s industrialization and modernization project and controlled a large share of heavy industry. Unlike the Argentine coup in 1976, the Brazilian coup of 1964 did not represent a break with the military’s corporatist past, and the two decades of military rule that followed did not see any drive toward economic liberalization or privatization. In fact, the “Brazilian miracle” was not built on free-market economics but on a new form of authoritarian developmentalism that created important incentives for entrepreneurial activity and encouraged foreign borrowing to create a self-sufficient industrial base.

Chile’s military coup and economic policies, by contrast, strongly resembled Argentina’s. Only three years apart, both coups were motivated by a growing sense of “ungovernability” and a “crisis of the state” among important sectors of society. Both juntas, that of Augusto Pinochet in Chile and of Jorge Rafael Videla in Argentina, persecuted political opponents and real or imagined “subversives” with unprecedented brutality and imposed economic policies inspired by an anti-Keynesian free-market ideology championed by economists at the University of Chicago. Not surprisingly, both countries experienced an exploding foreign debt, growing income inequality, and the destruction of a large part of the industrial sector that had emerged since the 1940s as a response to government incentives to substitute imports.

The difference between the two countries lay in the political dynamics of economic reform. In Argentina, important sectors of the military establishment remained skeptical of the free market creed espoused by the Videla’s minister of the economy José Martínez de Hoz and resisted any economic reforms that threatened their economic power. At the same time, they were unable to return to a corporatist model, which the Brazilian military continued to promote. When Argentina started to face serious economic difficulties in 1981, the military was no longer able to hide the deep division between the corporatist and the neoliberal factions. Within two years, the military changed the course of economic policy no fewer than five times, wavering between renewed interventionism and more vigorous economic liberalization. The economic consequences were disastrous; indeed, the military government achieved the precise opposite of what it had intended—and promised. When the military government departed in late 1983, not only had they failed to achieve sustainable growth, the economy was as closed as it had been seven years earlier and state control was still ubiquitous. In addition, the military government had burdened the country with more than US$45 billion in foreign debt. Instead of overcoming the stop-go cycles and creating sustainable economic growth, the military government had burdened the country with a high external debt that created a permanent exchange bottleneck during the 1980s that suffocated growth completely. The inept and arbitrary economic management of the military dictatorship left Argentina burdened with two additional long-term liabilities. By association with its authoritarian right-wing agenda it had delegitimized liberal reform and integration into the world economy. This perception could only be overcome with great difficulty during the 1990s and is now—after the failure of the Menem experiment—again conventional wisdom in Argentina. At the same time, the repeated experience with arbitrary confiscatory policies during the military dictatorship prepared the ground for an unprecedented degree of corruption, which haunted Argentina through the 1990s and into the early twenty-first century. The military’s disastrous failure in the political, military, and economic realms also eliminated the armed forces as a major political player, thus strengthening the Peronist party, the Partido Justicialista (Justicialist Party, or PJ), and the very trade unions it had sought to eliminate. Following the return to democracy, the Unión Cívica Radical (Radical Party, or UCR) would be unable to govern effectively in the face of Peronist opposition, and both Radical presidents—Raúl Alfonsín and Fernando De la Rúa—resigned prematurely amid economic and political chaos and massive popular mobilization.

In Chile, by contrast, the military had been neither a major political force nor a pillar of the country’s developmentalist project during the postwar decades. When the military coup overthrew Salvador Allende’s government on September 11, 1973, Pinochet was able to establish himself as undisputed leader in part by exploiting the Chilean military’s professionalism. Pinochet’s one-man rule was in turn an essential precondition for the creation of a new hegemonic order based on free trade and free-market economics because it shielded civilian technocrats from pressure to reverse their policies in time of crisis. The difference between Chile and Argentina became particularly pronounced when the lending boom of the 1970s came to a sudden halt in 1981/82. Both countries experienced a severe currency and banking crisis, which led to a steep recession and rising unemployment. However, while the Argentine military abandoned the market-oriented reform project and ultimately withdrew to the barracks amid growing political turmoil, Pinochet remained firmly in power, moderating some of his economic policies but not giving up the neoliberal agenda. When Pinochet finally surrendered the presidency in 1990, the new economic consensus was already so engrained and appeared so successful that subsequent civilian leaders, including the socialist presidents Ricardo Lagos and Michelle Bachelet, left the basic tenets of Pinochet’s economic model unchallenged.

International actors such as the U.S. government, the IMF, and large multinational banks played a major role in the unfolding events. However, extensive research using recently declassified documents and personal interviews with many of the protagonists show that at no time were they in the position to “impose” an economic or political model as many Argentine observers assert. The reason for this is that Argentina was never a high priority in the U.S. foreign policy agenda (except during the brief South Atlantic conflict in early 1982). Unlike the case of Brazil in 1964 and Chile in 1973, the U.S. government and the CIA did not actively participate in the preparations for the military coup that ousted Maria Estela Martínez de Perón on March 24, 1976, even though the CIA and the State Department were aware of the military’s intentions and broadly approved of them. Subsequent U.S. administrations wavered between support of and opposition to the Argentine military government. The incoming Carter administration sharply opposed the Argentine dictatorship for their human rights abuses. The economic pressure they tried to apply, however, was of almost no consequence. Ronald Reagan initially embraced Leopoldo Galtieri for his staunch anticommunism and his support of U.S. intervention in Central America. However, he dropped his ally in favor of the “Iron Lady” Margaret Thatcher when Galtieri invaded the Falkland/Malvinas Islands and rejected Reagan’s personal plea to withdraw. After the return to democracy, Reagan embraced the newly elected president Raúl Alfonsín, and James Baker, secretary of the treasury during Reagan’s second term, enjoyed a very close working relationship with his Argentine counterpart Juan V. Sourrouille. However, the United States was unable to convince the Alfonsín administration to adopt an orthodox, “liberal” economic policy, and the Argentine authorities never managed to convince the Reagan administration to extend a helping hand in their quest for a substantial debt reduction.

The U.S. government also tried to exert influence on Argentina through the IMF. However, evidence from the period under investigation reveals that the Treasury of the United States was unable to dominate the IMF completely. In critical moments, the IMF asserted its autonomy. Two episodes are noteworthy. While the Carter administration tried to apply economic pressure on the military dictatorship starting in 1977, the IMF consistently maintained its strong working relationship, thus undermining the U.S. efforts. In 1988, Secretary of the Treasury James Baker applied considerable pressure on the World Bank and the IMF to continue supporting the Alfonsín administration’s faltering Austral Plan. The World Bank gave in, but the IMF did not, which led to a painful rift between the two sister institutions.

Nor was the IMF as powerful as some observers have suggested. It became a critical actor only during moments of crisis when the Argentine government desperately needed financial help. Even then, the IMF was far from able to “impose” austerity measures on the country. Rather, Argentina successfully used open threats of default and pleas for special help to a democracy under attack as bargaining tools in negotiations with the IMF. More important than the concessions the IMF granted Argentina in the negotiations was the inability of the IMF to oblige the authorities to live up to the promises they had made. When this happened, the IMF could only declare the country in breach of the agreement and cut additional financing.

Developments in the wake of the crisis of 2001 offer some reason to assume that the fundamental political paralysis that has hindered Argentina’s integration into the world economy has been broken. Néstor Kirchner has enjoyed a firm hold on power since 2003 and has been able to consolidate a new political and economic consensus based on state intervention in the economy, an undervalued peso, and the rejection of neoliberalism and free trade. The short-term results of the new economic policies have been impressive. Between 2003 and 2007, the Argentine economy grew at a faster rate than in any period since World War I. The rapid expansion has coincided with a large fiscal surplus, a competitive exchange rate, and the first meaningful reduction of the external debt since the beginning of its accumulation in the 1970s. This has led some analysts to believe that Kirchner has finally found the “holy grail” of economic policy, namely a recipe for sustainable, noninflationary economic development.

This faith in Kirchner and his economic policy closely resembles the admiration Carlos Menem and Domingo Cavallo received in the mid-1990s when the Convertibility Plan seemed to be propelling the country into a bright future. Not unlike the previous economic miracle, Kirchner’s economic success could quickly falter if external circumstances change and internal conflicts resurface. Since 2003, the external environment has been extremely favorable for Argentina. Liquidity in world financial markets is unusually high. This has helped reduce interest rates on Argentine sovereign bonds to record-low levels—despite its recent default on a large part of its obligations. Prices for Argentine agricultural exports are extremely high because of the growing demand from China and India. This has led to an agricultural boom, which has also helped eliminate Argentina’s chronic fiscal deficit because export taxes on agricultural products are the federal government’s third-largest source of revenue (after sales and income taxes). In the rest of the economy, rapid growth has contributed to a significant reduction of unemployment and poverty. Nevertheless, not all is well. The destruction of property rights and widespread price controls in the wake of the crisis curtailed necessary investments in plants and infrastructure. Many companies operate at or close to their capacity, and shortages, especially of gas and electricity, have become a common occurrence throughout the country. Prices also continue to rise rapidly even though the National Statistics Institute (Instituto Nacional de Estadística y Censos, or INDEC) attempts to conceal it. Only time will tell whether Néstor Kirchner or his wife and successor Cristina Fernández de Kirchner will be able to manage the economy once external conditions turn less favorable and sectoral interests begin to conflict.

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