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Argentina: The Bloom Is Off The Rose

More warning signs from Argentina: The NYT reports:

A recent flurry of government measures to restrain foreign currency purchases haven’t succeeded in stemming a slow but steady drain on the central bank’s dollar reserves, making Argentine savers even more uneasy in the process.

As it tries to prop up the peso, the Central Bank has been losing close to $100 million a day in reserves since the government of leftist President Cristina Kirchner imposed new restrictions on foreign exchange transactions on Oct. 31. The government said the new measures, which require the federal tax agency to approve foreign currency purchases, are aimed at attacking money laundering and tax evasion.

But economists say the restrictions are in reality designed to counter a surge in capital flight, which has lowered central bank reserves to $46.81 billion from $52 billion in early August.

Argentina has had more than its fair share of booms and busts. Even slight turmoil in the markets makes Argentines jittery and worried. Analysts worry that efforts to stop capital flight by the government have only made things worse.  They are right.

Argentina has long seen itself as Brazil’s chief rival for the leadership of South America.  In the last twenty years, the gap between the two has grown.  Brazil has made serious economic and institutional reforms that have resulted in a society that is both more just and more prosperous.  Argentina has lunged from one failed experiment to the next.  Brazil is trying to control capital influx; Argentina is fighting capital flight.  Brazilian companies are investing around the world and becoming recognized as leaders in a number of fields; Argentine companies are trapped in labyrinthine restrictions and have yet to make much impression in the world beyond. Brazil still faces many obstacles and problems but has made a decisive break with the futility of underdevelopment; Argentina is still stuck in the quagmire.

At some point a critical mass of Argentines will note the difference between the development trajectories of the two countries and build a political movement to put Argentina on a sustainable course.  When that happens, watch out: Argentina’s formidable resource base will power a dramatic burst of development.  But that time is not yet; Argentina has not yet chosen to grow.

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  • WigWag

    The inflation adjusted per capita GDP of Argentina is approximately 40 percent greater than the per capita GDP of Brazil. With all it’s flaws, Argentina is a significantly wealthier nation than Brazil.

    Both countries have leftist governments and both have challenges. But Professor Mead’s thesis that the countries are moving in opposite directions with Brazil having far better prospects does not seem to be entirely supported by the facts.

    With a per capita GDP that’s 40 percent smaller, how long will it take for Brazil to catch up with Argentina?

    In which country are the slums more squalid? Which country has a history of men of questionable backgrounds murdering children who are so impoverished that they live on the streets?

  • Gringo

    But that time is not yet; Argentina has not yet chosen to grow.

    Correct. Argentina has instead chosen the Peronista path, a path that among other things, jails economists for publishing inflation figures. It is no accident that a defunct Peronista magazine was called “El Caudillo,” for Juan Domingo. Autocrats know best, say the Argentines.

    The Argentines freely elected Evita III. They got what they deserved.

  • Maradona e uma Bicha

    @ Wig-Wag: Which country sent its soldiers to fight with the Allies against the Nazis? Which country was run by a Nazi-phile punta?

    And, speaking of “history of men of questionable backgrounds murdering children,” that sounds so much like very recent Argentina: Dirty War, criminal military incompetence on the “Malvinas”…

    Burn, baby, burn…

  • WigWag

    There is little question that under Lula and now under Dilma Rousseff Brazil has created it’s own version what Professor Mead calls the “blue social model”. It is perplexing why Professor Mead believes that Brazil can join the ranks of the world’s economic powerhouses despite it’s “blue” orientation while at the same time he believes that the “blue social model” cannot be maintained in the United States and Western Europe.

    The idea that a nation with a per capita GDP less than a third of America’s can become rich while being “blue” while the United States can’t maintain its standard of living unless it abandons it’s “blue” ways, simply makes no sense.

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