The American Interest
Analysis by Walter Russell Mead & Staff
Argentina: Tick, Tick, Tick

“You can’t stay young forever,” says writer John Helyar, “but nobody ever said anything about immature.”  Argentina seems to bent on proving his point; the most cosmopolitan and in some ways most European of Latin American countries is getting older, but its commitment to underdevelopment and economic failure appears undiminished with time.

Having just elected its populist Peronist president Cristina Fernandez despite some of the most widespread evidence of government economic malfeasance ever presented to a western electorate, Argentina is now preparing for yet another debilitating economic crisis and meltdown of the kind that have kept the country trapped in a cycle of underdevelopment for most of the last 100 years.

As the peso declines (losing 1/4 of its value against the shaky and weak kneed dollar since her first election in 2007 in the face of a commodity boom which under normal conditions should have seen the peso rise), the Argentine government set off a national economic mess by rejiggering rules on currency exchange to make it harder for Argentines to switch pesos for dollars.

Fair enough in some ways: decades of predatory and irresponsible government have driven many Argentines to tax evasion schemes that would make a Greek feel naive.  Rules to require Argentines to give their tax ID numbers as a way to crack down on the black market might, combined with good governance, be a step in the right direction.  But there is little sign that the current government intends to launch a wave of good-government reforms.  On the contrary.

Typically in Argentina as each failed “miracle” economic solution begins to unwind, governments resort to increasingly desperate and irrational methods to hide the erosion of their program as long as possible.  Most Argentines, cynical about their governments to a degree that even birthers and truthers would have a hard time fathoming, do not think the Fernandez government is an exception to the rule.

One hopes they are wrong, but it looks increasingly as if Argentina is now embarked on the next phase of its recurring bipolar economic disorder.  The manic phase has peaked and the long and painful fall has now begun.  The next step of the cycle is marked by increasingly desperate and wild struggles of a government to cope with increasingly intractable and pressing problems.  During this cycle, seasoned Argentines often begin moving their money out of the country and anticipating one of the recurring bouts of inflation that periodically reduce the nation’s money to worthlessness.

Literally, to worthlessness: I was once visiting the cathedral in Buenos Aires and one peso notes (then worth approximately one seventh of a US cent) were blowing across the plaza in the wind.  Homeless beggars camped on the cathedral steps didn’t even bother to snatch the notes out of the air as they blew past; the money eddied and skittered across the pavement like autumn leaves.  Perhaps someone somewhere raked and burned them.

The cycles are of unpredictable length; governments develop new ways of staving off disaster, but investors find new ways to short circuit new government measures.  External developments also effect the timing; the current commodity boom has probably extended the life of the current cycle by three years or more.  A global commodity bust would take Argentina down very quickly; continued high commodity prices could prop things up a bit longer.

But the cycle will continue for decades to come, relegating new generations of Argentines to poverty and frustration, unless and until Argentines genuinely decide that they have had enough.  So far, they haven’t.

For foreigners, there is a silver lining.  At some points in the cycle, this exotic, beautiful and in every way charming country becomes one of the world’s great travel bargains.  Keep your eyes on the peso — and on the ‘parallel’ rate rather than the official one if the country goes back to the capital controls that have so often failed it in similar circumstances in the past.  There will come a time when visits to the unforgettable city of Buenos Aires; the unsurpassable beauty of the Iguazu Falls; a drive through unforgettable scenery and Spanish colonial architecture from Salta to Jujoy; a visit to the penguins, sea elephants and whales against the windswept South Atlantic cliffs where Darwin puzzled over the riddles of life; cowboy barbecues on the pampas; Welsh tea parties in Patagonia; the stark majesty of Mount Fitzroy and the dramatic landscape around the Perito Moreno glacier will all be within the reach of world travelers on modest budgets.

When that time comes, strike and strike quickly.  Otherwise you will have to wait anywhere from five years to a decade as the cycle turns once again.

Photo credits: Wikimedia. Top to bottom, glacial bridge at Perito Moreno glacier; St. Francis Church, Salta; Mount Fitzroy; concert hall and stage, Teatro Colon in Buenos Aires; Iguazu Falls from the Argentine side; Magellanic penguins in Patagonia.

Published on November 7, 2011 8:22 am
  • Luke Lea

    Sounds a lot like Italy, from which a large percentage of the the Argentinian stock emigrated. Character is destiny? I dunno.

  • Akshay Kanoria

    Beautiful! If I wasn’t a world away, I’d love to go, not matter what the price (though that does sweeten the deal)

  • Choey

    I was working in Argentina in Dec. of 2001 when all heck broke loose. I’ve never seen anything like it. All we could do was run for the airport. They seem determined to repeat it.

  • Jeffersonian

    You can bet I will keep an eye on travel bargains to BA. I’ve been there many times, but not in more than two decades. I’d love to take another walk in Recoleta or dine along the Costa Nera for a pittance.

    Poor, misguided Argies. They keep electing these peronist idiots, and the same thing keeps happening.

  • Kevin Downey

    Sounds like a good time to reassert Argentinian sovereignty over Las Islas Malvinas. What could possibly go wrong?

  • Neal

    A great article. As I recall their last crisis was in 2002, this means the 10 year cycle mentioned in the article is almost upon us.

  • ErikZ

    I was hoping after 2001 that they were one their way to stability.

    Hearing this is like hearing an alcoholic has stopped trying to get better and is drinking again.

  • Maradona e uma Bicha

    Said it here once, but, when it comes to Argentina and its horrid people, you can never say it too much: Burn baby, burn…

  • Gringo

    One advantage of Evita III having been re-elected is that when the stinky material hits the fan, she will have to assume responsibility for the debacle. She will not be able to blame it on her predecessor- who in any event was her late husband.

    Maybe she will try to blame in on General Videla. Or on the Koch brothers.

    Maybe Thugo will shower some more cash on her.

  • Dotar Sojat

    This is what Juan and Evita Obama have in store for us.

  • WigWag

    What is Professor Mead talking about? Argentina’s Peronist model may have multiple flaws, but has it really worked so poorly compared to the rest of South America?

    Argentina is far wealthier than a nation that Professor Mead frequently extols; Brazil.

    Here is the IMF’s list of inflation adjusted per capita GDP for several South and Central American nations (2010):

    Argentina ($15,901)
    Chile ($15,040)
    Mexico ($14,406)
    Uruguay ($14,339)
    Venezuela ($12,448)
    Brazil ($11,273)
    Columbia ($9,593)
    Peru ($9,358)
    Ecuador ($7,378)
    Paraguay ($5,208)
    Guatamala ($4,907)
    Bolivia ($4,604)
    Honduras ($4,194)

    By this measure, Argentina is 40 percent wealthier than Brazil and almost 30 percent wealthier than Venezuela.

    There has been no year in the past 20 years where Brazil’s per capita GDP has exceeded that of Argentina.

    Despite its ups and downs, compared to its peer group, including a nation (Brazil) widely lauded as a developing regional power, Argentina seems to be doing quite well.

  • richard40

    At least it is nice to know there might be some other national leaders in this world that are worse than Obama.

  • Gringo

    WigWag
    Argentina’s Peronist model may have multiple flaws, but has it really worked so poorly compared to the rest of South America?
    Considering where Argentina stood in 1945,before Juan Domingo Peron and Evita I de Peron took over, the answer is HECK, YES. There was a phrase from decades back: “as rich as an Argentine.” It’s not a phrase in common use anymore, for a very good reason. Argentina used to rank in the top 10 countries in the world in per capita income. No more.

    Argentina is far wealthier than a nation that Professor Mead frequently extols; Brazil.

    Argentines have long considered their country vastly superior to Brazil.Here is one saying common in Argentina: “Bolivians came from the hills. Brazilians came from the trees. Argentines came from the boat.” (Trees, as in monkey.)(Granted, given the periodic economic beat-downs in recent decades, Argentinian feelings of superiority to Brazil are considerably reduced.)

    The gap between Brazil and Argentina has been closing. Consider Infant Mortality in 1970: 58 deaths per 1000 births for Argentina versus 95 for Brazil. In 2009: 13 in Argentina, 17 in Brazil. The difference in life expectancy between Argentina and Brazil has diminished from 8 years in 1970 to 3.6 years in 2009.

    Regarding per capita income, one gets differing results depending on the measure one gets differing results. Given the wildly fluctuating exchange rates, indices using PPP(purchasing power parity)are probably the best to use: they show Argentine income per capita in constant or current dollars, using Purchasing Power Parity, to have been roughly 30-40% greater than Brazil during from 1980 to 2009. Unfortunately, the World Bank doesn’t have any PPP figures for 1970.

    But consider GDP per capita in current dollars: From 1970 to 2009, Brazil’s GDP per capita (current dollars) went from 34% of Argentina’s GDP per capita to 106% of Argentina’s GDP per capita.

    In constant 2000 dollars, the Brazil/Argentina ratio went from 30% in 1970to 45% in 2009.

    I am citing this simply to show that from 1970 to 2010, the gap between Brazil and Argentina has closed considerably.

    Consider Chile compared to Argentina. In 1980, GDP per capita, PPP (constant 2005 international $), Argentina was at 1
    $10,067; Chile at $5365.

    In 2009,In 1980, GDP per capita, PPP (constant 2005 international $),Argentina was at $13,202; Chile was at $13,057.

    In less than 30 years, Chile’s per capita income went from about half of Argentina’s to about equal to Argentina.

    So yes, there is reason for Professor Meade to have the attitude he does towards Argentina. ¿Me entendés?

    Data was downloaded from World Development Indicators Databank.

  • JDP

    Total BS this is to misinform the unsuspected and not well informed people. Is what I call mercenaries working on the pay books on the oligarchy and the central intelligence agency to destabilize a country that otherwise is doing nicely and pretty well according with the worldwide circumstances, and that’s in contrast with USA and others European countries now in deep trouble and getting worse by the day. This article is total rubbish and who wrote it knows it, but who read this lies will get the impression that the country is going broke, and this is done with the intention of demote Argentina.
    Try harder pal Argentina never was in better shape and is going to get much better in the immediate future, no doubt about it, pity about USA with their dollars that for sure is going to the pits.

    And Chile sucks and they know it too, even if they are protecting their interest there as they did in Pinochet’s times now they are doing the same with Miguel Juan Sebastián Piñera Echenique same thing with different name.