Dependable as ever, Peronists in Argentina are claiming that the economic meltdown in their nation is due to the failure of the ‘free market’. Now let’s not mince words, the Peronists are neo-fascists (and not very neo at that) and thus to get a right-socialist critique of free markets from them is hardly a surprise.
“Now is the time for us to recognize that Argentina and Argentines come first – we must protect ourselves from [foreign] financial interests,” said Sen. Eduardo Duhalde, a key Peronist and a leading candidate to be interim president. “We must abandon this economic model. That is why the people are in the streets today.”
The Peronists are people who are trapped in the 1940’s in their thinking. Yet at the risk of starting to sound like a broken record given my recent posts, the Argentine economy was never, by any stretch of the imagination, a free market…it was just less unfree than under the Peronists, who ran things along full fat, non-diet real McCoy fascist lines. The biggest problem for the economy is not foreign competition but a massive borrowing spree by the Government (surprise, surprise). Exactly how were they expecting to repay its most recent loans, let alone the staggering $132 billion outstanding?
The Argentine Government was quite successful in curbing the hyperinflation that was ravaging the country in the early 1990’s, introducing wide reforms and pegging the Argentine peso to the US dollar.
A useful comparison could be made with Croatia in 1992-3. Croatia found itself collapsing economically due to the Balkan War and it’s currency, the Croatian Dinar, was hyper-inflating as the Government printed money to keep its army running. When I was there in 1992, after having been in the country for less than one month I took my dollars to a bank in Zagreb and found they had gained 30% in value against the local money in 25 days. To prevent complete economic melt-down, the Croatians scrapped the Dinar completely, replacing it with a new currency called the Kunar, pegged to the Deutschmark. As in Argentina, this drastic move rapidly brought things back from the brink. Yet unlike Argentina, Croatia did not embark upon delusionary spending sprees. Whilst I would hardly call Croatia a paragon of fiscal rectitude (I know Natalija is very critical of Croatian economic policies) they were certainly restrained by comparison in spite of having had huge amounts of national infrastructure destroyed during the war.
What Argentina has done was cure the problem of hyperinflation with strong medicine but they kept taking the drug for that particular ailment after the patient had recovered. What they should have done was either re-float the currency again or go the hole hog and dollarize (i.e. simply adopt the US dollar as Argentina’s national currency). The latter was rejected by the ruling Radical Civic Union Party, never staunch ‘free marketeers’ to begin with, as it would take away a powerful tool of economic control from the government, which of course is exactly why they should have done it!
But even just allowing the peso to free float once inflation was at tolerable levels again, say in 1996, would have prevented the build up of pressures that can be seen today, by allowing devaluation of the peso to be spread out over many years. What we will see now is a huge traumatic crash in value of the peso that will take vast chunks of the economy down with it as dollar denominated loans become unserviceable with worthless Argentine money.
The fascist Peronists will reintroduce trade barriers, compel all exporting businesses to submit to de facto state management and simply impose debt restructuring on foreign banks. A measure of stability will eventually return but the Argentina’s first world pretensions will be exposed for the absurdity they are. Only banks run by madmen (i.e. about 20% of them) will even consider lending more money to Argentina for the foreseeable future and therein lies the silver lining to this dark and stormy cloud… no more loans, the economic equivalent of crack cocaine, means eventually reality will reassert itself even through the thick skulls of the Peronists who are about to preside over the third-worldization of Argentina.
I for one shall not be crying for Argentina over what is largely a self inflicted wound, albeit one inflicted with a weapon sharpened by the buffoons at the IMF. Reforms require courage and vision and sufficient social evolution to grasp objective realities. Argentina had none of the above I am sad to say.
