Argentina: A Country Caught in an Endless Loop of Financial Crises
Argentina is a country known for its constant political-economic instability and recurrent crises. Since the return of democracy in 1983, Argentine society has gone through two hyperinflationary outbreaks (1989 and 1990), an astronomical crisis in 2001, and a foreign debt default that same year. In the following years up until today, the country has also experienced a catastrophic devaluation of the national currency, a foreign exchange squeeze, an unbalanced increase in the national debt ,and a whole series of events that caused innumerable undesirable effects on the quality of life of its citizens.
However, the economic problems did not begin in the 1980s. At that time, Argentina already had a long history of numerous crises that developed throughout the twentieth century. These events diverted the country from the promising economic potential it had at the end of the 19th century, and gradually made that successful past unrecognizable.
The reasons that explain this decline are neither few nor simple, although in recent decades the country seems to have entered into a cyclical performance that can be explained by the sustained acceptance of misguided economic ideas, among other factors.
According to the economist Esteban Domecq, the cycle to which the Argentine economy has been subjected in recent years consists of the following: the demand for social programs, after a bad economic situation, increase; then, the short term action of the government (i.e., increase in excess of public spending) is promoted, which translates into fiscal indiscipline (deficit). This deficit is then financed with the issuance of currency and/or increasing the national debt (monetary and financial indiscipline), which leads to devaluation, inflation and, in the worst case, default..Consequently, the economic crises that increase unemployment and poverty arrive. Finally, these last two factors raise the demand for social programs, and the cycle starts again.
In this vicious circle, the key factor is the fiscal deficit, given that it is the trigger of the subsequent bust. The fiscal deficit, that old friend of the Argentine economy, cannot exist without unbalanced and short-term state policies. In other words, a government that spends beyond its means leaves aside the negative consequences that this could have in the long term. Instead, policymakers are focusing on the now to meet political objectives. Logically, it is the implementation of these policies that is responsible for the subsequent unleashing of the cycle described above.
The Rise of Peronism
Many of these ideas began to become popular with the rise of Peronism in the middle of the last century, an event that has marked a significant "before and after" in national politics. Even today, Peronist principles still predominate in public opinion, and their ideas continue to be invoked: state intervention in the economy, contempt for free trade, protectionism, nationalism, "social justice," high taxes, and the creation of a gigantic state encompassing all aspects of individual life. These policies are, in the general mindset, believed to be the pillars that must prevail in order to achieve prosperity.
The rise of these ideas — and the large number of followers who support them — can be explained by the same reasons to which the rise of populism is attributed throughout the world. The main ones are: a charismatic leader with a powerful image; a discourse cautiously created with the aim of establishing a common collective identity among the popular masses; the creation of a common enemy guilty of all evils. Once in government, the idea's adherents support the creation of a clientele network of citizens dependent on the alms of state power, a group that assures the leader the votes in the elections to come.
In addition, the implementation of the principles listed above was replicated, "in its own way," by almost all governments from the middle of the last century to the present day. Throughout this time, "non-Peronist" administrations have not strayed far from interventionist ideas, and have contributed to their sustained implementation. This, as expected, had dire consequences on the economy and led to different crises. At the same time, the recurrent dictatorial governments of the twentieth century, which deepened these disasters and increased political and social instability, are added to the historical-political scenario.
These two factors (the sustained acceptance of misleading and erroneous principles over time and political instability) fertilize the terrain for the emergence of cyclical performance that seems endless.
On the other hand, Argentine society (despite its good intentions) is also partly complicit in all these unfortunate events. The predominance of interventionist administrations in the Casa Rosada in the last decades was given by the vote of confidence of the citizens towards nefarious ideas that, with the passage of time, increased the re-occurrance of generated crises.
In short, Argentina has moved away from liberalism to an incursion into the implementation of completely opposite ideas. Although the intentions of the Argentinians have been good, they have chosen the wrong side. And unless they drastically change their actions, they will find themselves further and further away from the well-being they so long for.