January 1, 1992 | Magazine Archive

ARGENTINA: ON THE SLOW ROAD TO ECONOMIC RECOVERY

by David Zenian

BUENOS AIRES – Argentina has yet to pull out of an economic crisis that began in 1981, but after suffering two rounds of hyperinflation in the past three years, it has achieved a precarious stability thanks to the pragmatic policies of President Carlos Menem.

When Argentina returned to democracy in 1983, ending a six-and-a-half-year military dictatorship, it had accumulated a foreign debt of 40 billion dollars. Because the rank and file of the country’s restless and powerful labor movement had rising expectations despite the prostrate economy, there were constant strikes.

The military, though it relinquished power to former President Raul Alfonsin, still controlled billions of dollars worth of inefficiently-run industries in the name of national defense, including the civilian airports and weather service.

An equally inefficient and featherbedded government bureaucracy operated the railroads, telephones, television stations, electricity and water services, oil wells, coal mines and airlines. Everything the bureaucracy touched lost money, driving Argentina deeper into debt.

Whenever Alfonsin tried to put a state company on an efficient footing, the Peronist Party leadership of the nation’s labor unions immediately paralyzed the whole country with a general strike that forced the president to back off.

That left Alfonsin only one alternative: printing money to pay bills, something that also backfired into the sinking chaos of hyperinflation – the term economists apply to an inflation rate greater than 50 percent a month.

In July of 1989, when Alfonsin, demoralized by food riots, resigned from office six months before his term expired, inflation for that single month had reached 196.6 percent, a record even for Argentina.

That inflation figure, at least for now, is a thing of the past.

Alfonsin’s successor, President Carlos Menem, has found that the only way he can govern is to do the exact reverse of the principles of the Peronist Party.

Menem has cut the deficit, privatized state companies, cracked down on strikes, and has taken Argentina formally out of the Non-Aligned Movement, the Third World bloc notorious for anti-U.S. and anti-Western rhetoric.

What’s more, he has managed to do this without antagonizing his own Peronist Party. Nor has he been bothered by a single general strike, whereas his predecessor, Alfonsin, had to cope with a total of 14 general strikes organized by a union leadership affiliated with the very same Peronist Party that is now Argentina’s government.

Why the turnabout?

According to western experts, Menem is doing what he is doing because he has no other alternative except to go back to hyperinflation and food riots.

Menem, the son of Syrian immigrants, associates himself with Peron’s image and philosophy in radio and television remarks, but as a practical matter he is systematically dismantling the economic structure Peron and his followers erected because Argentina can no longer run its state companies on foreign loans.

Menem’s government has already privatized four of the nation’s five main television stations, the telephone company, and the main airline, Aerolineas Argentinas.

Also slated to be privatized are the railroads, gas and electric companies, steel and coal companies, ports and petrochemical industries.

Menem has made dramatic headway against Argentine’s persistent nightmare – inflation.

In September 1991, the cost of living rose a modest 1.8 percent, a miniscule rate by Argentine standards, and a sharp improvement from 15.7 percent rate of September 1990 – not to mention the 12,000 plus annual inflation rate at the end of February 1990 when the cost of living in that month alone was 61.6 percent.

In a country emerging from hyperinflation, maintaining a stable exchange rate is not an easy matter.

Argentine has done exactly that since March, when Economic Minister Domingo Cavallo announced the so-called “convertibility plan”, pegging the U.S. dollar at 10,000 Australs.

The plan may have cooled off inflation in the short run, but since the cost of living is still going up by 2 percent a month while the dollar’s value remains the same, Argentina’s exports are becoming less competitive by the day.

A lunch at a low grade Argentine restaurant that cost two dollars two years ago now costs twelve dollars. A bottle of non-carbonated mineral water in a plastic container at a supermarket costs sixty-five U.S. cents while a “budget” haircut costs eight dollars.

This means that several months down the road, when money stops coming into the federal treasury from the sale of petroleum production rights and other items being privatized, Argentina may be forced to make another major devaluation, which could only be followed by inflation.

If the road to economic recovery is a rocky one, Menem has yet to also contend with serious social unrest, which may be a problem in the months and years ahead as hundreds of thousands of public employees, dropped from the payroll in cutbacks, flood the army of unemployed.

Military unrest is also a potential problem. Menem has suffered one military rebellion, crushed in 18 hours, compared to the three uprisings that haunted Alfonsin and limited his authority.

Early in his administration, Menem granted hundreds of pardons to officers accused or convicted of human rights crimes or rebellion, and this gesture seems to have co-opted senior commanders, who successfully defended the President in December 1990 from a rebel uprising.

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