Tag: Argentina

Ruin redux: Argentina’s Economy under Mauricio Macri

President Macri promised ‘change’ instead he repeated mistakes made before

President Mauricio Macri has not been a good President.

In 2018, after receiving laudatory press coverage since his election, Argentina went into an economic tail spin. Argentina, which had paid back its debt to the IMF under President Nestor Kirchner in 2006, was forced to seek a stand-by agreement with the International Monetary Fund (IMF) of first $50 billion, then $57 billion. It was widely acknowledged to be the largest financial rescue programme in Argentine history. The scale of the disaster was such that the IMF revised its growth projections for Argentina from 0.4% in June 2018 to -2.8% in December 2018. And even that prediction may be optimistic.

How did Argentina get to this place? Once again how can one of the best developed, best educated, most resource rich countries in Latin America be in such high crisis?

The answer does not lie with the administrations of Nestor Kirchner or Cristina Fernandez de Kirchner. In 2015, the last year of Cristina Kirchner’s administration, Argentina – despite a default forced on it by a New York based US federal judge – grew by 2.7%. Real incomes were up over 50% from where they had been in 2002 at the beginning of the post-Menem era. Renewable energy production, particularly under Cristina Kirchner, had shot up. It was true that, since 2011, Argentina’s economy had gone nowhere in particular. It was in a muddle, and that muddle in large part was due to the Kirchner administration.

Nonetheless, Cristina Kirchner handed her successor a stronger hand than Nestor Kirchner had had in 2003 when he donned the Presidential sash. Thanks to persistent efforts to bring workers into the formal economy, championed by the Kirchners, total government tax revenue had increased from 19.3% of GDP in 2001 to 32.1% in 2015. Education spending had been substantially increased since 2003, revitalising Argentina’s education system. Substantial resources, 3.6% of GDP, were being diverted to politically popular, but incentive distorting and economically wasteful energy subsidies. The way forward seemed to be clear. Redivert energy subsidies into investment expenditure and improve tax collections to close the general government deficit. Only once has such a programme even been close to properly attempted, under the Economy Minister Adalbert Krieger Vasena from 1966-1969. It is also precisely what Macri did not do.

In fact, Macri proceeded to squander every advantage and make every macroeconomic trend worse. He did so by enacting policies that were applauded but anyone with a decent knowledge of Argentine history could have known immediately would go badly wrong.

Macri claimed to want to restore Argentina’s competitiveness.
Macri began with a 40% devaluation of the Peso – albeit a necessary measure to boost competitiveness – that made imports more expensive even as he eliminated import duties on everything from computers to champagne. The resulting rise in the import bill was supposed to be offset by Macri’s cutting or elimination of taxes on agricultural exports. Certainly agricultural interests were pleased by the move. However exports failed to offset the rising import bills in 2016 and 2017 and Argentina’s trade account moved from being in balance to deficit. This also meant that Macri had failed to bring Argentina’s trade into balance.

Macri also claimed to want to balance the government budget but increase investment expenditures. The temporary increase in exports that was achieved came at significant cost to the Treasury. Macri either outright eliminated or cut taxes on agricultural exports. He also slashed business taxes. This drained the Treasury of substantial revenues. Macri tried to make up the difference by slashing investment expenditures, slashing government wages, firing civil servants, slashing energy subsidies, and slashing pensions. As could be expected, the deficit did not greatly decline. Worse, to finance the deficit Macri decided to borrow abroad instead of domestically, despite there being no need to do so. As a result, the ratio of foreign debt relative to GDP went from being 35% of GDP in January to 60% of GDP in April 2018. This is astonishing given that it took seven years for the last Argentine military dictatorship to run up the foreign debt from 20% of GDP to 45% of GDP and much of that was from bailouts from 1980 – 1983. Far from being ‘gradualism’ this was right wing economic policy that had been tried and implemented since 1955 in one form or another. Each time it had failed. The only notable achievement of Macri on the budget has been, since a limited reintroduction of export taxes and further budget cuts, that the 2018 deficit was lower than called for under the standby agreement. But even then this was not due to Macri’s policies, but policies introduced by the IMF.

One of Macri’s main objectives was to tackle inflation. Due to the enforced default in 2014 and the subsequent devaluation, along with continuing capital flight, inflation in Argentina reached 40.5% in 2014. While inflation fell to 27.0% in 2015, it remained high given the low level of economic growth. Macri’s policies only exacerbated inflation. Macri’s devaluation raised the prices of imports, even as he lowered trade barriers. By cutting energy subsidies for both households and businesses, he pushed inflation up still higher. Finally the fall in the peso this year, combined with tighter austerity pushed inflation higher than even its nadir under Cristina Kirchner in 2014 to 47.6%. This is even worse when you consider Cristina Kirchner was reviled by foreign investors and the governments of many wealthy countries, whereas Macri was feted by both.

Other factors, such as poverty and joblessness have also increased. The only things that have kept things from becoming worse are the Peron era labour laws. While an increase in joblessness from 7.2% to 9.0% might normally be damning enough, what is striking about Macri is how he has failed on the three macroeconomic indicators his administration said it cared about.

It is worth concluding by highlighting how Macri’s economic policies do not differ substantially from those of the Economy Minister of the last Military Dictatorship, Jose Alfredo Martinez de Hoz. Like Martinez de Hoz, Macri slashed or eliminated export taxes, increased foreign borrowing, and favoured agroexporting and finance over ensuring Argentina’s export basket remained diverse. Like Martinez de Hoz, Macri was hailed for pursuing these policies in the name of increasing Argentina’s trade with the world, reducing inflation and reducing the public deficit. Like Martinez de Hoz, Macri has failed on his own terms.

Book Review: The Army and Politics in Argentina

The Army and Politics in Argentina is a trilogy written by Robert Potash, which covers the period 1916-1973 in Argentine Politics, but from the perspective of Argentine officers of the rank Lieutenant Colonel and above. Indeed it is focused almost exclusively on the Army, and is an indispensable resource for understanding the Army in this period.

In this review I will examine the first and third books, The Army and Politics in Argentina, 1928-1945: Yrigoyen to Peron and The Army and Politics in Argentina, 1962 – 1973: From Frondizi’s Fall to the Peronist Restoration. This is simply because these are the two books I was able to obtain. The trilogy is out of print and my efforts to get the second book have been frustrated.

One thing that Potash makes clear throughout is charting the ups and downs of dominant attitudes in the officer corps about the nature and even the desirability of military rule in Argentina. General Jose Felix Uriburu was barely able to scrape together enough troops for the 6 September 1930 coup. The main reason it was successful was because of the attitudes of the Army to the Radical Party president Hipolito Yrigoyen. One the one hand Yrigoyen had significantly increased military spending and even ensured officers’ salaries were improved. Many officers even sympathised with his reformist programme for Argentina. On the other hand many officers were angered by Yrigoyen’s interference with promotions and use of the Army to ensure Radical Party dominance in certain elections through provincial intervention, a process Yrigoyen called ‘political reparation.’ While the Radical Party did honestly win the elections where Yrigoyen ordered provincial intervention nonetheless many in the Army, even those sympathetic to the Radical Party, were angered by being used to further partisan advantage. These two factors meant that when the coup came most officers had no reason to support it, but neither did they see reasons to energetically oppose it.

Nonetheless Uriburu’s ‘Revolution’ – a claim that recurred frequently throughout this period – rapidly came to naught due to Argentina’s economic collapse in the Great Depression and the fact that most of the officer corps was both unprepared to jettison Argentina’s liberal institutions and traditions, and that Uriburu’s ideas were both ill defined and contentious enough that some officers led abortive, if not very lethal, rebellions against him. Juan Peron, who supported Uriburu initially, said that the Army needed to return to the barracks as involvement in politics was causing divisions and badly affecting military readiness.

The man who succeeded Uriburu, Agustin Justo, restored many of Argentina’s liberal institutions and even launched some modest economic and social reforms. However, to keep his political coalition in power in Congress – the Concordancia – Justo resorted to electoral fraud of the kind that had caused so much political turmoil in Argentina between 1880 – 1912. Nonetheless, in respect of the constitution, Justo stood down as President in 1938.

The brief narrative highlights themes that recur, even as they change with the times he is covering, throughout Potash’s work.

Many Argentine officers throughout this period remained committed to Argentina’s liberal institutions. While military Presidents could and did act dictatorially, they never were able to either outright ignore institutions like the courts and laws, and sometimes they did not wish to. Outright illegality did not characterise any of the military regimes of this period. However, a desire to freeze or suspend politics did. One set of institutions that was not respected were political parties which the Generals toyed around with at will, but often with the complicity of members of those same political parties including at various points the Radicals and Peronists themselves.

This desire to ‘freeze’ politics never created the ‘stability’ that officers sought as there was always a consistent backlash to political disenfranchisement, not only by Party and trade union bosses, but by voters and workers who were understandably outraged that they had been overruled and told they had made the ‘wrong’ choice.

Post-1955 Argentina was politically and often economically dysfunctional because of persistent refusal by the Army and the politico-economic forces that backed it to incorporate the Peronists into the political system. This also meant that efforts by – at various times – the Army and Radical Party to court Peronist voters came to naught as their persistent refusal to recognize the political legitimacy of the Peronists meant that Peronist Party and labour leaders, along with their popular followers, never fully trusted either the Army or Radical Party.

As a sidenote, one thing that emerges from the books, despite Potash’s muted anti-Peron bias, is the affection that many Peronists and even Peron himself felt for the Radical Party. Peron expressed admiration for its endurance, its commitment to democracy and its voters, and for its reformist vision for the country – various parts of its programme he sought to capture for his own benefit. The sentiment was not returned however. Radicals never displayed affection for Peronism, and the ‘why’ of this phenomenon is something that could be explored for the failure to unite the two great political forces of Argentina seems to be a lost opportunity for Argentina in the 20th century.

Second Argentine officers, aside from maybe Peron, could never fully figure out what kind of country they wanted. Most wanted a more authoritarian structure, but as to what the economic outcomes and aims of the new order would be, there was precious little agreement. As a result the officer corps remained divided between – in very broad terms – liberals and nationalists. What also becomes clear over the course of the book is that both groups spawned modes of thinking that could be seen in the last Military dictatorship – not covered by this trilogy – in terms of politico-economic objectives. Liberals, while committed to Argentina’s traditions, were often utterly indifferent to bread and butter issues for most people such as employment, better wages, industrialisation and so on – wanting to believe that Argentina could continue to have prosperity by being little other than an agroexporter. Nationalists on the other hand, while usually more concerned with improving the economic development of the country and the welfare of the people, were often all too ready to resort to bypassing or suspending institutions and laws to achieve their objectives. It should be noted that neither liberals nor nationalists ever fully achieved what they wanted either due to a lack of competence or because their drive to fully enact their preferences antagonized key sectors of society and their fellow officers that – if nothing else to preserve Army unity – they found themselves ousted by a combination of liberals and nationalists seeking to preserve Army unity.

While Potash masterfully captures the intrigues and political manoeuvering within the Army itself, the trilogy suffers from some sharp weaknesses.

Unlike Thomas Skidmore’s book The Politics of Military Rule in Brazil, which is a truly masterful and enjoyable book, Potash never provides any kind of wider political and economic history of Argentina throughout the period and the reader is thereby denied the context that would lend greater understanding into the manoeuvering within the Army itself. Where he does go into exposition on these issues, Potash’s narratives truly come alive. For example, Potash proves that President Ramon Castillo was not pursuing a pro-allied foreign policy in WWII and not tending toward political liberalisation and was not overthrown by a fascist clique of officers. In fact Castillo was pursuing the same political course any Argentine President would have had to, given divisions in society and the Army, and that was neutrality. It was in fact President Ortiz who had been pursuing political liberalisation, and reintroducing free and fair elections. Castillo reversed these trends to put conservatives back in positions of power, and used fraud to ensure conservatives beat Radicals in elections. Castillo was overthrown by a heterodox group of officers who united temporarily in agreement that they would not be party to turning the political clock back to 1911 – the year before the Saenz Pena electoral law.

To truly cover the Army and its situation as an institution, Potash also could have spent more time on covering the daily lives of officers and soldiers, how they were treated, what they normally did, and doctrinal developments. This would have made the work truly about the Army and not so exclusively about the High Command. A good example of how this can be done in a book is Dale Herspring’s The Kremlin and the High Command which, while mostly about the high command, takes time in every chapter to examine the life of conscripts, junior and middle ranking officers, and doctrinal developments to give a full overview of what the lived experience of the people being discussed was. This is necessary to develop a fuller appreciation of what an Army did or did not do at any particular time. For example, given the travails, hardships, brutality, and often impossible situation Russian soldiers were put in from 1991-2002, one is struck by how miraculous it was that things were not even worse than they were and that the High Command never seriously contemplated any kind of coup d’etat. Exposition of this sort might have furthered understanding as to why, in the period Potash studies, the Army high command often did overthrow leaders and also why at various points they adamantly refused to do so.

Nonetheless, most people – including scholars – resort to tired and badly researched cliches when discussing the Argentine Army in this period. Potash never did. In fact, his work dissolves a lot of those cliches and conveys how, even as at the end of the third book one can see those intentions falling away into something dark and sinister, the road to hell is paved with good intentions. If anyone wants to understand Argentina’s 20th Century. Robert Potash’s books are indispensable and should be put back into print as required reading for all students of this period.