Presidencia de la N. Argentina

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Argentina’s Economic Policy: Failing to Learn from History

Argentina is heading toward its second economic crisis in just over a decade and national leaders are unwilling to publicly acknowledge that the country’s growth is unsustainable. Since the country’s economic collapse a decade ago, President Nestor Kirchner (2003-2007) and President Christina Fernandez de Kirchner (2007 – present) have allowed the national economy to function without interference or direction. Senior officials have refused to dictate economic policy because domestic markets have been expanding and strengthening independently. They defend their position by citing the nation’s cheap currency and continual trade surpluses.

The reason for Argentina’s economic success is due to self-deception on the part of the national leadership. The international community has vocalized concern that it would be in Argentina’s best interest to slow down economic progress; however, these concerns were met with increased transportation and energy subsidies, as well as more funding being allocated for social programs. These policies were initially subsidized by the nationalization of private pensions, but, as spending continued to grow, the Central Bank began printing money.

Subsidies and spending increases are causing the Argentinian economy to lose nearly $2 billion per month and, unless the country’s export portfolio is diversified and strong relations are built with other countries, the only way in which Argentina’s economy will be able to grow is through stimulus spending, which will only create more inflation. Latin America’s current growth trends and long-term stability relies on a number of factors, one of which is the strength and success of the Argentine market. Since the 1960s, the region has suffered greatly from economic collapses – from internal and external forces alike – that have undermined development.

Regional Impediments

Latin American countries have historically struggled with modernization and urbanization strategies. Over the past two decades, the region has been in a political transition becoming increasingly democratic, which has had a positive effect on domestic economies. Progress has been slow as many Latin Americans have come to expect pseudo-authoritarian governance from national leadership, which has limited alterations to national policies and slowed economic progress.

Many countries remained isolated from potential international partners because inept national policies failed to promote a more collaborative trade environment. While leaders are adept at espousing rhetoric focused on their desire to create a more efficient and effective infrastructure, the failure of national governments to invest or innovate is matched by their lack of interest in changing national economic policies. Furthermore, an unwillingness to legitimately fight against nepotism and corruption has further undermined domestic markets.

Over the years, reluctant national leadership has restrained international expansion while providing governments an opportunity to construct and execute nation-specific policies and programs. National leaders strived to strengthen Latin America’s position in the international market by focusing on what would benefit the country, or region, rather than on what would be useful to entice corporate leaders and foreign powers. Corruption and the government’s disinclination to cede power to the people was not the only reason for Latin America’s lack of progress. The private sector languished as a result of tight credit controls that were implemented to counteract inflation; a policy dictated by the international community. For the long-term, these policies diminished Latin America’s international competitiveness and undermined the ability of domestic industries to compete globally.


Globalization’s influence has forced many nation-states to redefine their sovereign rights as international financial organizations were being developed with the intent to bring parity to the international system. By the 1980s, the mission defining these institutions changed with a reformation in debt financing, affecting the relationships between multi-national corporations and national governments. Eventually, as described by Michael Albert in Parecon: Life After Capitalism, many IGOs were no longer “working to facilitate stable exchange rates and…help countries protect themselves against financial fluctuations.”

For countries in the developing world, “The IMF’s priority [became] bashing down all obstacles of capital flows and unfettered profit-seeking…and the World Bank became a tool of the IMF…financing projects not with an eye to enlarging benefits for the recipient country but to seeking profits for major multinationals.” Trade negotiations conducted by IGOs were and are disproportionately dominated by the developed world, and often impose agreements and policies that are detrimental to the interests of lesser-developed countries.

Past aspirations for similar programs led to the introduction of IGOs, such as the World Bank and IMF, into domestic affairs which eventually created policy mismanagement and economic stagnation. In our previous article, “Latin American Success: A Case for Comparative Advantage” we stated: “For Latin Americans, the inequality that arises from policies and programs instituted by IGOs is illustrated by Argentina’s slow economic collapse. In 1994, the World Bank urged the Argentinean government to initiate social security privatization during a time of massive economic reform, exacerbating an already weakened national system. During this period, concessions also had to be made to the IMF in order to receive the finances already promised to Argentina to cover the nation’s debt. By 2001, the IMF forced Argentina to make a series of cuts to its existing social security program – an action that would not have been advised in the developed world.”


The global economic crisis in 2008 continued the discrediting of the Washington Consensus’ ideological underpinnings; predominately the concepts surrounding the accumulation of national debt and the influence of foreign capital in domestic markets. Many countries began to focus their attention on developing a stronger state regulatory capacity as well as construct a sound public domain. Investing in job-creating sectors in competitive and productive areas and strengthening social programs was found to be more important than the single-minded pursuit of integration into world markets. Governments introduced national policies that stabilized exchange rates, regulated financial institutions, and central banks, and reinforced existing social programs. Learning from the past over-reliance on IGOs for stability and security, national leaders began building programs and policies that benefited domestic development. This response placed distance between the region and the global North and provided them the opportunity to advance.

During this period of growth, Argentina continued to struggle from its collapse in 2002, though it finally began gaining momentum with the rise in commodities pricing. The country’s success has been rampant to the point of being unsustainable over the long-term. The fly in the ointment here is overheating domestic markets in the global South have become a primary concern for international analysts, and, as The Economist outlined, Brazil and Argentina are the top two markets at “risk of boiling over.”

Research conducted by Vox and BNY Mellon have also illustrated the issues enveloping Argentina’s markets; a situation that can be easily managed once the government is willing to openly acknowledge and work towards reducing inflation. As in all countries, part of the economic problem is political. Argentine leadership has been reluctant to change course because the policies being implemented were, at a minimum, moving the economy forward. Moreover, there is a strong concern that making any economic issues public would lead to wide-spread unrest; the population would likely not remain silent if it was forced to endure a fourth economic crisis in three decades.

These reasons have led national leaders to continue to ignore the warning signs and press forward with economic policies more ambitious than the last. This has created inflation, by private sector estimates, at nearly 25%, leading to currency overvaluation. Government officials, however, place inflation numbers closer to 10%, and there have been numerous reports that Secretary of the Interior Guillermo Moreno has threatened independent economists willing to report contradictory estimates.

Reluctant Optimism

The 2001 default – brought about by high inflation, currency overvaluation, borrowing from IGOs at increased interest rates, and privatizing social programs during a recession – is different in many ways from the economic situation arising today, but the implications remain the same. The effects of another recession in Argentina could negate regional gains achieved over the past decade. The economy is not under threat of imminent collapse, and the IMF World Economic Outlook from the fall of 2011 stated that: “Policies need to be designed to address two offsetting forces: containing domestic overheating pressure and the buildup of financial vulnerabilities, while responding appropriately to the souring external environment [and] a temporary pause in monetary tightening could be considered until uncertainty abates.”

Argentina’s government has acknowledged the IMF Outlook, but, as expected from a country that entered into default as a result of international interference, the Argentine government and the Central Bank have stated that they will continue to implement the policies that best represent the interests of the Argentine people. Even though President Fernandez has yet to make any statements concerning a change in the country’s domestic market policies, it is expected that the economy will become central to the national agenda in President Fernandez’s second term with the appointment, last year, of Economy Minister Amado Boudou as Vice President. The only way President Fernandez will be able to move the nation on to a truly stable path is to take the reins and direct economic policy, rather than be led by it.