Beneath Argentina's growth, economic fault lines simmer
Economic policies are based on short-term gains instead of long-term growth strategies, writes guest blogger Melissa Lockhart Fortner, and have created 'fundamental instability.'
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The greatest roadblock for modern-day Argentina appears to be the absence of a broad political consensus on democracy and economic tactics. In Chile, a cohesive economic and political class shares a long-term contract on the means by which the country must operate and develop. That consensus is shared and consistent across parties and administrations. On the other hand, Argentina has suffered from inconsistencies, policy swings, and attempts at transformation among administrations – a problem some Argentine economists we spoke to called the “Now we are a new Argentina” syndrome. Economic policies are based on short-term gains instead of long-term growth strategies, and the disconnect between politics and sound economic theory impedes the application of the laws of economics.Skip to next paragraph
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In light of this challenge, Argentina has been unable to take advantage of recent economic boons to strengthen the country’s foundations. While Chile has saved revenues from high commodity prices and reinvested in education, innovation, and development, Argentina has multiplied its social subsidies, eroded the country’s fiscal surplus, and spurred high inflation. The administration’s policies – based on heavy government intervention in the markets – have spooked foreign investors.
Yet as long as output grows and social programs and handouts continue, the Argentine population as a whole continues to support the current administration and its interventions in the market. Among the population receiving benefits there is high support for the government, and President Fernández de Kirchner won re-election in 2011 with 54 percent of the vote. Recent polls show that 70 percent of the population favors heavy state management of the economy. This does not bode well for any hope of policy change until the moment the system fails, as the political incentives are skewed toward the very economic policies that are sending it down a precarious path.
The scenario is reminiscent of a tragic news story the Pacific Council delegation reviewed before visiting the country. In late February 2012, a commuter train in Buenos Aires crashed and killed 49 riders when its brakes failed as it arrived at its final stop. From afar, the tragedy was confounding: the train was traveling at less than 15 miles per hour, so why were there so many fatalities? The train, it appears, was so rusted through that it fell apart under pressure and the cars crumpled into one another. It should have been deemed insecure and unfit for passengers, but instead, citizens were subsidized to ride it.
In this case, it is Argentina’s economy that is on its way toward a train wreck, and will fall apart under pressure. Government subsidies for Argentines make it certain that many will be caught unawares when it does.
– Melissa Lockhart Fortner is Senior External Affairs Officer at the Pacific Council on International Policy and Cuba blogger at the Foreign Policy Association. Read her blog, and follow her on Twitter @LockhartFortner.
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