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CIAO DATE: 12/03
Argentina Has a Choice: Peronism or Modernity
On The Issues
February 2002
Some are quick to blame Argentina's woes on free-market economics and call for a return to populist nationalism. But that is a prescription for making an awful situation even worse. The country will inevitably have to embrace a much fuller program of free-market reform than it has been willing to attempt thus far.
Argentina's game of musical presidents has been a painful sight for anyone familiar with the country's past achievements and undeniable potential. Perhaps Senator Eduardo Duhalde, who became the fifth president in two weeks when he was elected by a provisional national assembly on January 1, will prove capable of succeeding where his predecessor, Fernando de la Rúa, failed and will complete the remaining two years of the current presidential term. But even if Mr. Duhalde, a talented and nimble politician, succeeds in restoring a measure of public calm to a highly charged emotional environment, he cannot be expected to resolve the country's fundamental problems. That will require some national soul-searching that Argentines heretofore have been unwilling to engage in.
Facing Up to Key Failures
Far more than a new president, a different party, a show-trial of allegedly corrupt politicians, or a huge rescue package from the International Monetary Fund or the U.S. Treasury, what Argentina really needs is a serious national debate about how a country so rich in natural resources and human capital has managed to decline so precipitously these past fifty years.
Such a debate would resist the current facile (and erroneous) spin being provided by enemies of the free market: that the Argentine disaster is the result of "neoliberal economics." Instead, it would explore some extremely painful subjects long swept under the rug, such as why the country's national university system is reluctant to charge students even nominal tuition and why the public health system is so generous that it has periodically offered cosmetic surgery free of charge.
It would ask why in some parts of the interior, provincial governments employ fully half the economically active population and why an education budget proportionately as large as some European countries' fails to produce anything even remotely resembling a European result. It would also explore the relationship between a Mussolini-style labor code, which prevents the creation of new jobs, and the record rates of unemployment. And it would connect the dots between the famous reluctance of Argentines to pay their taxes and the mediocre, if not abysmal, public services they often receive in return. In effect, it would examine dispassionately just how far Argentina has really gone—or rather, not gone—toward the true free-market economic reform required to boost productivity, compete in the world economy, and create wealth.
New Wrinkles in an Old Pattern
Recent events have followed a historic pattern in Argentina, whereby a new president takes office in a cloud of euphoria and departs ignominiously—through the back door or in a helicopter—usually well before his or her term expires. In another way, however, the fall of Mr. De la Rúa was different. In the past the armed forces stepped in when it was obvious that civilian authorities were incapable of preserving basic order, goaded into action by the political class and often with the implicit (and even explicit) approval of the population as a whole. Some years later when they, too, failed to resolve the country's problems, they would surrender power.
This time, thanks to a decade of recrimination over the conduct of the military during the so-called "dirty war" against Marxist guerrillas and their sympathizers from 1976 to 1982, the armed services held back. As a result, politicians have been forced to assume responsibilities that they were once only too happy to pawn off on the military. One can sympathize with their discomfort, but after all, what else are they paid for?
The crisis has also brought into play for the first time the active role of mobs—perhaps spontaneously generated, but not necessarily or wholly so—demanding the resignation of President De la Rúa and his cabinet, and then, a few days later, that of his successor, Adolfo Rodríguez Sáa. Such bodies have not limited their activities to protest marches; indeed, vociferous expression of political opinion has been the least important of their activities. Rather, they have devoted most of their energies to sacking, burning, and pillaging important public buildings, offices, businesses, and even a local McDonald's.
While such pyrotechnics have proven their capacity to bring down two governments in a row, they are utterly incapable of generating investment, employment, or economic welfare generally. Quite the opposite: To the degree to which they are seen as a wild card in the Argentine deck, they postpone the country's recovery indefinitely. Nobody, including Argentines, is going to invest in a country whose government is constantly cowering before the prospect of angry mobs run amok.
No Going Back
Finally, let no one assume that Argentina can solve its problems by moving backward. Lately there has been much talk about the "good old days" of classical Peronism, with boom-and-spend populism delivering effortless wealth to every Argentine family. Presumably, experiments with new, floating currencies, a default on the foreign debt, or subsidies for unproductive (and uncompetitive) industries could put people back to work, but not for long. In the past, such policies could be financed only through heavy foreign borrowing. With the country in virtual default over $132 billion in obligations, that expedient is simply not a prospect. Excessive use of the printing press will only summon back the specter of hyperinflation, a malady that almost finished off the country a mere twelve years ago.
A decade of freer (if far from fully free) economic policy has demonstrated to many Argentines some of the advantages of modernity. For the first time in recent memory, the country has had a sound currency and low rates of inflation, a working telephone system, and long-term home mortgages.
In his first speech as president on January 2, Mr. Duhalde implicitly acknowledged as much. Amidst a series of rhetorical sallies against the prevailing economic model and a tip of the hat to economic sovereignty and independence, he also stressed the need for Argentina to avoid isolating itself from major trade blocs and to encourage new foreign investment. His apparent ambivalence is an accurate reflection of his country's conflicted state of mind. But sooner rather than later he and they must choose—either to set out in search of an era that can never return, or to tackle the job of economic modernization barely begun.
Mark Falcoff is a resident scholar at AEI.
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