Nth time lucky for Argentina

“Centre-left opposition candidate Alberto Fernández has been elected president of Argentina in a vote dominated by economic concerns”, according to the BBC.

Well yes – as far as it goes.  

Since his election in 2015, right-of-centre incumbent president, Mauricio Macri, had tried, with limited success, to put Argentina on a stable growth path.  The economy stuttered.  So the Peronist Justicialist party stormed back in to resume its historical mission.

Or at least one hopes not.

Argentina’s problems go much deeper than one bout of reform. In the 1960s, Argentina and Portugal both had a per capita GDP of around US$5,000. Today, Portugal’s is nearly $24,000 while Argentina’s is $10,000 (and it has been stuck at roughly this level for the last 12 years).

Google ‘Argentina’s economic mismanagement’ and you’ll find a plethora of data and opinion.  But at the root of its long-run underperformance is a legal and political structure in which economic rights and obligations are insufficiently respected.  

The result: market investment is low and needs high prospective rates of return to cover risk; many productive people seek their fortune outside Argentina; while the remaining ones spend less time productively and more time in political battles over their share of the smaller pie.  The intense battles over distribution of the spoils tend to reinforce this structure, to the detriment of long-term growth.  

As our friends at Bloomberg point out, Argentina is struggling to become what we understand as a normal country.

Its problems are similar to those afflicting countries like Russia or Greece but in Argentina’s case, seem even more persistent.  When the country defaulted on its $93 billion external debt in 2001, it took until 2017 – and hefty write-downs of its obligations – before it could return in good standing to the international capital markets.

This opened the door to more help.  In 2018, the IMF with Western government sponsorship lent $57 billion – its biggest loan ever – to Macri’s reforming government, on better-than-commercial terms but conditional on fiscal stringency.  

But it was always a stretch that Argentina would achieve the political consensus to create a safe space for stable market-led growth.

Now the electorate has handed the problem to the latest Peronist government (who have been in charge for 23 of the last 30 years).  The markets don’t trust them: when Fernandez won the primary election in August 2019, the currency crashed and capital controls had to be instituted.

On the other hand, the failure of the old policies gets more visible with each year.  At some point, the optimist insists, Argentina will become a normal country. But perhaps not right away.

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