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The arrogant power: not the USA, but Argentina
Argentina on the brink of collapse
The state of Argentina's economy

  • (march 2007) The arrogant power: not the USA, but Argentina. Argentina is a bastion of anti-USA sentiment. It is the only major country that openly salutes Chavez's continuing efforts to paint the USA as the source of all problems in the world (and its enemies as heroes, from Iran's president to Cuba's president). Argentina has a tradition of always making the wrong decision (and then blaming them on other countries). One century ago Argentina and the USA were the emergenging powers: one went on to become the world's superpower while the other one became of the world's greatest failures. Needless to say, Argentina decided to be friendlier to Venezuela than to the USA at a (relatively rare) time when the USA is ready to sign free-trade treaties with anybody. Thus the USA signed one such deal with Uruguay, a neighbor of Argentina and a member of Mercosur, the south-American free-trade zone that now also includes Argentina's friend Venezuela. Needless to say, Argentina got upset that Uruguay would dare snob its powerful neighbor and sign a deal with distant USA. Argentina's officials suggested that Uruguay be punished by Mercosur. Uruguay replied that it is willing to quit Mercosur. If this had been the USA threatening a smaller country, there would have been millions of protesters marching in the streets of the entire world. Argentina displayed a ridiculous level of arrogance towards a country that is simply trying to take advantage of a window of opportunity that may some day close (the USA has been traditionally very reluctant to sign such free-trade deals).
    A poll by LatinoBarometro showed that Latin Americans dislike Chavez giving him a 4.9 rating on a 0-10 scale. A poll in Uruguay showed that 59% of Uruguayans support a free-trade deal with the USA. Argentina decided to side with Chavez against the Uruguayan people. Suit yourself.
    The opposition candidate, Roberto Lavagna, has been critical of his government and, if elected in october, promises to change the tune. But for the time being Argentina's president Nestor Kirchner may have pulled Argentina back from the brink of economic collapse only to push it down the brink of anti-Americanism.
    Unfortunately, Kirchner is simply targenting a very large share of the electorate: the one that agrees with Chavez and blames the USA (instead of its own stupidity) for all the evils of the country. In the BBC World Service's poll, 64% of Argentines said that they have a negative opinion of the USA.
    TM, ®, Copyright © 2005 Piero Scaruffi All rights reserved.
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  • (November 2001) Argentina on the brink of collapse. Fernando de la Rua, who took over in October 1999 after the long and mostly successful presidency of Carlos Menem, has proved to be one of the worst leaders Argentina has ever had. Thanks to his mismanagement and ineffectiveness, Argentina is now back into the third-world. It is unable to pay off its debt of 140 billion dollars and it will soon have to choose between a devastating devaluation or adopting the dollar as the national currency (both will hurt millions of people and thousands of businesses).
    The effects of Argentina's default on debt payments will reverberate throughout Latin America, a geographical area that just a few years ago showed promising signs of economic development. With the sole exception of Chile, these Latin countries have never truly managed to reform their economies and keep collapsing time and again after a short cycle of prosperity (which usually benefits mainly a few wealthy lobbies).
    The truth is that, throughout Latin America, progress in democracy has not come with progress in economy (in Chile progress in economy has come during the dictatorship of Pinochet).
    Argentina is a textbook case of how a country's wealth was built on borrowing money from abroad. Argentinians are rightly upset with their president but they should also realize that their expensive clothes, nice furniture, foreign cars (not to mention jewelry and furs, that experienced a boom in the 1990s) were bought with borrowed money. Simply put, Argentinians lived way above their means. There is a limit to how long you can live above your means.
    When Menem became president, inflation was rampant. Menem pegged the peso to the dollar and in a few months tamed inflation. The peso became one of the strongest currencies in south America. This allowed Argentinians to buy cheaper goods from neighboring countries. Unfortunately, the government took advantage of this apparent wealth and started spending way beyond its revenues. So did local governments (city and province) and so did average Argentinians. The government did not even try to raise taxes: Argentina is famous for tax evasion and the government was friendly to the wealthy businesses and individuals who were doing it. The strong peso eventually hurt Argentinian exports, while growing public debt drained the ability of the government to fund public works. Eventually the economy came to a grinding halt. As the economy worsened, so did the finances of the government, which soon became unable to pay salaries and pensions, generating a chain effect. Fearful of losing foreign investors, the government kept paying interests on its foreign debt even if those payments were made at the expense of ordinary citizens. Eventually, ordinary citizens took to the streets.
    The people of Argentina and the rest of Latin America will pay a high price for this situation. Foreign investors will become wary of Latin America and move elsewhere and their own citizens will withdraw their savings and invest them in safer havens.
    The positive outcome could be the adoption of the dollar, which is already the national currency in Panama and Ecuador (and, de facto, in most of Central America). Since most of the troubles of these countries are due to their incompetent governments, it may be reassuring to know that, in the future, their economies will largely depend on choices made in Washington rather than in Buenos Aires. Hopefully, the dollar will become the "euro" of the Americas, with the big advantage that it is not controlled by a dozen unruly prime ministers (as in Europe) but by just one strong government (in Washington). De facto, this means that South America is slowly becoming a colony of the US. But this is not necessarily an evil at all. In fact, it may be the only way that the Americas can ever unite in one large free trade zone and eventually in one large, powerful and free country.
    (Alas, the new Argentine government was forced to do just the opposite: restore the peso and let it float).
    TM, ®, Copyright © 2005 Piero Scaruffi All rights reserved.
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  • (July 1999) The state of Argentina's economy Hats off to Carlos Saul Menem, first democratically elected president of Argentina after the dictatorship of the 80's. In 10 years (since 1989) he has tamed hyperinflation, increased industrial production by 40%, increased per capita income from $2,100 to $9,800. Argentina used to trail Chile in economic matters: now it is its peer. Argentina used to trail even messy Brazil: now its economy seems to be ten year ahead of Brazil's. The bad news is that this economy is heavily dependent on foreign investment: Menem's miracle was basically to bring back foreign confidence in Argentina's economy. That makes Argentina vulnerable to any international crisis, ranging from its neighbor's to Russia.
    TM, ®, Copyright © 2005 Piero Scaruffi All rights reserved.
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