Economic activity in Argentina collapsed during the fateful year of 2020. Official data indicate a 10% contraction, the most serious on the continent along with that of Peru if the Venezuelan catastrophe is left aside.
In 2002, when Argentina collapsed, the drop was only slightly higher: 10.9%.
Inflation is very high (38.5% in the last twelve months and rebounding), the currency continues to devalue, the Central Bank's reserves do not reach 3,000 million dollars and four out of every ten Argentines live in poverty.
The macroeconomic picture is very alarming.
Argentina, however, is used to bankruptcy and recovery.
And to relative decline.
Since 1921, exactly a century ago, when it was one of the richest countries in the world (its Gross Domestic Product (GDP) per capita was then equivalent to that of France or Germany), it has experienced an average annual inflation of 105% and has seen forced to change five times of currency: peso national currency until 1969, peso ley until 1983, Argentine peso until 1985, austral until 1991 and the current peso.
Since 1980, it has suspended payments on its foreign debt five times (nobody in the world equals that mark of defaults) and is, right now, the main debtor of the International Monetary Fund, with 44,000 million dollars to repay.
In December 2019, when the Peronist Alberto Fernández assumed the presidency, things were bad.
Argentina had relapsed into default and had been in recession for three years.
Then, within a few weeks, the pandemic arrived.
The Minister of Economy, Martín Guzmán, had to fight on two fronts.
On the one hand, it renegotiated in long telematic sessions the debt with private creditors and obtained a deferral of payments and a significant reduction in interest.
That was a respite.
Now he is trying to get the IMF to also agree to delay the repayment of his credit.
The other front seemed even more complex: how to subsidize companies and citizens affected by the coronavirus stoppage?
Without access to credit markets, Martín Guzmán had to resort to pure money making.
The Central Bank issued more than 1.2 trillion pesos during 2020 (printing presses were hired in Brazil and Spain because the two Argentine currency factories were already working 24 hours a day), with the risk that inflation would worsen.
As it seems to be happening.
Last January, prices rose 4%.
The country, despite everything, continues to function.
A good example of continuity in the face of all past and present difficulties is offered by Galfione y Cía, a spinning company founded by Hugo Galfione in 1947 under the presidency of Juan Domingo Perón.
Hugo's grandson, Luciano Galfione, is today the director.
The Galfione family has overcome almost unthinkable circumstances, such as hyperinflation or the post-2001 barter phase. Luciano Galfione pays 150 salaries a month, runs three factories at full capacity and lives thanks to the domestic market.
That of the domestic market is one of the keys to Argentina's difficulty in maintaining sustained growth, and partly explains the formidable inflationary pressure: its economy is little connected to international trade.
A comparison with Chile, a country with 19 million inhabitants compared to 44 in Argentina, is enough to reflect the phenomenon.
Chile exports for an amount close to 500,000 million dollars and its imports are around 600,000 million;
Argentina exports for just over 60,000 million dollars, basically grains and meat, and imports for a similar amount.
The businessman Galfione allows himself to joke: "Look how rich the country will be, that it resists the Argentines."
In 1984, when Argentina was emerging from its most gloomy dictatorship, the Nobel Prize in Economics Paul Samuelson (1915-2009) expressed a similar idea without joking: “Argentina is the classic example of an economy whose relative stagnation does not seem to be a consequence of the climate, racial divisions, Malthusian poverty or technological backwardness.
It is their society, not their economy, that seems to be sick ”.
The Peronist government of Alberto Fernández attributes to the previous government, the liberal Mauricio Macri (2015-2019), the responsibility for the current crisis.
Certainly, during 2018 the peso lost 40% of its value and the huge loan received from the IMF evaporated in desperate coverage of the fiscal deficit and in speculative operations (a large part of the 44,000 million dollars received ended up abroad or in cash boxes. security);
When in the primaries of August 2019 it was found that Peronism was going to return to power, the stock markets collapsed, the peso was devalued another 38% and exchange controls, the so-called "stocks", had to be reestablished to avoid collapse .
But Macri had inherited serious problems from her predecessor, Cristina Fernández de Kirchner, now vice president.
"It is a sum of crisis," says Diego Sánchez-Ancochea, professor of Political Economy for Development at the University of Oxford.
“Argentina never finishes coming out of its crises: it increased its debt in the eighties, in the nineties it tried to solve the problem through privatization, then the crisis of 2001 and 2002 came through the exchange rate.
Spaces of tranquility are created, but structural problems are never solved.
The crises return because they never left ”.
An endemic crisis is that of the peso.
Decades of high inflation and currency erosion, coupled with the 2001-2002 “corralito” trauma (Argentines were unable to access their bank deposits for almost a year, and when they were able to do so they found that their dollar savings had transformed into devalued pesos), have made Argentina a bimonetary country.
Real estate market prices, for example, are set in dollars.
Shops closed due to the economic crisis due to the pandemic and decades of high inflation and erosion of the Argentine currency.
PHOTO: Enrique García Medina | VIDEO: Aitor de Iturria
"The dollar is not just another variable, but a thermometer that reflects how the economy and politics are doing, as well as a savings instrument," says Marina Luzzi, co-author with Ariel Wilkis of the book
The dollar, history of an Argentine currency
.
Argentina never manages to generate as many dollars as it needs, so according to Luzzi, exchange controls (individuals cannot buy more than $ 200 per month) are a necessity.
The disappearance of tourism has exacerbated the lack of greenbacks.
The problem is so serious that the import of high-end cars and expensive distillates has been banned.
Argentina cannot overcome the historical contradiction between the needs of its agriculture, the great generator of dollars, highly competitive in the international market and therefore in favor of free trade, and its industry, which at least since Perón's first term (1946- 1955) works under a protectionist and almost autarkic logic summarized in a phrase that the Peronists keep repeating: "Live with what is ours."
The "curse of raw materials"
Douglas Southgate, an Ohio State University professor specializing in Latin American studies, explains it this way: “Argentina suffers from a unique form of raw material curse originating from the agricultural sector.
Its agriculture, which enjoys a strong comparative advantage, employs few workers and the best rural lands are concentrated in relatively few hands.
Consequently, the sector is a favorite target of taxes designed by politicians whose constituents are employed in other economic sectors.
The taxation of Argentine agriculture results in a chronic underperformance of the national economy, including frequent and severe crises ”.
Actually, directly or indirectly, the Argentine countryside employs more than two million people, 14% of the active population, and it barely contributes 10% to the Gross Domestic Product.
Its true strength, and the origin of its conflicts with Peronism over taxes and withholdings at source, is in its competitiveness: out of every 10 dollars that enter the country from exports, seven correspond to agriculture.
Without the agro-export industry, hardly any foreign exchange would enter.
Entrepreneur Galfione has his own vision on the matter.
“My grandfather Hugo, the founder of the company, had fields in Santa Fe, in Recreo, the most expensive area with the highest yields, the soybean center of Argentina.
The guy in 1947 goes and says that the future is industry, he sells all his fields in Santa Fe and comes to Buenos Aires to set up a socks factory.
If I see my grandfather today, I will shoot him five times.
But seriously, it was not badly oriented, because there is no developed country that is not an industrial power.
The problem is that Argentina never became an industrial power.
It fully committed to the import substitution policy and from the middle of the 20th century began to produce articles of all kinds so as not to have to buy them abroad.
That was the formula that the Economic Commission for Latin America and the Caribbean (ECLAC), dependent on the United Nations, recommended to the continent as a whole to develop the economy and balance trade and current account balances.
Argentine industry was encouraged and protected until the 1976 dictatorship broke with that policy.
"Industrial logic dies with the military," says Luciano Galfione.
In 1976, when the world suffered from the crisis of oil shocks, Argentina's GDP amounted to 51,000 million dollars.
That of South Korea, at 30,000 million.
Today, the Argentine economy "weighs" just over 80,000 million dollars.
The South Korean (which accelerated its industrialization half a century ago thanks to almost slave labor conditions and the manipulation of exchange rates) weighs 1.4 trillion dollars and is an export phenomenon.
What has happened in Argentina?
This is also explained by the businessman Galfione, who in 2016 tried to launch a nanotechnology project to manufacture yarns with a special crystalline structure, capable of repelling heat, insects or bacteria.
He needed public aid and the Macri administration did not grant it.
“I don't have any machine that is not equal to or better than the ones they have in any other part of the world, and I have productivity worldwide.
But the costs kill me.
China or India sell below the cost of raw materials.
I am cheaper compared to Italy or Spain, but they already make in the East ”.
Other problems related to the price of energy and transport are added: “The logistics cost is enormous.
It is cheaper to send a container to China than to bring a truck from Catamarca ”.
The result is a dense industrial fabric but, in general, unable to measure itself with the industry of other countries.
Without external competition because it hardly imports (the tariffs are high), its products tend to be mediocrity.
The high technological capacity in very specific sectors (genetic manipulation, nuclear energy, pharmacy) is not enough to raise the average level and, in addition, the flight of talent abroad is continuous.
"There is something fundamental, the lack of consistency in macroeconomic policies," says Néstor Castañeda, professor at the University of Central London and member of the Institute of the Americas.
“The productive structure is very unbalanced and needs external sources of financing.
It all depends on the currencies that come from abroad.
Every time global trade contracts or there is a decline in the inflow of foreign investment, a reserve problem arises.
There is no way to fix it.
On the one hand, Argentina defaults on payments and that limits its access to capital markets;
on the other, there is a lack of coordination between exchange, fiscal and monetary policies.
It grows ten years and then falls and returns to the starting point ”.
The 1980s are often considered the "lost decade" for the Argentine economy.
The dictatorship ended and with Raúl Alfonsín democracy arrived, but also hyperinflation.
In 1989, prices rose more than 3,000%.
In the spinning factory, Luciano Galfione's father did not balance in pesos, but in kilos, because it was impossible to know the value of the product.
But, considering the macroeconomic evolution and despite the easy money of the 90s, when, with President Carlos Menem, a peso was equivalent to a dollar, and despite the golden years of Néstor Kirchner (2003-2007), in which thanks to Brutal sanitation forced by the collapse of 2001-2002 and the rise in soy prices, it was possible to grow a lot with little inflation, Argentina has been lost for many decades.
The economist Martín Rapetti estimates that, in real terms, the per capita gross product in Argentina is today almost the same as in 1974. With the aggravation that the inequality between rich and poor is much higher.
Almost half a century lost.
Ripetti, interviewed by the newspaper
Clarín
, makes a gloomy forecast: counting on the Argentine economy to grow by 6% in 2021 and then continue to grow at an uninterrupted rate of 4.5% per year, something quite unlikely, the level of life from 2011 to 2027.
With the collaboration of
Mar Centenera
,
Federico Rivas Molina
and
Ignacio Fariza
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