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New Crisis Argentina*
December 22, 2001
Argentina's New Chapter in an Epic of Frustration
By CLIFFORD KRAUSS
UENOS AIRES, Dec. 21 Argentina has some of the world's richest agricultural and cattle lands and a good deal of oil, an educated and cultured population, and a mere 36 million people sprinkled over a land mass nearly the size of India. At the turn of the last century, its economy was comparable to that of the United States.
So why is the country today in such a mess? And why has it met similar crises at so many points in its modern history?
Most of Argentina's presidents in the past seven decades have either resigned or have been overthrown in military coups. Their demises have often come in the midst of economic crises, and after the discontented filled Buenos Aires' broad, Parisian- style boulevards to battle the police.
When President Fernando de la Rúa resigned this week halfway through a four-year term, he followed a script written by a long string of failed predecessors, leaving a country lacking political consensus, a government on the brink of bankruptcy, an economy in a nosedive.
Indeed, Mr. De la Rúa seemed to be revisiting an article published in the British magazine The New Statesman in 1978 that commented: "The failure of Argentina as a nation is the biggest political mystery of this century."
The unfulfilled promise of this New World country with European aspirations is rooted deep in its history of civil wars, military and guerrilla uprisings, and dishonest government. But there are many other reasons, too, why the present situation is so unsurprising and the future so uncertain.
Forty percent of Argentines do not pay their taxes, penalizing those who do and leaving the government perpetually short of cash. The economy is led by a business class that has trouble competing in international markets and has traditionally shielded itself through tariffs and depended on handouts from the government. The political system is characterized by corrupt, machine-led parties whose loyalties shift carelessly among ideas and agendas. The electorate is fickle, and tends to look for quick fixes without sacrifice.
The dominant political organization, the Justicialist Party, was set up by Gen. Juan Domingo Perón in the 1940's as a populist quasi-fascist party that took from the rich and gave to the poor and big unions. The party today has no guiding ideology and is deeply divided.
Some members want to open the economy, and others would set up high tariff walls and reject the globalization that neighboring Chile has thrived on for much of the last decade.
The demonstrations of the last few days had no leaders and few slogans beyond a desire to throw all politicians out of office. "They are pigs and prostitutes who have failed," chanted a crowd that gathered outside the presidential palace in the Plaza de Mayo on Thursday.
This sorry panorama has inspired a series of new best-selling books by Argentine writers who launch the most withering criticisms of their own country.
"I don't remember a single moment in my life when you could say we were not in a crisis," wrote Mariano Grondona, a veteran journalist, in a new best seller. "Ever since the 1930 coup, when the state lost its legitimacy," he added, "the Argentine state has declined to the point of impotence."
He had little better to say about business or labor. Mr. Grondona noted that Argentina's productivity is exactly the same today as it was in 1970, while the United States is 80 percent more productive than it was 31 years ago. Argentina exports only 8 percent of what it produces, he said, while neighboring Chile and Mexico export 30 percent.
"We don't have the quality of life that we want, nor the efficiency, nor the decency, nor the security that we require because we Argentines have failed," wrote Marcos Aguinis, a literary critic in a book published early this year. "Only if the society develops a decisive diagnosis can we come closer to selecting good leaders and create a climate of rationality, strength and hope."
But the diagnosis of the present the unsustainable debts, the hobbling economy, the unstable government can only begin with a look at the past.
Argentina was a colonial backwater in the 16th through the 18th centuries, when all legal regional commerce with the Spanish motherland passed through distant Lima, Peru, the colonial capital for southern South America. That left Argentines far from the main trade routes, and Buenos Aires, the capital, got its start as a smuggler's port.
Making get-rich-quick deals, evading taxes and paying off corrupt customs officials became standard operating procedure, and remain so.
Even today, few Argentine companies have gone public because executives are reluctant to open their books to regulators who might question their tax receipts.
The Buenos Aires stock exchange rarely does more than $15 million in stock trading volume a day, limiting foreign capital flow into local companies. This was true even in recent years, when the last government of President Carlos Saúl Menem sold off much of the state to foreign, particularly Spanish, enterprises.
Much of that money ended up in the pockets of government officials rather than going toward social services, as a series of recent corruption investigations have shown.
Paltry tax revenues have expanded government deficits and debts. So have free spending and an inefficient government that divides overlapping responsibilities between Buenos Aires and the 24 provinces.
The cumbersome division of powers is the product of a series of indecisive 19th civil wars, and it has contributed to the creation of more than $152 billion in central government and provincial debts.
Mr. De la Rúa's predecessor, Mr. Menem, said he would change all that. He privatized, deregulated and pegged the value of the peso to the dollar.
For a while the strategy worked spectacularly. Annual inflation dropped from the thousands of percent to nearly zero. Between 1991 and 1997, the gross domestic product grew by 52 percent, as $13 billion in foreign investment poured in.
But Mr. Menem and Mr. De la Rúa after him used the currency peg as a crutch. With no inflation, there was no need to balance budgets to keep interest rates down, and government deficits skyrocketed. Meanwhile, as the dollar grew stronger, Argentine products became even more uncompetitive on world markets.
Now unemployment has risen to one in five workers. The current recession is nearly four years old, and it is deepening. If the government defaults on its debts and devalues its currency, as most economists expect, things probably will only get worse and the national decay of the last seven decades will continue.
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