by Federico N. Fernández
The beginning of the 21st century found Argentina in the midst of a storm.
In 2001 the country was submerged in a deep recession which spiraled into a political crisis after the mid-term elections of October. By the end of that year, the administration led by Fernando de la Rúa fell and more than a decade of populist policies followed.
The ’90s looked nothing like the early 2000s. After the fall of the Berlin wall, the whole of Latin America, from Mexico to Argentina, experienced the so-called “neoliberal wave”. In Argentina, neoliberalism meant a series of economic reforms. For instance, the privatisation of highly inefficient state monopolies — such as the one in telecommunications.
It also meant the reduction of public employees, and a relative opening of the economy. But the key issue was a monetary regime named “convertibility.” The currency board implemented by the then minister of finance, Domingo Cavallo, almost immediately stopped a chronic and decades long inflationary problem which had evolved by 1989 into hyperinflation.
By the end of the ’90s the inconsistencies of the economic program were causing imbalances, huge deficits, and unemployment. In 1998 the economy entered a prolonged period of recession. President de la Rúa came to power running a conservative campaign — promising to maintain convertibility and price stability but also to boost the economy and fight rampant corruption.
At the same time, Hugo Chávez was elected in Venezuela. The message of Chávez was diametrically opposed. It would be soon clear that the exhausted neoliberalism was going to be replaced — across the region — by a new wave of populism.
The seeds of neopopulism in Argentina were planted by President Eduardo Duhalde. An obscure figure from the province of Buenos Aires, he arrived to the presidency thanks to a parliamentary procedure just two years after losing the elections to Mr. de la Rúa. Many claim that both Mr. Duhalde and the Peronist party were conspiring against the government and eventually provoked its collapse.
The Duhalde administration will be remembered for two decisions. The first was the abolition of the convertibility regime. Leaving the convertibility regime was one of the most traumatic events in the country’s history. Parity with the dollar had created a de facto dollar economy, since Argentines tended to distrust the peso. Politicians knew this. They also knew that it would be too hard to honour people’s contracts and savings in dollars. So they must have cried “Eureka” when somebody came with the concept of asymmetrical devaluation — which in practice meant the destruction of all existing contracts.
This procedure represented a major transfer of wealth. The losers were savers, people living on salaries, creditors of private dollarised contracts like mortgages, and many more. All of them saw their income and savings liquefied by an imposed exchange rate and the eroding power of inflation.
The second was the implementation of export taxes, retenciones in Spanish, to the agricultural sector. Not many countries in history have taxed their own exporters. The ones who have tend to be highly extractive economies with corrupt and inefficient political elites. Mr Duhalde seemed to be eager to join this pathetic club of Third World leaders.
In 2003 the Kirchner couple got into power. They remained for three consecutive terms for a total of twelve years (Néstor Kirchner 2003–07 and Cristina Kirchner 2007–15). The policy of export taxes was the cornerstone of their economic plan.
The twenty-first century has been so far a century of a weak dollar and an easy monetary policy by the Federal Reserve. This easing is characterised by excess of liquidity and extremely low interest rates. International exchange rates have reacted accordingly, with a sinking dollar against the euro. Gold also experienced a rally unseen for many decades. This weakening process was accompanied by a boom in commodity prices.
Historically, there is a correlation between commodity prices and the US dollar cycle. What is more, as substantial mainstream and Austrian parts of the literature claim, a strong case can be made in favour of the causal relationship between US monetary policy and the behaviour of commodity prices. In the words of Steve Hanke, “the evidence suggests that the Federal Reserve is a major culprit in the commodity inflation story.”
It was this windfall which facilitated the implementation of the populist agenda of the Argentinian government. It is the key ingredient of its destructive recipe. The Kirchners simply adapted the Venezuelan model to local conditions. The government of Venezuela exercises ownership and control of the national oil company, PDVSA, while the Argentinian government, starting with the unelected transition administration of 2002–3, heavily taxed commodity exports.
The rise of Argentinian (and Venezuelan) populism must take into consideration the Federal Reserve’s monetary policy and its impact on commodity prices. Contrary to the claims of their propaganda apparatus — which spanned public education, media, and the intellectuals — the driving force of the sociopolitical process in both countries is not the so-called “accumulation model with social inclusion” or the “Bolivarian revolution” but chiefly the dollar cycle and its commodity price repercussions.
Democratic order returned to Argentina in 1983. Between than and 2015, Peronists were in power for 24 out of 32 years. The only exceptions to their hegemony were the Alfonsin (1983–1989) and de la Rúa administrations (1999–2001). Both of these finished before they were supposed to.
The pervasive populist influence of Peronism can be traced back to the late 1940s. Since then, Peronism has had a hegemonic influence over the political life of the country. Gabriel Zanotti believes this is precisely the “cultural drama” of Argentina and compares it to the hypothetical situation of Germany today having had an extremely popular National Socialist party, and all the other German parties copying and imitating the Nazi agenda.
The economic programme of the Peronists, and the populists of all parties, aptly described by a term coined by Ludwig von Mises: Destructionism. It has produced nothing. It has created nothing. It has only parasitically lived off resources created by previous generations and favourable international contexts.
But after seven decades of political dominance, hegemonic populism seems to be showing signs of exhaustion. The once mighty Peronist party is today reduced to a feeble league of northern feudal lords and the most pauperised suburban belt of the province of Buenos Aires. It may be that the excesses of former president Cristina Kirchner marked the pinnacle of the Peronist power and the start of its decline.
After so many years of populist mismanagement, the economic decadence — and frustration — is palpable. The defeated presidential candidate Daniel Scioli ran a campaign in 2015 promising to build sewers for the population. Yet Mr. Scioli himself was governor of Buenos Aires for eight years and his party was in office in that province between 1987 and 2015. Twenty-eight years, apparently, were not enough for Peronism to solve the sewage situation.
The current president, Mauricio Macri, went to elections offering a clear anti-populist alternative. He won in an election that was as surprising and shocking as Brexit and Trump. He did very well in all sectors of society, including the worse-off.
The surprise that Macri’s election provoked among pundits, pollsters, and even the business community could (and should) be attributed to underlying tendencies within Argentine society. These tendencies are not yet fully appreciated. It could be the case that Macri’s victory is a symptom of something much deeper. Namely, that Argentinians have had enough of populism.
Federico N. Fernández is a Senior Fellow at the Austrian Economics Center and President of the Fundación Internacional Bases.