My husband and I recently returned from a two-week trip to Argentina, a beautiful, geographically diverse country well worth visiting. But the trip was also an eye-opener to a life in a statist system where the government badly mismanages the economy—the current estimate of the annual inflation rate is 30 %—and the Argentinians suffer.

Argentina has had a statist social system since the Spanish colonial rule, but the current administration of President Cristina Kirchner seems to have learnt little from history, such as the hyperinflation of 1000% in the 1980s, the collapse of the Argentinian peso in 2001 and the foreign debt default of US$150 in 2002—the largest in history. Although Argentina’s economy has been relatively more stable in comparison during Kirchner’s rule since 2007, thanks mostly to the increase in commodity prices (Argentina is a big agricultural exporter), her staunchly statist government has made all the wrong moves and worsened the economy.

Seeking popular support, the Kirchner administration has grown government spending significantly on generous social programs, taking various measures to finance them. In 2011, it nationalized the Argentinian assets of Repsol, the Spanish oil company. It has increased taxes to corporations and individuals, devalued the currency, restricted the ability to buy foreign currencies, and printed fiat money, increasing the inflation. Adding to these hazardous measures, the government has borrowed from Venezuela, in exchange for promises to follow the socialist path. Thus President Kirchner’s recent praise of Venezuela’s Nicolas Maduro in the face of the violent attack he ordered on opposition protesters in his country.

Just weeks before our trip, the government devalued the peso by 15% in mid-January, sending the inflation soaring again. The consequence: protests in the streets of Buenos Aires, and the constant din of the calls “cambio!” of black market money exchangers, who would give you almost twice the official exchange rate for US dollars and euros. For average Argentinians, this has meant evaporation of savings and diminishing opportunities. As prices increase rapidly and salaries do not keep up, those who have not left the country for better opportunities elsewhere, have had to downgrade their expectations. Many young people see their prospects as dim. Take the case of Abel, the young driver we hired in Mendoza. With unusually good English skills (thanks to his mother who put him in an English-language school), he is pursuing a diploma in tourism, but can’t afford to move away from home or save much money. And what little he manages to save is eaten up by inflation.

President Kirchner’s response to her country’s economic woes has been to divert attention to the Falkland Islands dispute (99% of their population of less than 3,000 voted to remain a British protectorate). Throughout her presidency, Kirchner has tried to flame nationalist sentiment by keeping the dispute alive. She has also tried to cover up the true state of the economy by grossly understating inflation—according to the rate is only about 10% a year. And in a latest move to tame the inflation her government has caused, she is trying to introduce price controls and prevent businesses from increasing their prices.

The Argentinian government is doing its best to hamstrung the economy and restrict the freedom of its citizens—the fundamental requirement of their flourishing—so there is much to make me cry for Argentina. However, there is always  hope that the future can be better—people have free will and they are capable of learning. Despite its mismanagement of the economy and alleged corruption and cronyism, the government is an elected one, as opposed to a dictatorship of the past. It is possible for someone to form an opposition party on a platform of individual rights, limited government, and free markets, and it is possible for people to vote for such a party to form a government. It seems a remote possibility today, but it would be the only way out of Argentina’s current mess.

Despite the gloomy situation, there are some encouraging signs around the country: the beef, wine, and tourism industries are growing. Despite the government obstacles, people working in these fields are developing their products (we had some excellent meals and wines during our trip and experienced some of the warmest hospitality and best service anywhere). If the Argentinians can reduce the size of their government and turn it from ruining the economy to protecting individual rights, there will be much to cheer for in Argentina.

9 COMMENTS

  1. I’ve long viewed“Latin America” as a classic example of “mercantilism”, a form of economic control that claims to support private ownership but tries to control it and meddles in the economy.
    In South America it is strong, when Marxism is not (as Marxism is in Venezuela today). Control is justified on the greater good, typically nationalism is used to bolster that, but at root it comes from the same negative view of humans as Marxism, though often via the religious fork of the results of Plato’s fundamental error in trying to understand the mind. (Marxism and related ideologies come from the Kantian fork.)

    We have a mild version here in the current governments of B.C., AB, and Canada – meddling by blocking sale of companies, subsidizing mooching companies and industries, and restricting occupations (dairy and poultry production, and transportation, for example).

    The books of Hernando de Soto report on the problems people have producing for a living. (His first well known one was “The Other Path”, reporting on government barriers to people in Peru. most recent ones highlight the value of property rights to poor people, including a justice system.)

    • The mercantilism observation is good, Keith–thank you (and the parallels to Canada are apt–and depressing).–Thank you also for the reference to Hernando de Soto’s books.

  2. As for Argentina electing its government, keep in mind that tyrant Chavez was elected in Venezuela. Keep in mind that Hitler was elected (perhaps feeding on economic discontent and nationalism – time for me to re-read The Ominous Parallels by Leonard Peikoff :-).

    Once elected tyrants like Chavez and Hitler get in power they usually manipulate elections and push constitutional changes that increase their control. It sounds like Argentina is headed that way.

    (Hondurans stood up to an attempt to do that. That was not a military coup, the Honduran military was acting on instructions of courts, as the constitution requires them to in such a case.)

    It is telling that neo-Marxists in Canada and the US supported the ousted tyrant in Honduras, and the engineer’s union at Boeing presented a video praising Chavez.

  3. Argentina is the only first-world country (it was the richest nation of the American continent during the 19th century) to have entered the third-world. Now, even former poor nations such as Peru and Ecuador have better standards of living. I wouldn’t be surprised if Spain joined the Third-World as well in the next 10 years or so.

    • Thanks for sharing your views, Raphael. According to the official government statistics, Argentina is not doing do badly–but the reliability of government statistics is in question. Many economic commentators agree with you.

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