Argentina’s farmers are on strike. Again. Food isn’t being
exported. It’s not even making it into city markets.
It’s quite a comedown for what was one of the world’s wealthiest countries 100
years ago. Argentina’s
economic glory days are long gone, thanks to the dysfunctional economic
policies of Gen. Juan Domingo Peron and his political progeny, who have clung
to power in Argentina
more or less continuously since the 1940s.
To understand what’s happened in Argentina,
let’s recall the old cow-based definitions of political economies:
Socialism: You have two cows. The State takes one and gives it to someone
Communism: You have two cows. The State takes both and gives you the milk.
Fascism: You have two cows. The State takes both and sells you the milk.
today, the situation looks like this: You have two cows. The Peronists take the
milk, export it for record-high world prices, pay off their political cronies,
subsidize their urban-poor political base and give the farmers whatever is
left. Unfortunately for the farmers, what’s left often isn’t enough to cover
For three generations Argentina
has labored under the Peronists’ simple, but economically destructive,
political formula: Increase wasteful welfare-state handouts; build a swollen
bureaucracy to redistribute wealth; protect powerful, closed-shop trade unions
from foreign competition; and generously lubricate all these components with
Anyone raising serious objections risks a visit from political thugs. Of
course, these policies have exacted a terrible toll: Some families in Argentine
barrios have been unemployed and on welfare for three generations.
Since coming to power in 2003, the presidential tag-team couple of Néstor
Kirchner and Cristina Fernandez de Kirchner have financed their Peronist
policies by exploiting high commodity prices. They’ve kept the peso
artificially low and taxed agricultural exports heavily. It hasn’t worked.
During his presidency from 2003 to 2007, Néstor Kirchner tried to stimulate
growth by boosting government spending, wages and pensions. Predictably,
Rather than move to correct the problems, The Economist notes, the Kirchners
simply "whitewashed the effects of inflation" by canceling
publication of official poverty statistics.
They got a temporary reprieve from reality when Venezuelan President Hugo
Chávez, their ideological soul mate, paid off much of a large chunk of Argentina’s
$5 billion-plus official debt.
Though Néstor Kirchner turned over the reins to his wife last year, his
heavy hand remains visible. Most of her ministers are holdovers. The Economist
Intelligence Unit observes that Cristina Kirchner has continued her husband’s
"commitment to a weak currency policy … and to the heterodox measures,
such as price caps, cross-subsidies and export taxes, which have been used to
contain the resultant acceleration of inflation."
farmers no longer are willing to serve as the Kirchners' cash cow. When
Cristina Kirchner’s finance minister raised taxes on agricultural exports to 44
percent earlier this year, they said "basta," meaning
"enough." A 21-day strike ensued.
Farmers blocked food shipments and demonstrated peacefully. The Kirchner
government responded with occasional police brutality and deployed the
Peronists' favorite populist weapon — rent-a-mobs.
Ultimately, both sides agreed to a 30-day truce. It ended May 2, the
Kirchners stubbornly refusing to negotiate a lower tax rate. With no settlement
in sight, the farmers resumed their strike on May 7.
Talks with the government since then have gone nowhere. With matters at an
impasse, Argentine farm groups have suspended grain exports and meat sales.
Thousands of U.S.
teachers, farmers and other pension fund investors lost $3 billion when Argentina
defaulted. Even though the Kirchners are currently sitting on more than $50
billion in hard currency reserves, they refuse to repay this debt in full.
A solution won’t be easy, in large part because the country’s problems are
so structural. The 2008 Index of Economic Freedom reports low scores for Argentina
on property rights, labor freedom, freedom from corruption and, especially,
financial freedom, stemming from the still-unresolved 2001-2002 crisis when Argentina
defaulted on its foreign debt.
Political interference with an inefficient judiciary makes investors
mistrust Argentine courts.
On the other hand, Chile
has shown an openness to foreign investment, and officials there have been
trying to fight corruption and protect property rights. While the Kirchners try
to revive Juan Peron’s disastrous 1960s-era protectionist "import
substitution" policies, Chileans lead South America
in seeking free-trade agreements. They see the value of globalization and
aren’t afraid of it.
Even leftist Brazilian President Luiz Inacio Lula da Silva is doing a better
job of governing than the Kirchners. He calls inflation a "degrading
disease," advocates fiscal restraint and supports Brazil’s
central bank anti-inflation measures. As a result, foreign investors are
flocking to Brazil
and shunning Argentina.
Instead of perpetuating wasteful welfare state handouts and redistributing
income, the Argentine government should look west and emulate the success that Chile
has enjoyed from a combination of economic reform, privatization and limited
government. Until it does, Argentina’s
glory days will remain little more than a faded memory.