ARGENTINA, WHICH has suffered through a 60-year cycle of financial booms and busts, seems to be headed toward bust again. Since the beginning of the year, its currency, the peso, has lost nearly 20 percent of its value and dollar reserves have plunged to a seven-year low. Average Argentines are desperately seeking to convert their salaries and savings into greenbacks: Despite the devaluation, the dollar trades at a 50 percent premium on the black market. Inflation, which some analysts say could hit 30 percent, seems sure to soar higher, and bond markets are guessing that the country may not be able to make debt payments due next year.
The crunch is the predictable result of the populist policies pursued in recent years by President Cristina Fernández de Kirchner, who has kept utility rates frozen (leading to power outages), nationalized the country’s largest oil company (making Argentina a net importer of energy despite its huge reserves of oil and gas) and combated inflation by doctoring official figures and threatening journalists who report the real numbers.
Ms. Kirchner’s response to the crisis has been in character, as well: As the peso plunged, she flew off to Havana to join a conference to promote independence for Puerto Rico. When journalists asked about the sell-off, she blamed “speculative pressures” on the currencies of emerging countries by a conspiracy of bankers, businesses and the usual suspects.
In reality, Argentina’s problems are considerably more serious than those of emerging countries such as Turkey, Brazil and South Africa and have little to do with international markets, from which Buenos Aires has been isolated since its last financial crash in 2002. Rather, they are the product of the same mistakes that have produced previous busts: uncontrolled government spending, heavy taxes on exports coupled with strict controls on imports and disincentives to foreign investors. Never learning from its mistakes, Ms. Kirchner’s Peronist party has pursued this course repeatedly, even as neighbors, including Chile, have soared past it in per-capita income by adopting free-market policies.
The relative good news is that the economic slide contributed to a defeat for Ms. Kirchner’s faction in elections last fall, meaning that she will be forced to leave office when her presidential term expires at the end of next year. Ideally, the president and her economic team would use this status to take measures that could set the stage for a future recovery, such as coming to terms with the International Monetary Fund and Paris Club of government debt-holders, freeing utility rates and curbing spending.
Economy minister Axel Kicillof has stepped cautiously in that direction, opening talks with the Paris Club and working out compensation to the Spanish firm Repsol for the oil company nationalization. But the government’s strategy appears aimed at avoiding an immediate default rather than addressing the economy’s underlying problems. Sadly, Argentines appear headed for another stretch of economic and perhaps political turmoil. Their neighbors can only hope that this time the political class will absorb some lessons.