What’s Wrong with Argentina?

A quick tour of the country tells the story very clearly.

When President Christina Fernandez de Kirchner initiated the nationalization and expropriation of the Argentine assets of YPF, an oil company mostly owned by Spanish interests, it came as no surprise to anyone who has visited the country recently or watched it closely. The theft was a predictable and consistent manifestation of the Kirchner personality and the character of the Argentine political class, and more of a return to business-as-usual for the country than a shock—and one which goes a long way toward explaining why Argentina is poor.

In January 1912, an impartial observer of Argentina and the United States would have trouble guessing which had a more promising future. Both enjoyed the low-hanging fruit of abundant, under-populated, available land. The Argentine pampas were as fecund, tillable, and flat as the American Midwest. Argentina had an extremely long coast-line ideal for exporting the consequent agricultural products. Immigrants from all over the world were rushing in. Argentina even had one major advantage over the States: It had never so heavily relied on slavery for agriculture. Thus, it had never experienced such a wrenching civil war, and was not destined for the racial strife and inequality that would be the major blotch on America’s future. By 1912, Argentina had even started to enjoy some soft power: The tango—which had originated in Buenos Aires’ slums—had just hit Paris, and would soon be the rage in New York and Finland. The capital was marketing itself as a fully European city transplanted directly into the Americas.

In January 2012, I caught a flight to Buenos Aires with a cheap Air Canada ticket, a psychological desperation for more sunlight than Boston would enjoy till May, and a vague curiosity about why Argentina, which had once so resembled the United States, was now so different. What had happened, in the intervening 100 years?

When I showed up at the apartment whose guest-room I had rented on AirBnB, the first things I noticed were the gold stud glimmering from my host’s right ear lobe and the framed, autographed picture of him hugging Ann Coulter displayed on his desk. My host (call him Jake), I soon confirmed, was a gay, right-wing American expatriate, who telecommuted daily to his New York marketing firm. I’m a runner, and running is how I get to know a new city. The best way to do this is usually to wind inward from the main body of water around which the city is based. So after small talk, I laced my New Balances and asked Jake to point me in the direction of the Rio de la Plata. “The Rio de la Plata?” he asked. “You don’t want to go there. There’s nothing to see,” he continued, his tone flat and casual, with barely a hint of mischief. “It’s just where the helicopters go to dump the bodies whenever we have a coup.”

(This kind of black non-humor is something a visitor must get used to. The next day, on a tour of el Teatro Colon, the major opera house, my group’s guide led us from the main theatre into a gilded hall just outside the choicest boxes. “Now this is where the really important stuff, what everyone really came to the opera for, would happen during the intermissions,” she said, her tone flat and casual, “the planning of assassinations, and so forth, among the Buenos Aires elite.”)

If you want a one-word answer to the question, ‘why isn’t Argentina rich?’ then your best bet is coups. Between 1930 (a year in which, two years after black Thursday, Argentina’s future may have looked even brighter than America’s) and 1976, Argentina suffered at least six. Up until 1930, Argentina’s per-capita-GDP had closely tracked those of countries like New Zealand, Australia, and Canada. But the next decades of constant political instability threw Argentina off track. The reason is basic: When a country is unstable, it is risky to make the long-term investments required for growth. When dictators use the economy to reward their friends and punish their enemies, markets can’t guide the structural evolution and modernization of the economy. Political revolutions, ironically, leave a country economically retrograde. By 2000, Argentina’s per-capita-GDP was about a quarter of that of Canada, New Zealand and Australia. It had largely missed the boat of the 20th century’s spectacular growth.

A quick run around Buenos Aires reveals much. In Palermo in late January, wealthy playboys with Spanish surnames and dyed-blond hair stepped out of private cars, returning from vacations abroad, and asked officious questions about the brand of your correspondent’s shirt. Meanwhile, on the walkways of the Puerto Madero, illegal Bolivian immigrants sipped Yerba Mate and caroused late into the night, shouting slurs at you correspondent as he ran by. Inequality yawns and gapes in this class-conscious city—the rich are showily rich, the poor are visibly poor, and the middle class is pretentious—which has historically proclaimed its commitments to socialism and unionism and its aversion to “Anglo-Saxon capitalism.” There is a kind of grasping at wealth in this country, and ostentation in its displays, precisely because wealth is transient, not reliable or dependable, and liable to unpredictable confiscations by the state.

My run eventually took me to the Casa Rosada, the executive mansion of “Don’t Cry For Me” fame, where I asked two college girls to document my arrival on my iPhone. But unlike college girls in the capitals of other developed countries, they were clueless with an iPhone camera, and left me with more accidental photos of themselves than of the Casa. It’s not easy to obtain an iPhone in the country at a reasonable price, thanks to onerous special taxes, and delayed regulatory approvals, on the devices that, several Argentines told me, were widely seen as retaliation for Apple’s refusal to source as much of its global supply chain in the country as the de Kirchner administration thought judicious.

After the run, I joined Jake and pals for a dinner at Juana M., supposedly one of the hipper restaurants in the old-money neighborhood of Recoleta. As we opened the menus, Jake said with some resentment, “Oh, es muy cara, muy cara” (“it’s very expensive”). But when I looked at the menu, and did the currency conversion, I thought Jake was crazy: One could get a large hunk of a world-renowned cow, a good Malbec, and a pretentious appetizer—plus, in econo-speak, the intangible consumption goods of original artwork and the social cachet of the place—for about $20. (The Argentine peso is incredibly cheap right now, because President Kirchner’s fouls have made foreign-exchange traders and Argentines eager to get their money out of pesos and into dollars as fast as possible.) Jake was a young professional, a decade out of college, with no dependents, receiving his salary in dollars from his New York firm. How was this meal muy cara for him? What was I missing?

In one word: inflation. Private estimates put Argentina’s annual inflation rate at somewhere around 25% (the government’s official number is closer to 10%, and it fires bureaucrats who disagree). The city’s restaurant menus list prices on removable rectangular stickers, which are replaced with upwardly-revised prices every couple months. Jake’s mistaken perception that the place was muy cara illustrates the basic problem with inflation: a constant surprise at how expensive things have become and a constant uncertainty about what things are really worth, that delay purchases and economic decisions in thousands of small ways that, in the aggregate, rot an economy from the inside. High inflation was the norm in Argentina for most of the 20th century, and was renewed in the 21st as Christina Fernandez de Kirchner steadily eroded the Argentine Central Bank’s independence, using its printing presses to reward friends and paper over the government’s growing debt.

None of this, of course, should discourage the prospective visitor. The Argentine peso’s loss is the dollar-holding tourist’s gain. And Argentina is lovely. The Spanish and Italian immigrants who settled the city in the early 20th century imprinted a festive culture, in which dinner is served at 10:30, young people head to the tango clubs after 1 a.m., and the work day starts at 11. The Welsh immigrants who were brought to settle the plains in the 19th century left behind red-headed girls who are freckled by their heritage and tanned by the climate, and, hence, peculiarly pretty. The capital city’s makeup is complicated still more by its German speakers, many of whom descended from Nazis who fled the continent in the later 40s; and also by South America’s largest Jewish community, largely descended from Jews who had fled the Germans a decade before. This potpourri has left a rich variety of neighborhoods and phenotypes, and a fascinating culture. The city’s architecture, its balconies, and its avenues are gorgeous; its parks and promenades are, too. Stereotypes about South-American warmth hold true. Young Argentines are uninhibited about making out in the public parks. Elderly Argentines are uninhibited in still dancing the samba through the well-preserved barrio of San Telmo. The city’s book-stores and kiosks still display a retro-Marxism, which is charming as long as you don’t think about its political consequences. In a strange way, the city’s aesthetic loveliness is almost underscored by the surreal contrast of its political dysfunction. The image of helicopters dumping bodies, left by the coups and dirty wars of the 1970s, into the Rio de la Plata, just beyond the high stone walls of the exquisite Recoleta Cemetery, was terrible and sublime.

I best saw what ails Argentina, however, on a weekend trip across the Rio de la Plata to Uruguay’s capital, Montevideo. The port from which the ferry to Montevideo left was swarming with police and their dogs. But there was no terror threat. The dogs were trained to smell out not bombs but cash. As Argentina’s currency has quickly deteriorated, and another state confiscation of wealth seems ever more likely, Argentines have become desperate to park their wealth overseas—and President Kirchner has become desperate to stop them. We passengers weren’t allowed to bring more than a few Argentine pesos or American dollars to Uruguay—our wallets were literally held open, the bills counted, before we could board.

At dinner that night, after arriving in Montevideo, I ended up in a debate with a chain smoker who had the rumpled-but-smart look of a journalist, and a Russian diplomat who was determined to pick a fight when he discovered that I was American and, worse, the Uruguayan journalist admired my home country.  The Russian diplomat (after lamenting history’s unfair misrepresentations of the Soviet Union) was also eager to let everyone who would listen know that he was “a very, very rich man.” His job at the embassy was just a sideshow. “I need the immunity for my real job”—selling Apple products to wealthy Argentine visitors to Montevideo, who didn’t want to put up with the delays, restrictions, and special taxes imposed on the products in Argentina. Mother Russia, it turned out, was capturing revenues on the iPhones that de Kirchner had practically driven out of Argentina. He also arbitraged in expensive Uruguayan real-estate, which Argentines bought solely to hedge against their own government’s inflation and confiscations. The diplomat-cum-smuggler finished by turning to the Observador editor: “I don’t think we’ve met, but I’m sure you’ve seen my car around here—the black Z4?”

Even as I tried to leave Argentina for home a few days later, the country’s economic dysfunction was vivid. When I arrived with packed bags at the Buenos Aires airport, I found the whole check-in lobby strewn with toilet paper, which caused an old man to slip onto the marble floor. (The toilet paper had been taken from the airport bathrooms, no doubt contributing to some uncomfortable layovers.) And the hall vibrated with obnoxiously loud drums and chants, coming from airport employees on strike, who marched back and forth across the lobby, drowning all of the announcements. Enough employees were working to run security, which was lax, and customs, which was aggressive. If the lengthy customs cards I had to fill, and the legal threats scrawled on them, were any indication, the Argentine government thought I had only visited the country to undermine its revenues from beef exports. (As a general rule, the aggressiveness of a country’s customs is a good metric of its overall level of economic dysfunction.)

Strikes are a regular feature of Argentine life. Municipal employees’ unions in Buenos Aires shut down the city’s transportation system fairly regularly—a pain for tourists and international businesspeople. Argentina’s public sector unions have been costly. They were largely responsible for Argentina’s latest economic disaster, its 2001 default. In that year, President Fernando de la Rua had attempted to cut public expenditures sufficient to satisfy the country’s creditors, but the public unions threw such a spectacular fit on the streets of Buenos Aires that the international bond markets decided that reform was politically impossible. Capital fled from Argentina; interest rates soared; and a decade of economic progress for the country was erased with humiliating and devastating default, which has left the country with punishingly high interest rates to this day.

The aggressiveness of Argentina’s unions is partly a by-product of its political culture—the retro Marxism seen in its bookstores, the still-lingering influence of the Perons, who made the unions into a political power base. But it’s also—and here’s where one sympathizes with the workers—a product of inflation. Because the Argentine government fabricates its inflation figures, public-sector workers’ real wages are constantly being eroded. As such, they need frequent pay hikes and contract renegotiations just to keep up with the Argentine Central Bank’s printing presses. Argentina’s various economic pathologies, then, are linked together in a vicious cycle.

As I arrived in Boston and taxied home, I thought I was maybe getting the picture of what made America different from Argentina: The customs officer who greeted me in my morning, red-eyed daze, was, for lack of a better word, a slacker. He didn’t actually care if I might be sneaking in a bit too much beef for resale in the States—the American beef industry, he seemed content to assume, could survive it. In the food court, the prices were exactly the same as at departure—and displayed in more or less permanent characters. The newspapers displayed at the Starbucks revealed that, yes, Congress was still stuck in gridlock, and, no, they still hadn’t done anything bold or surprising. At 9:15 a.m., as I taxied down Commonwealth Ave., rush-hour had largely passed because most Bostonians were already at work. The large Apple Store on Boylston St. testified that few Bostonians felt compelled to cross the Canadian border for their iPhones. The pedestrians in Boston were plainly (some might say poorly) dressed: The successful and wealthy lawyers and bankers here are pretty modest about it, knowing that they will slowly, steadily, and reliably accumulate wealth over long careers, if they just take care of their reputations. No need to grasp. Getting rich is slow, boring, ordinary business, and so the rich dress accordingly.

In short, life in Boston, as in most of America, looked relatively boring and predictable.

Argentina’s nationalization of YPF—which will be undertaken with support from all of the country’s major political parties and the cheers of the public—makes economic sense for the country in the short run, which is exactly why it is being undertaken. Argentina will reclaim national resources and their cash-flows. Only foreigners, mostly Spaniards, will get screwed. In the short run, it’s a free lunch for Argentina. The problem is, the seizure is also a return to the political and economic unpredictability that have ruined Argentina’s chances for prosperity over the past century. What foreigner will invest in the country now (and Argentina desperately needs such investment), having seen such a theft?

Maybe the thing that put America on a different path from Argentina over the past century wasn’t anything special or difficult or complex or cool, but simply the fact that life here is more boring and predictable. Maybe it was our simple, modest, and bourgeois virtues of honoring commitments, repaying debts, keeping prices stable, accepting democratic defeats, bloodlessly transitioning power, letting foreigners get rich off domestic resources (when so contractually entitled), and showing up at work on time. In the U.S., ordinary businesspeople enjoy reliable financing from boring banks; a relatively predictable legal environment that makes it easier to start businesses and hire people; freedom from fear of confiscation by the government; and a supply of nerdy and meritocratic employees, who worked hard through college because here, boring schoolwork and boring credentials, less than political connectedness, are the buy-ins to the elite. In short, what set American apart was partly how weak, divided, and listless our governance could be, and how mundane and slow and predictable life here consequently is.

De Kirchner’s seizure of YPF—its aggression, its surprise, its lawlessness, its confused and short-term economic logic—is emblematic of all the things that set Argentina apart from America in the 20th century. As such, it presages another century in which Argentina will miss out on the prosperity for which it was once was well positioned as the United States.


2 thoughts on “What’s Wrong with Argentina?

  1. Good analysis. My husband is from Argentina and he and I could relate to a lot of what you experienced. In fact, the first time I visited the country, the picketers had shut down one of the main streets to the airport and I wasn’t sure my husband would be able to pick me up. And I have had a number of adventures at the Buenos Aires airport. It seems like such a shame to me – so much wasted opportunity. I remember my first date with my husband where I learned about a number of things that were completely foreign to the United States political system – such as removing members of the supreme court and members of the Catholic church being paid by the givernment. My husband agreed with your economic analysis and has been remarking about the inflation for some time now. He has been predicting another economic crisis as well. So, what do you see as options to improve the situation in Argentina?

  2. Argentina’s free-market policies were undermined by sticking too closely to “hard money.” When devaluation led to a boom, people “learned” that laissez-faire economic policies were a bad idea.

    A similar thing happened with FDR and the New Deal.

    Conservatives need to remember that catastrophic monetary policy errors are going to discredit markets in the eyes of the people. This is why Friedman always advocated flexible exchange rates and simple rules for the Federal Reserve to follow. I’m hoping that the big fixed exchange rate mess that is the Eurozone won’t go the way of Argentina.

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