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Is Argentina's Peronist Nightmare Finally Over?

December 29, 2017 in Economics

By Federico Fernández

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By: Federico 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 privatization 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 …read more

Source: MISES INSTITUTE

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