Argentina An Economic Chronicle

142 Pages·2016·0.79 MB·English

by  Vito Tanzi

Argentina: An Economic Chronicle.
How one of the richest countries in the world lost its wealth

By

Vito Tanzi

Jorge Pinto Books Inc.
Argentina: An Economic Chronicle.
How one of the richest countries in the world lost its wealth
Copyright © 2007 by Vito Tanzi

All rights reserved. This book may not be reproduced in whole or in
part, in any form (beyond copying permitted by Sections 107 and 108
of the United States Copyright Law, and except limited excerpts by
reviewer for the public press), without written permission from Jorge
Pinto Books Inc. 151 East 58th Street, New York, NY 10022.

Published by Jorge Pinto Books Inc., website: www.pintobooks.com

Cover design © 2007 by Susan Hildebrand
Cover Image: Pablo Heguera “Facing the Unknowable” collage,
2007, from the series Panamerican Suite. Courtesy of the artist.
Website: www.panamericanismo.org

Edited by Noël Baca Castex
Book design by Charles King, website: www.ckmm.com

ISBN 0-9795576-0-7
978-0-9795576-0-6

Table of Contents

Preface
Chapter I: Perón and the Creation of the Permanent Fiscal Problem
Chapter II: The Military Takeover of 1976 and the IMF Missions
Chapter III: Inflation, Tax Revenue, and the “Tanzi effect”
Chapter IV: The Alfonsín Government and the “Lost Decade”
Chapter V: The First Menem Administration
Chapter VI: Predicting a Storm When the Sky is Blue and the Sun
Is Shining

Chapter VII: It Wasn’t All Fiscal: A Visit to Patagonia
Chapter VIII: The Approaching Storm
Chapter IX: The End of the “Fiesta Menemista”
Chapter X: Argentina, the IMF, and the Default of 2001
Preface

Over the past century Argentina has often attracted the attention of the world. Its
size (five times bigger than France and nine times bigger than Italy), its physical
beauty (Iguazú, Bariloche, Patagonia), its culture, and, until the earlier part of
the twentieth century, its wealth, made it a strong magnet for European
emigrants looking for a better life. It is difficult to believe today that, at some
point during the last century, Argentina accounted for 7 percent of the world
exports and for half of the gross domestic product of Latin America. In other
words, it was a major economic power. For many poor Europeans, the American
dream could be achieved in Argentina and not just in the United States. Thus,
they moved there in the millions, especially before World War I and after World
War II.
The flow of European emigrants toward Argentina continued until around 1950,
when Perón was president and in the process of creating a welfare state. At that
time, Argentina was still a rich and welcoming country where poor immigrants
from Europe were not discriminated against and where they could live
comfortably, eat well, and hope that their children would move up socially. The
welfare state Perón created, possibly the first one in the world, along with
Uruguay’s, contributed to the attraction that Argentina held for those who left
Europe. Then, European immigrants stopped coming. A couple of decades later,
some even started going back to the places they had come from. Argentina
started the twentieth century as one of the world’s richest countries and ended it
with a lot of poverty and the stigma of having experienced the largest default on
foreign debt in the history of the world.
Economists are very interested in—and often talk and write a great deal about—
economic development. This is the process, observed in many countries, by
which poor nations become rich. Strangely, there is no good word to describe the
reverse experience—the process by which a rich country becomes poor. If such a
word existed (impoverishment comes close), it would describe what happened to
Argentina over the past century, especially during the second half of it. There are
now several good books written by economists and economic historians that,
with the help of numerous statistics, describe the process of the progressive
impoverishment of Argentina. The aim of this book is not to provide another
technical description of its economic decline. Rather, it is mainly to provide a
description of the changes that took place over half a century, through episodes I
participated in as an employee of international institutions and, especially, as a
senior staff member of the International Monetary Fund. Over the course of
more than three decades, I visited Argentina at least thirty times and have spent,
cumulatively, several months there. This privileged position put me in contact
with many of those making economic decisions as well as with economists and
regular citizens. As a result, I was able to observe policy in the making, to
occasionally participate in that process, and to witness the effects of the policy
decisions as well. This opportunity is rarely experienced by writers of economic
books.
This book has not been written for specialists, but for the general reader with
some interest in Argentina and a minimum background in economics and fiscal
issues. Readers who found Joe Stiglitz’ book on globalization (Globalization
and its Discontent) interesting should also enjoy this book. I have used a simple
style with minimal economic jargon in order to keep the freshness of a “memoir”
and to make it accessible to a wide range of readers. Those with an interest in
economics and fiscal matters should find the descriptions of fiscal developments
of particular interest. But the book covers more than just economics so those
without a background in economics should still be able to enjoy it.
The book contains several stories that will help make particular points and that, I
hope, will entertain as well as inform the reader. These stories should provide an
intuitive appreciation of what happened to this fascinating country over the past
half century. Considering the events that occurred in recent years, I could not fail
to address the relationship between the country and the IMF. This relationship
has been much in the news and has been strongly criticized in recent books such
as Joe Stiglitz’ Globalization and Its Discontent, Paul Blustein’s And the Money
Kept Coming in (and Out), and Ernesto Tennembaum’s Enemigos. My book
discusses this relationship in a couple of chapters and finds much to criticize in
the role of the IMF. However, the reasons I present are different from those
given by the authors mentioned above.
Modern books are expected to fit within distinct categories. The modern world
likes to classify things. Thus, there are books that deal with economics; travel;
cultural developments, politics, cooking, and so on. This book does not easily fit
in any specific category because, being largely a memoir, it describes events,
places, and people as they were seen by the author during his many trips. Some
of these descriptions will be enjoyed by those who are interested in Argentina,
but less by those who are interested in economics only. There are two specific
filters that have affected the narrative: The first one is the author’s professional
background; the second one is his national background. Being an economist and
an Italian from the south of Italy, the area where many of the poor immigrants
came to Argentina from, have inevitably colored the description.
Numerous people have contributed, directly or indirectly, to the writing of this
book. Many of them have been mentioned in the various chapters. I have resisted
the temptation, common among writers, of providing a long list of names. The
objective of these long lists seems to be mainly impressing the reader. However,
there are a few people who could not be ignored.
I am especially grateful to four Argentine friends who have carefully read earlier
drafts of the manuscript, given me advice and corrected mistakes. My great
thanks go to Alieto Guadagni, Humberto Petrei, Mario Teijeiro and especially
Carlos Silvani. They are all well-known and knowledgeable Argentine
economists who have held important positions during various Argentine
administrations and/or in the Argentine financial system. Because I did not
always follow their advice, they are not responsible for any remaining errors or
for any opinions expressed. For these I am strictly and solely responsible. I am
also grateful to Domingo Cavallo, Eduardo Cavallo, George Kopits, and Axel
Radics, who have read later versions of the manuscript and have also given me
valuable suggestions. Again, they are not responsible either for any errors or
particular interpretations of events.
In an informal and non-technical way, I have used a particular and novel theory
to explain the macroeconomic economic developments of Argentina during the
past half century. This theory has justified the original title of the book, for,
during that period in Argentina, it was “mostly fiscal.” The theory concerns the
existence of “fiscal cycles.” In other words, fiscal developments were the driving
force in generating macroeconomic disequilibria. The verification of this theory
—though informal and impressionistic—required the use of good fiscal statistics
spanning five decades. Damian Bonari, director of Analysis of Public Spending
and Social Programs of Argentina’s Ministry of Economy, was kind enough to
provide me with official historical data that has allowed me to verify the theory.
I am most grateful to him.
Closer to home, I must thank the InterAmerican Development Bank (IDB),
which provided a convenient place during much of the time I was writing the
book. During that period I was working as a consultant for that institution.
Needless to say, the IDB is in no way responsible for the views herein expressed.
Jesusa Hilario patiently and competently typed various drafts; to her goes my
deep appreciation. Finally, I must thank my wife, María, for the many times we
stayed home instead of going out because I wanted to work on the book, and for
the “space” that she’s provided me for writing, mostly on weekends. At times,
she’s had to live with a “zombie” who was totally absorbed in his work and
showed no interest in contributing to the house chores.

Vito Tanzi
July 2007