What Argentina Thinks About Globalization: An Interview from Buenos Aires
What Argentina Thinks About Globalization: An Interview from Buenos Aires

 

What Argentina Thinks About Globalization – An Interview from Buenos Aires

Few events have highlighted the risks associated with globalization more dramatically than Argentina’s financial crisis in 2001. Throughout the 1990s, Argentina was considered globalization’s model of economic success. However, an unbalanced public fiscal budget, high foreign debt levels, and an uncompetitive currency level increasingly strained the economic system. The result was a dramatic loss of confidence in the Argentine peso, leading to bank deposit freezes, public debt default, widespread protests in the streets, and the resignations of the finance minister and the president.

Since the crisis, the presidency in Argentina has change five times. The banking sector has yet to regain the confidence of the public and a weak currency has made it expensive for Argentines to purchase imported goods or travel abroad. Nevertheless, Argentina has seen rapid economic recovery and has reason to be optimistic about its prospects within the international economy.

Here, we interview a graduate student in Buenos Aires for his perspective on Argentina’s recent experiences and its attitudes toward globalization. The student is originally from Europe but has made Argentina’s capital city his home for several years. He has studied at the graduate level in the Netherlands, Buenos Aires, and Washington DC.

INTERVIEWER: What are some ways in which Argentines have been affected by the 2001 financial crisis? How are their lives different today compared to pre-crisis?

STUDENT: Up until the financial crisis, Argentina was well known for its large middle class compared to other Latin American countries. During the first part of the 1990s the middle and upper-middle class enjoyed unprecedented wealth when the currency peg between the Argentine peso and US dollar (established in 1991) provided for macroeconomic stability and stable inflation rates. During this period, Argentina finally seemed to join the select group of developed countries.

The crisis put an abrupt end to this ‘first world’ life. An extended period of economic recession culminated in a freeze on bank accounts and a subsequent devaluation of the Argentine peso in 2002. Particularly the middle class was hard hit by these developments. Local businesses lacked financial resources to buy input products (imported goods became extremely expensive), economic growth turned negative, and several big factories and companies went bankrupt or withdrew from Argentina, which in turn triggered major lay-offs.

As result, many people fell from the middle class into the lower income category. With unemployment reaching nearly 20 percent at the height of the crisis, blue-collared workers without education were also severely affected.

A lasting impact of the crisis is the loss of the savings (and jobs) of many people. Traces of the crisis are still present everywhere: mistrust in banks and politicians is widespread, many people still live on the street and collect plastic and paper –the cartoneros– to earn some money, and for many people it’s a daily struggle to keep (or get) a job.

INTERVIEWER: Has recent economic growth been different than the manner of growth experienced pre-crisis?

STUDENT: Argentina has grown with an average of eight or nine percent over the last years. A crucial element was the messy and chaotic, but very successful –from an Argentine perspective– debt restructuring that was finalized in 2005.

In January 2006 Argentina also paid off its entire debt to the IMF. The result of the restructuring of the economic accounts has been that interest payments on debt are lower than before. As many other countries in the region did, Argentina had entered into a ‘vicious cycle’ of indebtedness during the 1990s when extremely high interest payments were financed with new loans.

Another crucial element of its recovery is the favorable exchange rate managed through a “dirty float”, whereby the Central Bank frequently intervenes in the market to maintain the one-to-three dollar/peso exchange rate. This boosts exports, which constitutes the government’s most important source of tax revenue.

The government has succeeded in stabilizing the situation. However, the second stage, attracting new investments, has been less successful so far. With a president that is known for his populist and somewhat authoritarian measures, international companies are reluctant to invest. As was the case during pre-crisis times, economic growth is built on a rather fragile basis and further development of competitive sectors is needed for it to be truly sustainable

INTERVIEWER: To what extent does the 2001 crisis still affect Argentine views on globalization? What/who do they blame for the economic collapse and how does that affect their views today?

STUDENT: Many different views have been offered for the economic collapse. I think that the majority of the Argentines realize that their own government is the one most to blame. Imprudent fiscal and macroeconomic policies and persistent corruption during Carlos Menem’s second mandate were at the core of Argentina’s recession.

Policymakers have also begun to recognize errors in the design and implementation of the neo-liberal policies. International organizations, particularly the IMF, which highly conditioned its assistance to Argentina, were criticized for their role in the debacle. Normal Argentine citizens may associate organizations such as the IMF and the World Bank with the pro-globalization camp, and this criticism could therefore be seen as an indirect expression of discontent with globalization.

In general, however, the Argentines –even after such a severe economic crisis– have not turned against globalization in a similar way that may be observed in countries such as Venezuela or Bolivia.

INTERVIEWER: How do people feel about President Nestor Kirchner and the current government’s policies?

STUDENT: Kirchner came to power during a very turbulent time with only 22 percent of the votes. Therefore, the first thing he set out to do was to stabilize and expand his electoral base. Through a series of populist measures –harsh criticism about the role of the IMF, fixed price levels for supermarkets and meat producers to contain inflation– he has set out to gain the confidence of the people.

Today, over 70 percent of the Argentines support Kirchner and during the 2005 congressional elections Kirchner’s party had a landslide victory. One has to keep in mind that when Kirchner came to power, the Argentine people were completely fed up with anything related to politics (captured in the famous Spanish phrase: que se vayan todos, ‘kick everyone out’). The people felt that the government sold itself to international capitalists and didn’t protect them against the threat of the loss of jobs.

The previous administration of Menem, especially his second term, had been characterized by the sale, often in a corrupt manner, of state-owned companies. In less than a decade, electricity, airlines, oil, trains, water, telecommunications and many other services were sold, often for less than their fair market value.

Today, Kirchner enjoys the solid backing of the majority of the Argentine population. Yet, political observers and opposition parties in Congress have persistently complained about the quasi-authoritarian way Kirchner governs. No president has ever used so many emergency decrees (which don’t need to be submitted to Congressional approval). The Constitution clearly prescribes that this sort of decree should only occur under exceptional situations. In practice, Congress has lost many of its control functions and tends to follow Kirchner in his decisions.

INTERVIEWER: How do Argentines view international trade, with respect to regional and global partners?

STUDENT: In a country of only 38 million inhabitants that produces food for over 300 million people, trade constitutes a crucial element of economic policy. Regional trade, especially with Brazil –Argentina’s biggest trading partner– is very important. Europe and the US are also important markets, but these markets tend to be less accessible because of the subsidies or technical food safety requirements.

In general, Argentines see international trade as an opportunity to sell their agricultural and other products. However, the fear of an ‘invasion’ of cheap imports is real. Brazil and Argentina have repeatedly clashed over the import of cheap Brazilian goods that harmed domestic Argentine producers. The same is true for imports from Asia. On the other hand, Argentines know that an economic giant such as China has many mouths to feed. Therefore, Argentines are eager to take full advantage of international trade.

INTERVIEWER: What are some attitudes toward the World Trade Organization (WTO) and the recent Doha round of trade negotiations?

STUDENT: Argentines are largely disappointed with the lack of progress in the WTO negotiations. The major obstacle and a cause of long time irritation are the subsidies that European and American farmers receive, which make it hard for the Argentines to compete. Also, quality standards and other technical requirements obstruct exports to these key markets.

INTERVIEWER: How do Argentines feel about their economic prospects for the future? What are some of their social concerns?

STUDENT: In general, students seem moderately optimistic about future economic prospects. The economy has grown steadily over recent years and the recovery was relatively quick. Older people seem to be more conservative in their expectations –maybe because they know Argentina’s long history of rapid economic growth and sudden collapse all too well. Up until now, Argentina always has been ‘an eternal promise’: the economic ingredients –resources, skilled labor– are present, but political mismanagement prevents the country from definitely joining the club of developed countries.

Key social concerns are unemployment, and the lack of justice and security. Corruption and impunity are persistent in Argentina and the 2001 crisis further weakened the institutional mechanisms to address these problems. Insecurity has also grown as a result of the crisis, with a steadily growing number of abductions and street violence.

INTERVIEWER: What different attitudes on globalization and the future, if any, are noteworthy with Argentine students compared to students in the other regions?

Student: [Argentine students] are aware that the democratic fundamentals –i.e. justice, the checks and balances– are stronger in Europe and the US than in Argentina. Students are aware of the fact that, in order to be successful as a country in the era of globalization, government policy must be consistent and coherent.

Every president in Argentina has tended to impose his own plans and reverse the policies of his predecessor. Also, politics in Argentina have a habit of going to extremes. For some reason, Argentine politicians find it difficult to design more gradual and sustainable policies.

The Argentines probably would like to see more government activity in areas such as education, job security, and the development of competitive industrial sectors. But because of the shallowness of the political system –after the crisis, it has been completely dominated by Kirchner’s Peronist Party– they are having a hard time making their voices heard. The people that want a change in policy face very few alternatives: for the October 2007 presidential elections, Kirchner and his supporters are the dominant candidates.

INTERVIEWER: How do Argentine students view globalization and Argentina’s prospects in an increasingly integrated world?

STUDENT: I don’t think Argentine students view globalization necessarily as a negative phenomenon. Many of the current graduate students have enjoyed the virtues of capitalism and globalization during the nineties when they traveled extensively and could choose from an unprecedented variety of imported consumer goods.

Generally speaking, the educational level of the Argentines is good and resources are abundant. Argentina should therefore be able to better integrate in the world economy and become an important player, at least on the continent.

Nonetheless, Argentina, as the rest of Latin America, still is largely a commodity exporter (meat, soy beans etc.). The big challenge for Argentina is to follow the example of countries like Chile or Mexico, which through intelligent industrial policy managed to move up the production chain to products with more value-added.

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