Argentina's Embattled Economy

BUENOS AIRES, Argentina--According to economist Javier de Villanueva, "If there isn't a way to grow out of the debt, then there's a problem."

In Argentina, where per capita income has been eroded to 1960- era levels, there is a problem. In 1987 people showed their growing discontent with the government of President Raul Alfonsin in the September elections. Alfonsin's party, the UCR (Radical Civic Union), which started out with a broad base of support, suffered a grave setback in the elections when Peronist candidates gained enough congressional seats to end the UCR's control of Congress.

Critics of the government, pointing to monthly inflation rates above 10 percent, assert that the government's Austral plan to control hyperinflation by controlling prices and wages has failed. Each week there are strikes and rumors of strikes as disgruntled employees in all segments of the economy express their dissatisfaction with the state of the economy.

Argentina, with its well-developed economy, infrastructure and social service system, is not a stereotypical impoverished, "Third World" debtor nation struggling to provide essential services for its citizens. Indeed, a visitor to Argentina could be forgiven for thinking that Buenos Aires was a West European city. But no West European city has a black market for dollars where one can receive 50 percent more for a dollar than the official exchange rate. The economy's hunger for dollars, along with the strikes and the demonstrations in the streets, reveal that Argentina, despite its relatively mature economy and society, struggles with the debt problem as much as any other debtor nation. What makes the economic problems of Argentina even worse is the fear that the military will seize power once more if the democratically-elected government cannot take the political and economic measures necessary to ease Argentina's woes.

Experts in academia, government and finance all agree that there is a problem with Argentina's economy. They are, however, baffled when it comes to proposing a solution. The essence of Argentina's economic woes lies in the sluggish economy's inability to generate sufficient activity and surpluses to produce growth and hard cash. "The country wants to pay its debt," said Villanueva, who works at the Instituto Torcuato DiTella. "It always has. But there is a growing preoccupation about our ability to do so. Our democracy has to cut the deficit and reduce spending, but that means cutting wages, and that's what produces strikes."

Some critics argue that Argentina's problem stems from excessive government involvement in the economy (45 percent of the GNP comes from government-owned companies). They point to the fact that the government bureaucracy has produced an underground economy that is so large that the official economic statistics account for only 60 percent of the country's actual GNP. These critics argue that "privatization," the sale of government assets, is the only way to get the country growing once again. "The central issue in this controversy," according to Villanueva, "is the restructuring of the state in a form that will be acceptable to the unions." At this point, however, the unions appear opposed to restructuring.

Carlos Rodriguez, an economist at an economic consulting group, CEMA, is one such critic. He blamed the government for not taking stronger measures to increase the economy's surplus. "The government uses the debt as a whipping boy. They blame all of the country's problems on the debt, but the situation is not as bad as they say. The real burden is the trade surplus: our $70 billion economy is generating a $1 billion surplus. The economy, if privatized, could generate a $4 billion surplus, but that is a political impossibility." The deterioration in the balance of payments, plus the public debt and tensions created by the Austral plan will, Rodriguez predicted, result in a rollover of Argentina's debt by mid-1988. "By then, Argentina must get fixed interest rates and a cut in the principal to get in line with reality."

Jose Luis Nicolini, an economist at the Finance Ministry, reflected criticism of the Austral plan and proposals for privatization as simplistic. Such radical changes, he maintained, "would not take Argentina anywhere. Calls for privatization are a signal that something has to be done because as it is now, the problem has no solution. But they are not the appropriate responses." Nicolini defended the government' s handling of the economy and predicted that the government could continue to work toward a negotiated solution with Argentina's creditors.

The director of a money center bank's branch in Argentina also expressed dismay about the current political and economic situation in Argentina. "Alfonsin missed an opportunity with the Austral Plan because he didn't reduce the state's role in the economy." While he freely acknowledged that banks erred in the 1970s by trying too eagerly to recycle petrodollars through liberal loans to Latin American countries, he also maintained that there is more than enough blame for the debt crisis to go around. "No one expects the debt to be repaid in full," he said. "I do hope, though, that Argentina can generate dollars to pay interest on its debt in a free market system. There wouldn't be any discussion in Argentina about the debt if the country could continue to pay interest, but even this is stopping."

The banker was especially critical of the government's involvement in the economy. "It's time to give employees more of a share in the company."

At this point, the banker was at a loss for solutions, and he expressed a sentiment that has overtaken many people in Argentina: "Everyone wants to keep the system going, but a fatigue has set in. Nobody has been able (in the past five years) to change things." Nobody can avoid concluding that Argentina cannot pay.

-J.C.