Perón, Pesos, and Political Turmoil: Argentina's Economic Odyssey - Muskaan Rawtani

 

"Simon Kuznets, who won the Nobel prize in economics in 1971 for his work on growth, put it best: there are four types of economies in the world—developed, undeveloped, Japan and Argentina."

In the late nineteenth century, Argentina was among the top five countries in income per capita, richer than all European countries except Britain, and on par with other rich settler societies such as the United States, Canada, and Australia. Its largely high-end agricultural economy at the time benefited from the inflow of capital in Europe and America and was able to modernize the industry. These nations were also Argentina’s biggest customers. And by the early 1900s, they were facing the industrial boom. This factor led to Argentina becoming one of the top ten wealthiest nations in the world.

However, the economy was not without its problems, there was rampant corruption in the government and unequal distribution of wealth among the population. These problems would not have mattered as much if the economy had continued to grow at a rapid pace as the life standard for all its citizens would have improved, but the growth did not last. The world war I led to serious external shock to the economy. Its biggest clients and investors were suddenly not interested in buying high-end agricultural products or having the capital to invest in the economy. This led to stagflation in the economy which was only worsened by the Great Depression.

Now the government was not able to profiteer from the nation and the people of the nation who had gotten used to a certain lifestyle were failing to support it. To help the economy the government made various deals with other powers and companies. However, these were made more to line the pockets of the government officials than to benefit the local population of Argentina. One such deal was selling the meat industry’s ownership to foreign powers; this was one of the largest industries in the country. These actions led to a spread of discontent in the country leading to civil unrest and a series of political coups causing fear in the minds of foreign investors.

Amongst this chaos, Juan Perón, emerged as one of the leaders and got elected as the President of Argentina. He shifted the focus of the economy to investment heavily in public works, nationalizing foreign assets, expanding social welfare, and ensuring better working conditions. This worked for a while, but it also led to the foreign nations whose assets had been nationalized boycotting Argentina’s goods. This harmed Argentina’s export-dependent economy and led to another downturn in the nation.

So, during the 20^th century, the country moved from command controlled centralized economy to laissez-faire capitalism, from election to election. This eroded people’s trust in the stability of the system. This led to an increase in the interest rate on the loans that were offered to the country, not only that, the investors were also only willing to invest in Argentina for a shorter duration of time, as they were scared of the change in government and the subsequent change in the economic system of the country.

However, currently, the country is facing another crisis in all this, which is the currency crisis. The Argentinian Peso was pegged against the USD, at an exchange rate of 3 to curb inflation. This system fell apart in 2001 when the country ran out of USD, making the Argentinian Peso a floating currency. The current decline in the currency is so much that the government had to set depreciation targets. The outgoing government had set a depreciation target of 3% per month. Despite this various exchange rates prevail in the economy. These are official value, blue chip value, tourist value, luxury value, and tech incentives value.

The official exchange rate is 366 and the market rate is about 150-170% above the official rate. The blue-chip rate is at which peso is provided to purchase international bonds, shares or gold. This rate is about 250% above the official rate. The tourist rate is the rate at which outgoings tourist can exchange pesos. This has a 100% tax, so is 100% above the official rate. The luxury rate is the rate of exchange to purchase any luxury item. This is also taxed 100%. Tech incentives is available to the tech companies that export. They can retain 30% of their earning in USD.

So today Argentina is a dual currency economy, with people preferring USD. This has led to Argentina losing control of its currency.