Weekly Latin American
News Report by e-mail

Unsubscribe here

  Who We Are
  Directions to HACER
  HACER in Facebook
  HACER in Youtube
  Contact Us

Weekly News Report & Columnist Project

HACER in the News

Non-Immigrant Work Program

Juan Bautista Alberdi Award 2007

Latin American Public Policy Experts Guide

HACER Advisor of the Institute for the Mexicans Abroad

HACER Book Store

Support HACER today!

  - Policy Issues
  - Online Library
  - Latin Newspapers
  - Latin BLOGS NEW!!
  - TV & Radio Links
  - Magazines Links
  - Events Calendar
  - Articles Archive
  - Management Tools for Think Tanks
  - Recommended Links

Recommended Books:

Today's Markets:
DJIA 13567.87
S&P; 500 1508.44
NASDAQ 2794.83

Sabemos lo que falta

by Dorothy Kronick *

After a cold winter that brought Buenos Aires its first snow since 1918, a string of seven sunlit days announced the arrival of spring here last month. The weather complements what would appear to be a rosy scene in Argentina: economic growth is strong and steady, the capital brims with tourists, and voters are poised to ratify the current administration’s mandate by electing Cristina Kirchner, the wife of current president Nestor Kirchner, in Sunday’s presidential election.

“President Kirchner’s legacy will be similar to that of Franklin Delano Roosevelt in the U.S.,” Mark Weisbrot, Co-director of the Center for Economic Policy Research, told Bloomberg this summer. “He brought the country out of depression.” Across entire city blocks, posters featuring Cristina’s dyed copper hair and puffy lips (botoxed, it is said) proclaim, “We know what’s needed, and we know how to do it.” The Argentine public is sufficiently convinced.

This support for Cristina’s candidacy is unwarranted. Part of the trouble is that she is unlikely to correct several conspicuous economic problems created by her husband’s policies. Worse, though, Cristina is poised to deepen the institutional deficiencies that produce policy failures in Argentina in the first place. The ruling party’s control over congress, the judiciary, and other democratic institutions has generated decades of volatile governance here. Néstor Kirchner strengthened that control, and Cristina will do the same.

One recent afternoon I sat in the modest living room of a ranch owner named Juan Rivero Ehul, listening as he described the difficulties the government has created for his 500-hectare meat, dairy, and grain operation outside Buenos Aires. In Argentina’s economic crisis of 2001-2002, agriculture was one of the few sectors that benefited. The devalued exchange rate made agricultural exports cheap on the world market; it also lowered the prices farmers had to pay for labor and domestic supplies such as fertilizer. On top of that, international prices for milk and meat were on the rise. Strong growth in agricultural exports helped haul the country out of crisis.

Then, last year, a sharp rise in global prices of milk and meat caused domestic prices to shoot up—a change that was likely to be politically unpopular. In response, the government banned meat exports for 180 days and then limited exports with a quota; similarly, milk exports were heavily taxed. Unable to sell their products abroad, agricultural producers turned to the local market, creating the desired drop in domestic prices. The meat and dairy sectors were hard hit: many farmers were forced to cash out or switch to growing soy.

“This was a grave economic error,” Roberto Cortés Conde, an Argentine economic historian who has taught at Harvard, the University of Chicago, and Oxford, among others, told me. “Within two years we will have to import meat; already we have lost markets to Brazil and Uruguay. The administration does not understand that these price laws are like the law of gravity: if you jump from eight stories, you are going to hurt yourself.” Ehul agrees. He expects that there will soon be a meat and dairy shortage in Argentina, which is why he is buying cows and improving his milk production facilities. “It is not profitable right now,” he said, “but it will be. Some of my competitors sold everything and sit watching TV all day. But I cannot do that: this land has been in my family since 1830. I am tied to the land, like the farmers in your country.”

The Kirchner administration has implemented similarly shortsighted changes in energy policy. To protect electricity consumers from the effect of the peso devaluation in 2001, the government froze electricity prices at their pre-crises levels—approximately one-third of their market value. The price controls caused electricity companies to stop investing. Demand grew while generation capacity stagnated, and the government was forced to ration electricity this past winter. The administration’s plan to invest public funds in electricity generation will make only a small dent in the three to five billion dollars needed to fix the problem. “They are like Faust,” Francisco Mezzadri, head of an energy-industry consulting firm, told me. “The government has sold its soul to the devil for low electricity policies today, before the election. Later we will all suffer.”

At a Council of the Americas event in New York in September, Cristina defended her husband’s interventionist economic policies and in general confirmed investors’ fears that she will proceed with this model.

Troubling as it is, the Kirchners’ economic mismanagement is only one symptom of a greater ill: the weakness of Argentine institutions such as the congress, the judiciary, and the civil service. “In some ways Kirchner is a good president, just as in some ways Menem was a good president,” Mariano Tommasi, a professor at the Universidad San Andrés and one of the country’s most prestigious scholars of Argentine political economy, told me in his office one afternoon. “But at bottom the problem here is lack of institutionalism, and on that measure Kirchner has moved us backward.” In other words, the problem of the content of the Kirchners’ policy is secondary to the problem of their approach to the policymaking process.

A key example of the Kirchners’ indifference toward democratic institutions is the intervention of the National Statistics and Census Institute (INDEC), one of the few Argentine institutions that (under various names) has functioned relatively well for over a century. In October of 2006, a minister appointed by Néstor Kirchner fired the INDEC employee in charge of calculating inflation, a woman who had held the post for ten years, after she refused to tell the government which companies INDEC surveys in creating the Consumer Price Index. Her successor promptly changed the way the institution calculates inflation, basing the CPI on products subject to price controls. The INDEC now claims that inflation is less than 10 percent; independent estimates range from 15 to 20 percent.

“This is a tremendous problem, an unprecedented problem,” Cortés Conde said. “It is as if the medical system decided to take everyone’s temperature with thermometers with a maximum reading of 37 degrees. Modifying reality is a totalitarian tendency.”

INDEC is one of many examples. In 2005, the administration violated the charter of the Argentine Central Bank by appropriating its reserves to repay debt. Last year, Cristina, who is a Senator, helped her husband push through a reform to change the structure of the Magistrate Council, bringing it under tighter control of the ruling party. “The judiciary has never been independent in Argentina,” Adrián Ventura, a constitutional law scholar and columnist in the daily paper La Nación, told me, “but this makes things worse. There is zero institutional quality in Argentina. If you brought God here, even he would accept bribes.”

Reports in the Wall Street Journal, the New York Times, the Economist, and other publications this week have highlighted the dangers of the Kirchners’ agricultural policies, electricity price regulation, and management of inflation. A bigger danger is the structure that produced those policies: a system in which the Argentine congress, judiciary, and other institutions lack both the incentive and the power to counteract the ruling party’s attempt to govern exclusively for short-term political benefit. Cristina has not even expressed a desire to change this system—much less taken steps toward reform.

None of this is to say that Néstor Kirchner has not had a productive term or that Cristina Kichner would not be a decent president (several analysts are optimistic about her foreign diplomacy skills, for example). Nor is it to say that disregard for institutions is anything new in Argentina. As Tommasi chronicles in his book, The Institutional Foundations of Public Policy in Argentina, the problem is decades old. “Argentina is incapable of deciding on a path,” he said. “There is no social accord about where we are headed.”

That, then, is precisely the point: that Néstor has, and Cristina will, perpetuate the structures that produced such disastrous outcomes in 2001 and before. During the mass protests that led to the ousting of President Fernando de la Rua that year, the crowds cried, “Que se vayan todos” (“That they all leave”)—meaning that protesters were sick not just of de la Rua but rather of all Argentine politicians and of the political system itself. “Well,” Tommasi concludes, “no se fue ninguno: they all stayed. The crisis provided a window of opportunity in which the system might have really changed. It didn’t. Now that window is closed.”

* Dorothy Kronick is a freelance journalist living in Buenos Aires.

(C) Hispanic American Center for Economic Research

All materials on this site are protected by United States copyright law and may not be reproduced, distributed, transmitted, displayed, or otherwise published without the prior written permission of HACER. You may not alter or remove any copyright or other notice.


© 2007 Hispanic American Center for Economic Research
Phone: (202) 558-2544 e-mail: info@hacer.org
910 17th Street NW Suite 422
Washington, DC 20006
Directions to HACER
Support HACER