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Argentina's unprecedented economic boom-to-bust history

August 4, 2020

"Rich as an Argentine" was once a common phrase, back when the South American nation was one of the wealthiest in the world. Today, it faces bankruptcy and staggering debt in a saga it can't seem to escape.

A cashier counts Argentine pesos bills at a supermarket in Buenos Aires
Image: AFP/J. Mabromata

At the end of the 19th century, economists agreed: Argentina, the "land of silver," had a golden future ahead of it. "Rich like an Argentine" was a common phrase at the time. Another one, "Argentina potencia," or "power” in English, is still known by every Argentine today, more than a century later. It sums up the legend of a country that was once destined for glory.

But it's a country that crashed like no other on earth. In an unprecedented fall, Argentina went from ranking among the world's top economies to one at the very bottom of the list. Today, economists simply roll their eyes at the fate of Argentina, which is now a developing country.

Read more: As pandemic continues, Argentina faces bankruptcy again

Rich, richer, Argentine

Until the middle of the 20th century, such a scenario was simply unimaginable. While wars raged — first in Europe, and then across the world — life was still splendid for the Argentine upper class, who built grand villas and factories. The country's moneyed class acquired thoroughbred horses and summered in Paris — where they could splurge on the latest fashions.

Argentina's economy was consistently growing by some 5% each year. And beyond having the highest per capita income in the world, the country also possessed a seemingly endless supply of raw materials and natural resources such as water, gas and oil. Argentina also made a fortune exporting meat, grain and leather to war-torn Europe. The nation, the 8th-largest territory on earth today — and containing all climate zones — was also once a breadbasket, with ideal conditions for agriculture.

At the end of World War II, the Argentine peso was considered one of the most stable currencies in the world alongside the British pound and the US dollar. At that time, Argentina was the wealthiest and most influential country in the region, far ahead of Brazil. Its elegant capital, Buenos Aires, was immortalized as "la reina del plata" ("the queen of the plate") in the lyrics of the great tango singer Carlos Gardel.

An end to the boom was nowhere in sight and Argentina became a magnet for work-hungry refugees, primarily from Italy and Spain, who went to the promised land where jobs and prosperity were said to abound. There were more cars per person in Argentina than in France, more telephone lines than in Japan, and a Buenos Aires subway that raced along under the streets. Even in the 1950s, the average per capita income remained significantly higher than in Germany, whose postwar economy was also booming.

Juan Peron and his wife Eva during the president's second inaugural parade on June 4, 1952
Profligacy was their guiding principle: Juan Peron and his wife Eva during the president's second inaugural parade in 1952Image: picture-alliance/Everett Collection

Peron as economic gravedigger

Yet, behind all the glittering facades, Argentina's decline was already well underway. It had much to do with the man who won the 1946 presidential election — and who was invoked by many of his successors — whether liberal, conservative or moderate — in subsequent decades: Juan Domingo Peron. The former general promised Argentina a third path between capitalism and socialism and thus laid the economic foundation for the misery of the decades ahead.

The Peronist guiding principle was profligacy. And then, when nothing else worked, to go into debt, print money and let inflation gallop. By 1949, Peron had tripled state expenditures and by the time he was pushed from power 1955, he had doubled the number of state employees.

Peron's wife, Evita, despised by some as a rank populist but adored as the "angel of the poor" by others, squandered the significant revenue earned from the sale of beer and grain. Charitable social acts, for which the Perons are idolized to this day, were not financially compensated for elsewhere; corruption permeated society.  

As part of an "Argentina first" policy, tariff barriers were put in place to protect the country's weak industrial base. The aim was for Argentina to be as self-sufficient as possible and workers received high wages and social benefits. Gas plants were purchased, as well as electric companies and the telephone network, and a staggering number of inefficient state companies were founded.

Admiral Emilio Massera, Lieutenant General Jorge Rafael Videla and General Orlando Ramon Agosti led Argentina as a three-person military junta after a coup deposed President Isabel Peron in 1976
They ended Peronist rule, but not the country's economic woes: The military junta of Admiral Emilio Massera (l), Lieutenant General Jorge Rafael Videla, president of Argentina (c), and General Orlando Ramon Agosti (r) deposed Isabel Peron in 1976Image: Getty Images/AFP/OFF

Military dictatorship and the Falklands War

But nothing symbolized Peron's economic madness more than the purchase of Great Britain's ailing railway system: 150 million GBP (roughly €420 billion / $487 billion today) for expensive junk equipment and 43,000 kilometers (26,720 miles) of rail that was neglected and in disrepair. Fireworks were set off, church bells rang, shrill locomotive whistles could be heard everywhere: The disaster was celebrated as a national triumph. By the time a few years had passed, Argentina had slid into its first deep economic crisis.  

Nevertheless, in 1967, foreign debt only totaled $8 million, but then massive borrowing began. The primary drivers were Argentina's military dictatorship (1976-1983) and the nonsensical 1982 Falklands War — not only was the war badly lost, it also cost the military government its hold on power. Hyperinflation soon became the new buzzword in Argentina, ultimately forcing the country's first post-dictatorship president, Raul Alfonsin, out of office in 1989.

The illusion of a strong peso

But things only continued to worsen from there: The next president, the neoliberal Peronist Carlos Menem, ushered in an era of "pizza and champagne" — a wave of privatization in which profits drained away into dark channels. One evil was replaced by another, as hyperinflation was replaced by a 1-to-1 peg of the peso to the dollar. It was as if a miracle had occurred: Argentines suddenly had a more valuable currency allowing them to enjoy holidays in Miami and afford German-made cars.

Menem cut social spending and reprivatized the railway — naturally at an undervalued price — but instead of gradually lowering the peso's pegged value, he held fast to the overvalued currency. Between 1992 and 1999, state expenditures rose a full 50%. By 2001, Argentina's mountain of debt had reached a mind-blowing $160 billion, and in December of that year, the country declared bankruptcy. Five presidents came and went within two weeks.

Argentina has been unable to recover ever since: Plans laid out by the International Monetary Fund (IMF) have often caused more damage than good and Buenos Aires has been abandoned by investors scared off by lack of legal security.

The country is ruled by presidents who, when it comes to financial policy, always do exactly the opposite of whatever their predecessor did. And citizens often see the state as a mere cash cow to be milked — and to which nothing is owed.

Today, Argentina, which has all the ingredients needed to be a prosperous nation and which was uttered in the same breath as the US one century ago, now carries a staggering $323 billion in debt

Argentines protest against austerity measures

Oliver Pieper | Analysis & Reports
Oliver Pieper Reporter on German politics and society, as well as South American affairs.