Argentina Down but not Out

According to press reports, Argentina is on the verge of economic collapse or violent revolution because of its debt crisis.  I returned from Buenos Aires in late November, and during my brief stay I saw little sign of imminent catastrophe.

Unemployment is high (officially 16%) and there are signs of economic malaise.  One taxi driver said he now has to work 20 hours to make as much as he used to make in 8 hours.  But the underground economy is large – it includes not just maids and taxi drivers, but the army of psychotherapists who help portenos (the local term for residents of Buenos Aires) deal with their angst, and some parts of the economy seemed to be thriving.  At the start of  the vacation period,  planes serving the northern resort town of Puerto Iguassu were full.

In some ways Argentina seemed more prosperous than Canada – the roads that are paved (less than half the total) were in better condition than many roads in Quebec, I saw fewer beggars in downtown Buenos Aires than I do in downtown  Montreal, and public washrooms were cleaner than many are here.  All the flights and tours I took were on time, water and food were good not only in the federal capital but in Misiones, one of the poorest provinces.

Harrods, formerly the largest store on the famous pedestrian street Florida, is now boarded up, but Galeria Pacifico, an upscale mall nearby, was crowded.   The Buenos Aires Herald (www.buenosairesherald.com) reported on a proposed tax on individual incomes over $1 million U.S.  a year.   The newspaper opposed the new tax, as well as declining standards in polo. 

Argentina is on the verge of defaulting on its massive ($132 billion U.S.) foreign debt, and last weekend enacted severe banking and foreign exchange restrictions.   Some credit rating agencies consider that the rescheduling of some debt repayments at lower interest rates is already an effective default.  Original interest rates on some of the debt were as high as 30%.

According to the highly readable book Bad Times in Buenos Aires by British writer Miranda France published in 1998,  Argentine society  operates on a  complex system of favours and personal connections .  Political corruption is widely acknowledged, and Peronist former president Carlos Menem was released only last month  after many months of house arrest for suspected corruption and arms dealing. Menem was the president who in 1991 introduced the controversial policy that linked the Argentine peso one for one to the U.S. dollar.  The policy put a stop to hyperinflation, but also led to a long recession that shows no sign of ending.

Prices are high in Argentina but also negotiable in many cases.  By  paying cash, I was able to get a 10 or 15 per cent discount on  hotel bills.  An  East Indian sea captain working in Buenos Aires said “Everything here is negotiable.  I was able to spend time on a ranch near San Carlos de Bariloche with riding and all meals included for $30 U.S. a day.”

Howard Handelmann, a professor of political science from the University of  Wisconsin at Milwaukee who was travelling in Misiones province, said “in all these Latin American countries it is hard to see how people manage with prices as high as they are and salaries relatively low , but somehow they do.  I knew one pediatrician who made most of her money by working as a bilingual translator .”

Salaries in the civil service are low – the average teacher makes about $400 U.S. a month, and in some outlying provinces civil servants have not been paid for months.  Argentina’s GDP per capita on a ourchasing power parity basis is estimated by the CIA to be $12,900 U.S., but 37 per cent of the population  is estimated to live in poverty and earn far less than that. 

Under Menem’s government Argentina liberalized trade and privatized many public services.  However, it is still one of Latin America’s more closed economies.  Imports and exports combined account for less than 20 per cent of the Gross Domestic Product, which is estimated to be $296 billion U.S.  The country is very rich in resources and has a highly literate population.  Descendants of European settlers account for 97 per cent of the population.

So, while Argentina is clearly in for even harder times for a while, it would be foolish to count out this large (the eighth largest in the world in area) and potentially very rich country.