And the Money Kept Rolling In (and Out) Wall Street, the IMF, and the Bankrupting of Argentina-Paul Blustein
On Tuesday, June 27, 2017, Argentine President Mauricio Macri of Argentina and Michelle Bachelet of Chile met in Santiago, Chile to discuss a trade agreement between the two South American nations. A trade agreement would be a boost to the economies of both nations and help the Argentine economy recover from years of devaluation of the peso and loans on which the country was forced to default. In three weeks I will revisit the Argentine Republic, landing in Buenos Aires, appropriately called the “Paris of South America”. As of today, the exchange rate between the United States Dollar and Argentine Peso is $1=16.4ARS. The peso continues to struggle to regain its value as the Macri administration continues its mission to reform the economy. Incredibly, between the late 1800s and 1930, Argentina was one of the richest nations on earth and boasted a high rate of exports. Changing world markets and political instability plunged the nation in dark times as the grip of Juan Perón (1895-1974) tightened over Argentina giving birth to the Peronist party. Even today, his influence and that of the late Evan Peron (1919-1952) continue to be felt in Argentine society.
Students of Argentine history will often ask the question, why did Argentina end up in a financial collapse in 2001? Paul Blustein (1951- ) tackles this questions and provides answers to help us understand how and why it happened. Blustein is former writer for the Washington Post and has written about economics for more than 35 years. It was during a post in Buenos Aires that he began the project that became this phenomenal book that tells the story of what proved to be the inevitable. As part of his research, he interviewed dozens of individuals who were direct participants in the events in the book and others knowledgeable about what really happened. And what he explains in the book is eye-opening and prophetic not just for Argentina but for every country across the globe that has to confront a rising deficit and possible financial collapse.
On April 1, 1991, Economy Minister Domingo Cavallo (1946- ) adopted the convertibility system which fixed the exchange rate at $1=1ARS. The new policy initially proved to be a blessing for the Argentine economy, allowing citizens to improve their quality of life, invest, improve savings and travel abroad. But behind the scenes the government was struggling to reign in spending and raise enough taxes to maintain the newly placed system which required banks to keep an equal amount of U.S. Dollars to Argentine Pesos. A pesos crisis in Mexico and changing world markets, set the ball in motion for what was to come in the next decade. As Argentina grappled with a looming financial disaster, the International Monetary Fund (IMF) became a prime player in the effort to save its economy. The Fund, created in 1944 in New Hampshire, engaged in protracted negotiations with Argentina to save the Republic even in the face of financial mismanagement and a severe inability to stimulate economic growth. The two would eventually reach an agreement that showed signs of being the saving grace needed to save the nation. Despite IMF intervention, a second agreement would be reached before the long feared collapsed occurred dropping the value of the peso completely. In fact, things got so bad that President Fernando De La Rúa (1937- ) escaped by helicopter after resigning along with Cavallo, who had previously instituted a zero deficit policy and enacted the corralito, the infamous rule that capped the amount of money citizens could withdraw from their bank accounts sending the public into a rage.
With the whole world watching, Argentina sank deeper into financial distress but in recent years has enjoyed a streak of years of political stability. Its economy still has a long way to go to reach pre-2000 levels and time will tell if the Macri administration can fully rebuild the country’s bank accounts while avoiding another financial catastrophe. For those in control, the lessons of the past will need to be remembered moving forward. What I did like deeply about this book is that not only does Blustein tell us the story but he helps us understand how the IMF works and the value of currency. And no matter where you live, your country has the potential to suffer the same fate as the Argentines if adequate controls are not placed on spending and taxation. For those seeking to understand the crisis that crippled Argentina, this is a good place to start. I highly recommend supplementing Blustein’s compendium with Luis Alberto Romero’s A History of Argentina in the Twentieth Century. Both books will give the reader tremendous insight of a country that has to be seen in person to be appreciated.