Peronists Lose in Argentina after 12 Years of Populist Rule

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Peronists Lose in Argentina after 12 Years of Populist Rule

November 23, 2015

The Peronists lost in Argentina after 12 years of populist rule, as voters, in a close election, opted for the economically liberal candidate who, according to USA Today, “promised to reduce the state's role in the economy and embrace more pro-business policies.” “Pro-business” is most definitely not the same as being “pro-market,” but we'll see how Mauricio Macri, the new president, proposes to end some of the crippling regulations and interventions that have hobbled the Argentinian economy over the past decade. 

Over the past 12 years, the rule of the Kirchners — first Nestor, then his wife Christina — rued in the populist model of the Peronists. They committed to extravagant government spending programs, currency manipulation, and to a crony capitalist model of government favors for select corporations and industries. 

Prior to the most recent era of Peronism under the Kirchners, Argentina labored under Peronist Carlos Menem, who set the stage for the 1998-2002 economic crisis in Argentina. 

As the economy headed down in the wake of Menem, the Argentinian voters opted for Fernando de la Rua who was faced with the unpleasant work of implementing cutbacks in government spending and attempting to bring inflation and government regulators under control. 

As is so often the case with those who have to clean up after the economic populists, Rua quickly became unpopular and was replaced by Peronist Nestor Kirchner in 2003. 

Kirchner set to work implementing the same policies that had led to the 1998 crises. He imposed high taxes on exports and imports, inflated the currency, and massively increased government spending from 14% of GDP to 25% of GDP. The Kirchners have imposed price controls, and under Christina, the economy took an especially ominous turn toward the authoritarian as Kirchner threatened lawsuits against critics of her economic policy and against those who attempted to provide alternative measures of the economy independent from the official government numbers. Christina imposed capital controls as capital fled the country, and by 2014, Argentina was said to have one of the highest inflation rates in the world. 

Needless to say, the economy has not been robust. 

With the election of Macri, however, Argentina may just be going through the same motions it went through when Menem left office. Argentina is following the familiar 4 Stages of Populism as described by Dornbusch and Edwards. We may be in Stage IV right now:

A new government is swept into office and is forced to engage in “orthodox” adjustments, possibly under the supervision of the IMF or an international organization that provides the funds required to go through policy reforms. Because capital has been consumed and destroyed, real wages fall to levels even lower than those that existed at the beginning of the populist government’s election. The “orthodox” government is then responsible for picking up the pieces and covering the costs of failed policies left from the previous populist regime. The populists are gone, but the ravages of their policies continue to manifest themselves. In Argentina the expression “economic bomb” is used to describe the economic imbalances that government leaves for the next one.

The new anti-populists lay the groundwork for more economic growth, but they become unpopular when the reality of austerity sets in. 

So, new populists are voted in and the cycle begins all over again. 

Macri's time may be short lived when it becomes apparent that the way to fix Argentina's economy will involve pay cuts for government employees, less consumption, more work, and more saving. 

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