Argentina Drifts Toward Disaster
Evans-Pritchard, Ambrose
Ambrose Evans-Pritchard ARGENTINA DRIFTS TOWARD DISASTER Our correspondent reports on the wages of Peronism's economic sins—and expects little repentance from Carlos Menem, for all the new...
...Alfonsin suspended debt payments in April 1988...
...He's a good lad, he's struggled so hard . . . Please...
...The insurance industry isparalyzed because it takes so long to process claims that the payment is already worthless when it arrives...
...In other words, the work-ing currency of the country (M1) is the dollar...
...We have no national identity...
...It was the sixth day of the new government...
...Perhaps as much as a third of the total population hold cash dollars, buried in the garden, tucked under the floorboards, plastered into the wall—anywhere beyond the reach of thieves and the state...
...On Friday, July 14, the dollar flew out of control on the black market and the plan, in effect, collapsed...
...These two groups are still enjoying filet mignon in the long cavernous steak halls of the capital...
...The firm is so hated (and so rich) that the montoneros kidnapped two of the Born brothers for a $60 million ransom in 1974...
...He was perhaps the most influential of a school of development theorists who argued that Third World countries are locked into underdevelopment because the "terms of trade" are forever turning against them, forcing them to export more and more coffee, or meat, or copper, in order to buy the same tractor from the West...
...Menem is a turco, as they call Arabs here, and therefore by tradition a Peronist...
...It is a telling distinction...
...Menem, however, is a passionate, devotional Catholic who used to read the Bible for hours each day during the five years he was a political prisoner in the late 1970s...
...Julia Maria Alsogaray was instructed to dispose of the state telephone company within 180 days...
...But more than anything else it was Third World disease that caused Argentina's per capita income to fall from near parity with Australia in 1945 to a mere fifth today...
...These two groups are still enjoying filet mignon in the long cavernous steak halls of the capital...
...To break out of the trap, these countries must turn inwards, close off their economy with high tariffs, and build their own industrial base...
...The people turned to Carlos Menem, thecharming governor of La Rioja...
...Peronism is neither rightist, nor centrist, nor leftist," he explained...
...Destitute peasants come from the countryside, stake out a lot on open land, and build a cardboard shack with a sheet of plastic as a roof...
...It was the most expensive election campaign in history," said a disgusted diplomat...
...Menem is a turco, as they call Arabs here, and therefore by tradition a Peronist...
...A t the turn of the century this huge fertile country of Italian and Spanish immigrants was one of the richest in the world...
...He earns double the minimum wage...
...But he has already proved tougher than anybody expected...
...It's my lad I'm worried about," she said, putting her hand on the shoulder of a 17-yearold boy, who was recently laid off by IBM...
...The central bank ran down Argentina's foreign reserves to almost zero by flooding the local market with dollars...
...To pay for it he created his own currency, a sort of funny money in the form ofbonds...
...But it was already too late...
...It was an astounding gesture...
...Ambrose Evans-Pritchard ARGENTINA DRIFTS TOWARD DISASTER Our correspondent reports on the wages of Peronism's economic sins—and expects little repentance from Carlos Menem, for all the new president's charm and good intentions...
...There's no doubt that Alfonsin's administration was the worst in the history of Argentina," says Roberto Catchanoski, an economic consultant...
...Argentina was a pioneer of Prebischism...
...But they cannot pay their workers to do nothing for months on end...
...I smuggle him food—bread,scraps of meat, whatever I can get hold of...
...He failed to bring security forces back into civil society, instead leaving them so demoralized and embittered that they cannot be relied upon to uphold order, with martial law if necessary, in the chaos and looting that has already begun...
...You can find him a job, can't you, please...
...I once visited a two-year-old shanty town in Lima and was struck by two things: there were no men around because they had all gone off to the city to work or look for work...
...Menem announced that the new economy minister would be Miguel Roig, a retired executive from the multinational trading firm Bunge & Born...
...Once Peronist anathema, it was now to be the panacea of Argentina...
...Her husband had worked for forty years on the railways and she gets a widow's pension of 22,000 australs ($35) a month, which she spends as quickly as possible on sugar, pasta, and cooking oil before the prices go up...
...She makes 78 australs (12 cents) an hour...
...Argentine poverty reminds me of Northeast Washington, D.C...
...It is the parallel with Australia that is most striking...
...But the Great Inflation has nothing to do with the debt...
...They feared a reign of ignorance and demagoguery...
...Juan Peron took the economy into isolation and began to plunder the rural wealth of the Pampa to pay for his urban industrial dream...
...It simply goes ahead, advancing to accomplish its sacred mission...
...Argentines have already expatriated their savings and hold an estimated $30 billion to $50 billion in foreign banks...
...B & B is the archenemy in Peronist folklore, the headquarters of financial intrigue and capitalist hegemony...
...Over the next forty years Argentina had the highest average rate of inflation in the world, with all its poisonous effects on investment and business confidence...
...Beating the disgraced Radicals in the presidential elections this year was the easy part...
...The immediate cause of the collapse of the austral was Alfonsin's attempt to keep it artificially strong against the dollar and give the illusion of price stability in order to help his party in the 1989 election...
...The squatters had organized their own garbage burning system and they had improvised a school in which the mothers themselves did the teaching while rows of little children sat patiently on the floor...
...T he American press has tended to I excuse Alfonsin for bankrupting the nation, arguing that he was overwhelmed by Argentina's $60 billion foreign debt, or even blaming the Reagan Administration for not helping him enough...
...Carrying out such intentions is another matter...
...In Peru they are called pueblos jovenes—young towns...
...According to pollster Manolo Mora y Araujo, about Ambrose Evans-Pritchard Washington correspondent for the Spectator of London, has been reporting from Latin America since 1983...
...There is a further $6 billion inside Argentina, held by all kinds of people...
...Argentines voted with their hearts, for not one could say where this strange fellow, with long black hair and mutton chops, was going to take the country...
...They know the country is headed for collapse, but the temptation to try to muddle through is still too strong...
...In Argentina restraint was thrown to the winds...
...Her father, the party's presidential candidate and the living symbol of capitalist philosophy in Argentina, was asked to oversee the foreign debt...
...But it was already too late...
...Inflation became embedded in the culture and even orthodox governments could not root it out...
...It's every one out for himself now," says Dr...
...I n fairness to Peron and his succes- 1 sors, however, none were as guilty of economic crimes as Raul Alfonsin, so beloved abroad and so despised at home...
...But he never said what he would actually do...
...More and more doctors are refusing to accept medical insurance...
...Menem announced that the new economy minister would be Miguel Roig, a retired executive from the multinational trading firm Bunge & Born...
...It is probably a bad thing...
...Hugo has a good job...
...Houses, cars, machinery, and now even television sets are bought and sold in cash dollars...
...The uniforms of railway workers, for instance, are supplied privately for $350 each, at least ten times the cost that could be expected in open tender...
...I heard one story about a family that kept their savings frozen inside a pie, but lost everything when grandma defrosted the fridge and chucked the pie into the garbage...
...Peron admired Mussolini but he was a poor student of Italian fascism, for he failed dismally to coopt the business sector and create a functioning corporate state...
...Carrying out such intentions is another matter...
...He staggered to his car and died of a heart attack...
...The much larger Jewish community is Radical, by and large, although Menem's chief of staff and confidante, Alberto Kohan, happens to be a Jew...
...You can't send a signal from the beginning that you're going to have an extremely expansionary policy," said a monetary expert at the central bank...
...The export trade was nationalized and farmers were forced to sell their produce to a state marketing board at prices that fell further and further behind the world price...
...It is his instinct, and his political survival depends on it...
...The streets are full of elegant people who do not seem too bothered by la situacion...
...It also confiscated about 80 percent of all bank deposits in exchange for IOUs, allowing the government to get hold of Argentina's internal credit without paying the full market price...
...The Menzies government had an industrialization strategy as well but not at the expense of the farmer, so food exports continued to provide the crucial exchange for imports needed by the factories...
...Argentine business is corrupted by monopoly, and inside deals, and sub-contraction to the state...
...Another five percent are involved in the export business...
...Argentine business is corrupted by monopoly, and inside deals, and sub-contraction to the state...
...111 THE AMERICAN SPECTATOR SEPTEMBER 1989 41 Ambrose Evans-Pritchard ARGENTINA DRIFTS TOWARD DISASTER Our correspondent reports on the wages of Peronism's economic sins—and expects little repentance from Carlos Menem, for all the new president's charm and good intentions...
...He lacks the ideological conviction that carried Mrs...
...So much hope weighs on Menem's slender frame, and so much future disappointment...
...At one point they were 548 percent a month...
...We have no national identity...
...I fear that Menem has fired and missed...
...It is not just the labor unions that have entrenched themselves, paralyzing any government that dares to take them on...
...These local dollars are worth about ten times the total monetary base of the Argentine austral...
...With ever more inventive forms of dollar indexation the economy can doubtless be kept alive for months, perhaps years, yet the delay is disastrous because the society is disintegrating...
...The expansion of the state alone, however, cannot account for the fiasco of the next forty years...
...It amounted to a 73 percent tax...
...I smuggle him food—bread,scraps of meat, whatever I can get hold of...
...And it kept growing...
...Once Peronist anathema, it was now to be the panacea of Argentina...
...Prebisch had an unbelievably weird theory that the Third World ought to induce inflation deliberately in order to improve its terms of trade...
...Peronism is neither rightist, nor centrist, nor leftist," he explained...
...T he American press has tended to I excuse Alfonsin for bankrupting the nation, arguing that he was overwhelmed by Argentina's $60 billion foreign debt, or even blaming the Reagan Administration for not helping him enough...
...Alfonsin came in by the front door and left by the chimney, but at least he left...
...It was a generous state...
...The Radicals lost anyway...
...Gorgeous women dressed from head to toe in black leather sit drinking tea or hot chocolate in the confiterias of downtown Buenos Aires...
...The Argentines were more cosmopolitan, more noted for their wealth...
...Houses, cars, machinery, and now even television sets are bought and sold in cash dollars...
...THE AMERICAN SPECTA1DR SEPTEMBER 1989 21 EVANS-PRITCHARD (continued from page 21) tions...
...Peron's descamisadog his shirtless ones, were given a job for life, retirement at 60 for men and 55 for women, and handsome wages mortgaged against the future greatness ofthe country...
...According to pollster Manolo Mora y Araujo, about Ambrose Evans-Pritchard Washington correspondent for the Spectator of London, has been reporting from Latin America since 1983...
...It is the first time in living memory that an Argentine leader has reached out, instead of entrenching himself on one side or another of the country's rifts...
...Over the last five months it has outperformed every stock market in the world by massive proportions...
...I n fairness to Peron and his succes- 1 sors, however, none were as guilty of economic crimes as Raul Alfonsin, so beloved abroad and so despised at home...
...Then comes the miracle...
...Destitute peasants come from the countryside, stake out a lot on open land, and build a cardboard shack with a sheet of plastic as a roof...
...He's a good lad, he's struggled so hard . . . Please...
...People eat these papers for breakfast...
...He looked like one of the beneficiaries of the Great Argentine Inflation of 1989...
...Buying one brick at a time they turn their shacks into houses and within a decade they have created a thriving neighborhood...
...The private sector was expected to hold back its prices while the government raised the cost of gasoline, electricity, telephones, and so on, by as much as 600 percent...
...The firm is so hated (and so rich) that the montoneros kidnapped two of the Born brothers for a $60 million ransom in 1974...
...There were gasps on the Peronist benches in congress...
...To help understand the speculative game there is El Cronista Comemial or El Ambito Financiero, dense newspapers packed with page after page of incredibly detailed bond listings, daily changes in monetary circulation, hourly changes in the currency rates, and so on...
...Fifty years later little had changed...
...None of Argentina's core problems have been solved...
...Then the word "privatization" began creeping into Menem's speeches...
...There has been virtually no new construction for a year, and skeletal, half-finished buildings give a haunting look to the capital...
...All they had to go on was his record in the dirt-poor province of La Rioja, and it was not a promising one...
...Menem hurls himself with passion into all his pursuits: soccer, motor racing, and, above all, actresses...
...But he never said what he would actually do...
...There used to be lovely houses here, then it became a villa miseria...
...Prebisch had an unbelievably weird theory that the Third World ought to induce inflation deliberately in order to improve its terms of trade...
...One might have thought that this would dampen enthusiasm on the stock market, but apparently it did not...
...Argentina may keep up the appearance of normality for a while yet, but hyperinflation is eating away at the founda(continued on page 41) Two-thirds of the population have no savings to fall back on, while their salaries have fallen to Bolivian levels...
...Marcos Victorica, director of a free enterprise think tank in Buenos Aires, estimates that the treasury hands out $8 billion a year (a fifth of the budget) to the private sector in overpayments, subsidies, and special tax exemptions...
...He earns double the minimum wage...
...Peron was only doing what had already been done by the labor governments in Australia...
...The state is bankrupt, but the people still have a residue of wealth...
...It also confiscated about 80 percent of all bank deposits in exchange for IOUs, allowing the government to get hold of Argentina's internal credit without paying the full market price...
...The area sown with grains fell by 40 percent between 1939 and 1948...
...Menem called it pacificacion in a mystical inauguration speech, full of biblical metaphors,which ended with his now famous invocation: "Argentina, arise and walk...
...Take Hugo, for instance, a 50-yearold cleaner at a parish school, who like so many Argentine workers has the class militancy of a British miner...
...But instead of slashing government spending immediately, and ruthlessly, Roig turned to higher taxes and user fees...
...20 THE AMERICAN SPECTATOR SEPTEMBER 1989 bivalent about murdering leftists, and particularly hazardous for a party that through its own fabulous corruption had lost the moral authority to judge and punish others...
...In the pueblos jovenes of Lima there is an extraordinary spirit of self-improvement...
...A maintenance worker told me he had been stashing away dollars for several years...
...Menem went to the pueblo, hugging and kissing the voters at tango dances and second division soccer matches...
...The dollar soared and prices followed immediately...
...The other nation, the two-thirds of the population who have kept their money in australs, have no savings to fall back on, while their salaries have fallen to Bolivian levels...
...Until the Second World War Argentina had an economic profile very like her twin in the Southern Hemisphere...
...The rural economy never regained its dynamism...
...The insurance industry isparalyzed because it takes so long to process claims that the payment is already worthless when it arrives...
...Peron admired Mussolini but he was a poor student of Italian fascism, for he failed dismally to coopt the business sector and create a functioning corporate state...
...4V ou're facing a tiger, and you've 1_ got just one bullet," Menem was warned by Jeffrey Sachs, a Harvard economist who helped the Bolivians shoot their hyperinflationary tiger straight between the eyes...
...With ever more inventive forms of dollar indexation the economy can doubtless be kept alive for months, perhaps years, yet the delay is disastrous because the society is disintegrating...
...I was introduced to her neighbor, a thin stringy woman in a tattered dress who said she worked as a maid in the wealthy suburb of San Isidro...
...We can't go on like this," she cried, bursting into tears...
...She makes 78 australs (12 cents) an hour...
...They don't know what they're doing...
...4V ou're facing a tiger, and you've 1_ got just one bullet," Menem was warned by Jeffrey Sachs, a Harvard economist who helped the Bolivians shoot their hyperinflationary tiger straight between the eyes...
...Julia Maria Alsogaray was instructed to dispose of the state telephone company within 180 days...
...A dozen eggs cost 600 australs, or about eight hours work...
...It left the private sector without commercial credit, so a parallel system of financing emerged with hundreds of thousands of postdated checks circulating like currency...
...This was not the shock needed to shatter the psychology of inflation, and the market balked...
...Miguel Roig, already into his third pack of cigarettes that day, was told about the dollar as he left a Bastille Day party at the French embassy...
...Both Menem's parents were Syrian Muslims from educated families, and so is his wife, the volatile, slightly mad Zulema...
...If he is skillful enough, he will stick the blame for his failed plan on the empresarios, the wizards of Bunge & Born, who let the country down...
...The Leviathan state is fatter than ever...
...Only the English-speaking peoples of Britain, America, Canada, and Australia had a higher income per capita...
...He called himself "the preacher in the desert," and sometimes, in moments of ecstasy, the "redeemer...
...The difference was the xenophobic relish with which he confiscated British assets, his contempt for enterprise, and his inflammatory politicization, so typical of dirigiste movements in Latin America...
...Faced with a balance-of-payments crisis, Peron changed course in the 1950s and offered the farmers soft credit, but he discovered that business confidence could not be turned on and off with a switch at the central bank...
...Menem's spectacular feat was to win the Peronist primary last year when the party machine was behind Antonio Cafiero, the experienced and urbane governor of Buenos Aires...
...It could have worked, conceivably, if the fiscal policy had been tougher...
...They know the country is headed for collapse, but the temptation to try to muddle through is still too strong...
...Commercial contracts are no longer enforced because Argentine law allows contracts to be broken in "unforeseen circumstances," which of course include hyperinflation...
...He failed to bring security forces back into civil society, instead leaving them so demoralized and embittered that they cannot be relied upon to uphold order, with martial law if necessary, in the chaos and looting that has already begun...
...It costs two or three dollars for an immense bife de lomo, with an ensalada Waldorf, and an exquisite wine from the Andes...
...Argentines have already expatriated their savings and hold an estimated $30 billion to $50 billion in foreign banks...
...What's he going to do...
...Instead they found themselves being invited to join a coalition government...
...Buenos Aires T he monthly inflation rate in Argen- 1 tina reached 115 percent in June...
...It was known in Spanish as the "Menem-card...
...He staggered to his car and died of a heart attack...
...Instead they found themselves being invited to join a coalition government...
...The Argentine elite could see exactly what was going to happen and started dumping their australs in January 1989...
...Investment has come to a halt...
...Hundreds of thousands of Calabrians and Sicilians came over on steamboats each year to work the season on the Pampa and then return home...
...There was a television set, two cats, and pictures of Evita and Juan Peron all over the grimy walls...
...Not the army...
...The immediate cause of the collapse of the austral was Alfonsin's attempt to keep it artificially strong against the dollar and give the illusion of price stability in order to help his party in the 1989 election...
...I once visited a two-year-old shanty town in Lima and was struck by two things: there were no men around because they had all gone off to the city to work or look for work...
...There is no commonweal, no res publica," lamented President Domingo„Sarmiento toward the end of the nineteenth century...
...It could have worked, conceivably, if the fiscal policy had been tougher...
...Argentine poverty reminds me of Northeast Washington, D.C...
...Buenos Aires T he monthly inflation rate in Argen- 1 tina reached 115 percent in June...
...Nor did he bring the bureaucracy under control...
...La Cava is a witness to urban decay, not the Malthusian curse of landless peasants fleeing to the cities so common in the Third World...
...He was exuberant, and gentle...
...The Argentines were more amused than shocked...
...There used to be lovely houses here, then it became a villa miseria...
...The Menzies government had an industrialization strategy as well but not at the expense of the farmer, so food exports continued to provide the crucial exchange for imports needed by the factories...
...Peron's descamisadog his shirtless ones, were given a job for life, retirement at 60 for men and 55 for women, and handsome wages mortgaged against the future greatness ofthe country...
...It was his Radical party that imprisoned the generals for human rights abuses committed in the 1970s during the dirty war against urban terrorism, a hazardous policy when much of the population had been so amThe streets are full of elegant people who do not seem too bothered by la situacion...
...Argentines were too fond of Europe, perhaps, for they never quite came to terms with Argentina...
...Juan Peron took the economy into isolation and began to plunder the rural wealth of the Pampa to pay for his urban industrial dream...
...Thatcher to victory in the long and bitter miners' strike in 1984-85, and it is hard to imagine that he will keep up the assault when he meets the resistance of the United Workers Federation...
...There is a joke going around Buenos Aires that the intelligence services are on alert in case a Peronist infiltrates the cabinet...
...Her father, the party's presidential candidate and the living symbol of capitalist philosophy in Argentina, was asked to oversee the foreign debt...
...There never was much evidence for this theory, and now we know that it was calamitously mistaken...
...Alfonsin added 145,000 people to the public payroll...
...In 1948 Peron was selling wheat to the British at £4.8 a sack while only paying the farmers £1.3...
...It is all going to end badly...
...Frigerio's father fought a pitched battle against the oil workers in 1958, and the symbolism of his appointment was not lost on the union...
...The farmers took their revenge...
...Both exported meat and grains to Europe and both were dominated by British capital, which built the railways, the ports, and the electricity systems...
...People eat these papers for breakfast...
...Menem went to the pueblo, hugging and kissing the voters at tango dances and second division soccer matches...
...Alfonsin had no choice, of course...
...Miss Alsogaray is a leader of the free-market liberal party (UCN...
...It was hard to find a soul in Buenos Aires who had not voted for the messianic turco from La Rioja...
...There is no commonweal, no res publica," lamented President Domingo„Sarmiento toward the end of the nineteenth century...
...The Casa Rosada, the pink fortress of the president in the Plaza de Mayo, was once again used as an employment agency for friends of the ruling party...
...Argentina does not conform to any of the usual norms of financial behavior...
...Alfonsin took power after the Falklands War with an immense fund of political capital, and squandered it all...
...If you miss a couple of days you can get wiped out," I was told by a grinning, cheerful banker...
...Over the years one faction after another commandeered the state, each using it for advantage and adding yet more layers of privilege...
...It is not just the labor unions that have entrenched themselves, paralyzing any government that dares to take them on...
...And then, who knows...
...Who was going to keep him in office against the popular will...
...A maintenance worker told me he had been stashing away dollars for several years...
...This colossal distortion in relative prices was accompanied by loose talk about wage increases...
...The state is bankrupt, but the people still have a residue of wealth...
...Alfonsin had no choice, of course...
...But in 1943 a group of pro-Axis army officers seized power and began creating the corporate monster that has ruined Argentina...
...There were gasps on the Peronist benches in congress...
...Assets have a steady value, and in the eyes of many Argentines it is the austral that is going down, not prices that are going up, which may explain why there are so few signs of hyperinflationary panic among the middle classes...
...The tragedy is that Menem has been let down by the capitalists he so courageously took into his trust...
...Indeed, they have never had it so good...
...But he has already proved tougher than anybody expected...
...In other words, the work-ing currency of the country (M1) is the dollar...
...He therefore spends nearly half his salary on buses, bread, and milk...
...In 1914 a third of all residents were foreign born and yet only two percent had chosen to become naturalized Argentines, an astonishing figure in comparison with immigrants to the United States...
...Hundreds of thousands of Calabrians and Sicilians came over on steamboats each year to work the season on the Pampa and then return home...
...All of a sudden everybody was a Peronist...
...In Argentina restraint was thrown to the winds...
...The Fiat, Ford, and Peugeot factories are running at an average 24 percent capacity...
...They encouraged him to believe that it was possible to stop hyperinflation without the shock of a recession...
...The pace quickened when a young colonel named Juan Peron was pushed to the fore by the United Workers Federation, and with breathtaking speed the credit, commerce, and industrial base of Argentina passed into the hands of the state...
...Hugo has a good job...
...Businessmen watched Menem's rise to power with a mixture of fascination and horror...
...Hundreds of thousands of state employees will have to be sacked if Argentina is ever to be cured, and it goes against Menem's politics of sentiment...
...This did not matter too much as long as the British ran the economy and the government was kept to a minimum...
...At one point they were 548 percent a month...
...For many Italians Argentina was a job, not a country...
...THE AMERICAN SPECTA1DR SEPTEMBER 1989 21 EVANS-PRITCHARD (continued from page 21) tions...
...There was a television set, two cats, and pictures of Evita and Juan Peron all over the grimy walls...
...In July he expects to earn about 45,000 australs with overtime...
...Menem, however, is a passionate, devotional Catholic who used to read the Bible for hours each day during the five years he was a political prisoner in the late 1970s...
...Indeed, they have never had it so good...
...By my calculation that adds up to annual interest rates of about 52,000,000,000 percent above the rate of inflation...
...Instead, the people who make decisions in Argentina are shielded from the full horror of what is happening...
...Businessmen watched Menem's rise to power with a mixture of fascination and horror...
...But more than anything else it was Third World disease that caused Argentina's per capita income to fall from near parity with Australia in 1945 to a mere fifth today...
...By contrast, there was an agricultural boom in Australia after the war...
...On Friday, July 14, the dollar flew out of control on the black market and the plan, in effect, collapsed...
...Marcos Victorica, director of a free enterprise think tank in Buenos Aires, estimates that the treasury hands out $8 billion a year (a fifth of the budget) to the private sector in overpayments, subsidies, and special tax exemptions...
...Argentina was a pioneer of Prebischism...
...It was the most expensive election campaign in history," said a disgusted diplomat...
...What about them...
...It was hard to find a soul in Buenos Aires who had not voted for the messianic turco from La Rioja...
...Alfonsin took power after the Falklands War with an immense fund of political capital, and squandered it all...
...It's just part of my character...
...The inflation rate is expected to reach 200 percent in July (50 million percent annual), however, and if it keeps going up the economy will soon cross the threshold into chaos...
...Not the army...
...Buying one brick at a time they turn their shacks into houses and within a decade they have created a thriving neighborhood...
...He looked like one of the beneficiaries of the Great Argentine Inflation of 1989...
...The much larger Jewish community is Radical, by and large, although Menem's chief of staff and confidante, Alberto Kohan, happens to be a Jew...
...Then the word "privatization" began creeping into Menem's speeches...
...Menem called it pacificacion in a mystical inauguration speech, full of biblical metaphors,which ended with his now famous invocation: "Argentina, arise and walk...
...20 THE AMERICAN SPECTATOR SEPTEMBER 1989 bivalent about murdering leftists, and particularly hazardous for a party that through its own fabulous corruption had lost the moral authority to judge and punish others...
...Most shops put up their prices in jumps of perhaps 15 percent every three or four days, rather than marking up each day, and you soon become an expert at the arithmetic of relative prices...
...Over the last five months it has outperformed every stock market in the world by massive proportions...
...It's every one out for himself now," says Dr...
...It takes four hours and six buses to get to and from work each day, at a total cost of 320 australs, which adds up to about 8,000 a month...
...Buenos Aires T he mont...
...This country needs to be flattened, destroyed, like Germany in 1945...
...The tragedy is that Menem has been let down by the capitalists he so courageously took into his trust...
...T here are already colossal problems...
...One might have thought that this would dampen enthusiasm on the stock market, but apparently it did not...
...More Peronism, perhaps...
...At the state oil monopoly, YPF, Menem installed Octavio Frigerio with instructions to lease out wells to foreign multinationals...
...Asked about his women during the campaign, he replied with a chuckle: "Women...
...Both exported meat and grains to Europe and both were dominated by British capital, which built the railways, the ports, and the electricity systems...
...She explained that water and electricity had been installed in the barrio in 1958 and for many years it was a typical working-class neighborhood...
...Instead he created a partisan state, one without authority, discipline, or consensus...
...Let us call it Prebischism, in honor of the late Argentine economist, Raul Prebisch...
...It is a telling distinction...
...and the place was run with Prussian discipline, without any help from the state...
...Investment has come to a halt...
...President Menem, ultimately, will side with the descamisados...
...It simply goes ahead, advancing to accomplish its sacred mission...
...His family consumes one liter of milk a day costing 120, and twelve rolls of bread costing 300, which together add up to 12,600 a month...
...THE AMERICAN SPECTATOR SEPTEMBER 1989 19 Argentine poverty is unlike anything I have ever seen in Latin America...
...The plan involved a drastic increase in the money supply in order to lower interest rates abruptly from 120 percent to three percent a month, so that the vast interest rate component of the budget deficit would vanish overnight...
...This is very peculiar...
...There's no doubt that Alfonsin's administration was the worst in the history of Argentina," says Roberto Catchanoski, an economic consultant...
...It is amazing how easily you adapt to a monthly inflation rate of 115 percent (one million percent annual) so long as you know your wealth is protected...
...What's he going to do...
...The central bank ran down Argentina's foreign reserves to almost zero by flooding the local market with dollars...
...Ricardo Zinn, president of the conservative Carlos Pellegrini Foundation...
...Miguel Roig, already into his third pack of cigarettes that day, was told about the dollar as he left a Bastille Day party at the French embassy...
...Menem's spectacular feat was to win the Peronist primary last year when the party machine was behind Antonio Cafiero, the experienced and urbane governor of Buenos Aires...
...Let us call it Prebischism, in honor of the late Argentine economist, Raul Prebisch...
...How does she survive...
...Men stroll about in beautiful cashmere coats...
...For many Italians Argentina was a job, not a country...
...The Casa Rosada, the pink fortress of the president in the Plaza de Mayo, was once again used as an employment agency for friends of the ruling party...
...Interest rates were much higher...
...It's just part of my character...
...The other nation, the two-thirds of the population who have kept their money in australs, have no savings to fall back on, while their salaries have fallen to Bolivian levels...
...President Menem, ultimately, will side with the descamisados...
...I can't do without relaciones sentimentales," he added with a candor that Gary Hart might have envied...
...More Peronism, perhaps...
...Gorgeous women dressed from head to toe in black leather sit drinking tea or hot chocolate in the confiterias of downtown Buenos Aires...
...But instead of slashing government spending immediately, and ruthlessly, Roig turned to higher taxes and user fees...
...Unemployment is about to explode, and it is going to be ugly in a culture where the elite, protected by its dollars, is not seen to share the suffering...
...This did not matter too much as long as the British ran the economy and the government was kept to a minimum...
...The emergency economic plan announced by Miguel Roig just one day after Menem took power seemed to draw loosely on the theory of Lawrence Klein, a Nobel Prize-winning economist at the University of Pennsylvania...
...And it kept growing...
...The squatters had organized their own garbage burning system and they had improvised a school in which the mothers themselves did the teaching while rows of little children sat patiently on the floor...
...The private sector was expected to hold back its prices while the government raised the cost of gasoline, electricity, telephones, and so on, by as much as 600 percent...
...To pay for it he created his own currency, a sort of funny money in the form ofbonds...
...There have not been massive layoffs because the big companies are waiting to see whether the reactivation program will work...
...five percent of the population get a significant income from these holdings...
...Her husband had worked for forty years on the railways and she gets a widow's pension of 22,000 australs ($35) a month, which she spends as quickly as possible on sugar, pasta, and cooking oil before the prices go up...
...Men stroll about in beautiful cashmere coats...
...He was perhaps the most influential of a school of development theorists who argued that Third World countries are locked into underdevelopment because the "terms of trade" are forever turning against them, forcing them to export more and more coffee, or meat, or copper, in order to buy the same tractor from the West...
...Justicialismo was born...
...He was exuberant, and gentle...
...Between 1983 and 1987 he had increased the number of public employees from nine percent to 23 percent of the state's population...
...Miss Alsogaray is a leader of the free-market liberal party (UCN...
...111 THE AMERICAN SPECTATOR SEPTEMBER 1989 41 Ambrose Evans-Pritchard ARGENTINA DRIFTS TOWARD DISASTER Our correspondent reports on the wages of Peronism's economic sins—and expects little repentance from Carlos Menem, for all the new president's charm and good intentions...
...To break out of the trap, these countries must turn inwards, close off their economy with high tariffs, and build their own industrial base...
...I was invited into the concrete house of an old woman who said she had lived there since 1952...
...There has been virtually no new construction for a year, and skeletal, half-finished buildings give a haunting look to the capital...
...So much hope weighs on Menem's slender frame, and so much future disappointment...
...There were men hanging around everywhere, and they gave me rather menacing looks as I walked down the muddy streets trying to keep my feet out of the filthy open drains...
...But the Great Inflation has nothing to do with the debt...
...If you miss a couple of days you can get wiped out," I was told by a grinning, cheerful banker...
...Over the years one faction after another commandeered the state, each using it for advantage and adding yet more layers of privilege...
...I'm fine, fine, you see they feed me, they give me lunch...
...Commercial contracts are no longer enforced because Argentine law allows contracts to be broken in "unforeseen circumstances," which of course include hyperinflation...
...This was not the shock needed to shatter the psychology of inflation, and the market balked...
...Dollarization is the last thread that holds the economic fabric together...
...It is all going to end badly...
...These local dollars are worth about ten times the total monetary base of the Argentine austral...
...I spent an afternoon in a villa miseria on the outskirts of Buenos Aires known as La Cava...
...Once inflation got above 20 percent a month, tax revenues began to evaporate before they reached the treasury, creating a vicious circle of ever-rising inflation and falling tax revenues...
...This colossal distortion in relative prices was accompanied by loose talk about wage increases...
...In June alone the Bolsa Argentina rose 152 percent in dollar terms...
...Once inflation got above 20 percent a month, tax revenues began to evaporate before they reached the treasury, creating a vicious circle of ever-rising inflation and falling tax revenues...
...We now face the likelihood of total hyperinflation...
...Argentina does not conform to any of the usual norms of financial behavior...
...Alfonsin suspended debt payments in April 1988...
...It was an astounding gesture...
...The people turned to Carlos Menem, thecharming governor of La Rioja...
...This country needs to be flattened, destroyed, like Germany in 1945...
...The Argentines were more cosmopolitan, more noted for their wealth...
...The plan involved a drastic increase in the money supply in order to lower interest rates abruptly from 120 percent to three percent a month, so that the vast interest rate component of the budget deficit would vanish overnight...
...I spent an afternoon in a villa miseria on the outskirts of Buenos Aires known as La Cava...
...All of a sudden everybody was a Peronist...
...It was a time when the owners of the immense estancias spent half the year at their summer houses in Biarritz, or at their apartments on the Place Vendome in Paris...
...A t the turn of the century this huge fertile country of Italian and Spanish immigrants was one of the richest in the world...
...B & B is the archenemy in Peronist folklore, the headquarters of financial intrigue and capitalist hegemony...
...We can't go on like this," she cried, bursting into tears...
...It is probably a bad thing...
...Menem hurls himself with passion into all his pursuits: soccer, motor racing, and, above all, actresses...
...It left the private sector without commercial credit, so a parallel system of financing emerged with hundreds of thousands of postdated checks circulating like currency...
...Inflation became embedded in the culture and even orthodox governments could not root it out...
...Only the English-speaking peoples of Britain, America, Canada, and Australia had a higher income per capita...
...It is the parallel with Australia that is most striking...
...The whole sense of obligation and trust is breaking down...
...When he took power on July 8, five months ahead of schedule, there was a surge of goodwill toward the new president...
...I can't do without relaciones sentimentales," he added with a candor that Gary Hart might have envied...
...Alfonsin added 145,000 people to the public payroll...
...It was a generous state...
...If he is skillful enough, he will stick the blame for his failed plan on the empresarios, the wizards of Bunge & Born, who let the country down...
...Argentina may keep up the appearance of normality for a while yet, but hyperinflation is eating away at the founda(continued on page 41) Two-thirds of the population have no savings to fall back on, while their salaries have fallen to Bolivian levels...
...His family consumes one liter of milk a day costing 120, and twelve rolls of bread costing 300, which together add up to 12,600 a month...
...Would you rather I went out with men...
...Thatcher to victory in the long and bitter miners' strike in 1984-85, and it is hard to imagine that he will keep up the assault when he meets the resistance of the United Workers Federation...
...It is not like the German inflation of 1923 when the middle class was caught unawares...
...By my calculation that adds up to annual interest rates of about 52,000,000,000 percent above the rate of inflation...
...Then we can start again from scratch," said a central bank official, returning after several years abroad...
...La Cava is a witness to urban decay, not the Malthusian curse of landless peasants fleeing to the cities so common in the Third World...
...The Asian dragons have reached industrial takeoff by doing just the opposite, by pursuing export-led growth, while dozens of countries in Africa and Latin America have languished in poverty as they clung to the religion of import substitution...
...The streets are full of elegant people who do not seem too bothered by la situacion...
...Fifty years later little had changed...
...It is the first time in living memory that an Argentine leader has reached out, instead of entrenching himself on one side or another of the country's rifts...
...five percent of the population get a significant income from these holdings...
...Instead he created a partisan state, one without authority, discipline, or consensus...
...All they had to go on was his record in the dirt-poor province of La Rioja, and it was not a promising one...
...More and more doctors are refusing to accept medical insurance...
...The uniforms of railway workers, for instance, are supplied privately for $350 each, at least ten times the cost that could be expected in open tender...
...The area sown with grains fell by 40 percent between 1939 and 1948...
...Peron was only doing what had already been done by the labor governments in Australia...
...The whole sense of obligation and trust is breaking down...
...T here are already colossal problems...
...It was his Radical party that imprisoned the generals for human rights abuses committed in the 1970s during the dirty war against urban terrorism, a hazardous policy when much of the population had been so amThe streets are full of elegant people who do not seem too bothered by la situacion...
...Argentines voted with their hearts, for not one could say where this strange fellow, with long black hair and mutton chops, was going to take the country...
...It was the sixth day of the new government...
...Interest rates were much higher...
...I was introduced to her neighbor, a thin stringy woman in a tattered dress who said she worked as a maid in the wealthy suburb of San Isidro...
...I was invited into the concrete house of an old woman who said she had lived there since 1952...
...There is a joke going around Buenos Aires that the intelligence services are on alert in case a Peronist infiltrates the cabinet...
...None of Argentina's core problems have been solved...
...Dollarization is the last thread that holds the economic fabric together...
...When he took power on July 8, five months ahead of schedule, there was a surge of goodwill toward the new president...
...Another five percent are involved in the export business...
...In 1948 Peron was selling wheat to the British at £4.8 a sack while only paying the farmers £1.3...
...They don't know what they're doing...
...But they cannot pay their workers to do nothing for months on end...
...The export trade was nationalized and farmers were forced to sell their produce to a state marketing board at prices that fell further and further behind the world price...
...The women were much more welcoming...
...What about them...
...She explained that water and electricity had been installed in the barrio in 1958 and for many years it was a typical working-class neighborhood...
...For the first time in sixty years, one elected president has conceded power to another elected president from a different party...
...Alfonsin came in by the front door and left by the chimney, but at least he left...
...and the place was run with Prussian discipline, without any help from the state...
...Then we can start again from scratch," said a central bank official, returning after several years abroad...
...The Argentine elite could see exactly what was going to happen and started dumping their australs in January 1989...
...He was one of many Peronist leaders who were locked away by the military junta in order to decapitate the movement, then linked to the left-wing terrorists known as the montoneros (the mountaineers...
...There is a further $6 billion inside Argentina, held by all kinds of people...
...He was one of many Peronist leaders who were locked away by the military junta in order to decapitate the movement, then linked to the left-wing terrorists known as the montoneros (the mountaineers...
...The dollar soared and prices followed immediately...
...And then, who knows...
...I fear that Menem has fired and missed...
...The inflation rate is expected to reach 200 percent in July (50 million percent annual), however, and if it keeps going up the economy will soon cross the threshold into chaos...
...In 1914 a third of all residents were foreign born and yet only two percent had chosen to become naturalized Argentines, an astonishing figure in comparison with immigrants to the United States...
...There were men hanging around everywhere, and they gave me rather menacing looks as I walked down the muddy streets trying to keep my feet out of the filthy open drains...
...In the pueblos jovenes of Lima there is an extraordinary spirit of self-improvement...
...I heard one story about a family that kept their savings frozen inside a pie, but lost everything when grandma defrosted the fridge and chucked the pie into the garbage...
...Shanty towns here are known as villas miserias, or miseryvilles...
...It was a time when the owners of the immense estancias spent half the year at their summer houses in Biarritz, or at their apartments on the Place Vendome in Paris...
...In July he expects to earn about 45,000 australs with overtime...
...After forty years of high inflation any Argentine with wits has learned how to protect his savings from the depredations of the government...
...Alfonsin could foresee trouble when the IOUs fell due in June and July, so he moved the elections forward to May, seven months before his term ended...
...We now face the likelihood of total hyperinflation...
...Alfonsin could foresee trouble when the IOUs fell due in June and July, so he moved the elections forward to May, seven months before his term ended...
...I'm fine, fine, you see they feed me, they give me lunch...
...Shanty towns here are known as villas miserias, or miseryvilles...
...They encouraged him to believe that it was possible to stop hyperinflation without the shock of a recession...
...It takes four hours and six buses to get to and from work each day, at a total cost of 320 australs, which adds up to about 8,000 a month...
...The Argentines were more amused than shocked...
...Assets have a steady value, and in the eyes of many Argentines it is the austral that is going down, not prices that are going up, which may explain why there are so few signs of hyperinflationary panic among the middle classes...
...The difference was the xenophobic relish with which he confiscated British assets, his contempt for enterprise, and his inflammatory politicization, so typical of dirigiste movements in Latin America...
...He called himself "the preacher in the desert," and sometimes, in moments of ecstasy, the "redeemer...
...It amounted to a 73 percent tax...
...To help understand the speculative game there is El Cronista Comemial or El Ambito Financiero, dense newspapers packed with page after page of incredibly detailed bond listings, daily changes in monetary circulation, hourly changes in the currency rates, and so on...
...There have not been massive layoffs because the big companies are waiting to see whether the reactivation program will work...
...The currency did not fly out of control until early 1989...
...Hundreds of thousands of state employees will have to be sacked if Argentina is ever to be cured, and it goes against Menem's politics of sentiment...
...You can't send a signal from the beginning that you're going to have an extremely expansionary policy," said a monetary expert at the central bank...
...At the state oil monopoly, YPF, Menem installed Octavio Frigerio with instructions to lease out wells to foreign multinationals...
...The expansion of the state alone, however, cannot account for the fiasco of the next forty years...
...It's my lad I'm worried about," she said, putting her hand on the shoulder of a 17-yearold boy, who was recently laid off by IBM...
...The emergency economic plan announced by Miguel Roig just one day after Menem took power seemed to draw loosely on the theory of Lawrence Klein, a Nobel Prize-winning economist at the University of Pennsylvania...
...How does she survive...
...Until the Second World War Argentina had an economic profile very like her twin in the Southern Hemisphere...
...Unemployment is about to explode, and it is going to be ugly in a culture where the elite, protected by its dollars, is not seen to share the suffering...
...Both Menem's parents were Syrian Muslims from educated families, and so is his wife, the volatile, slightly mad Zulema...
...The farmers took their revenge...
...THE AMERICAN SPECTATOR SEPTEMBER 1989 19 Argentine poverty is unlike anything I have ever seen in Latin America...
...Perhaps as much as a third of the total population hold cash dollars, buried in the garden, tucked under the floorboards, plastered into the wall—anywhere beyond the reach of thieves and the state...
...The rural economy never regained its dynamism...
...It was technically incompetent and bound to fail...
...A dozen eggs cost 600 australs, or about eight hours work...
...It was known in Spanish as the "Menem-card...
...It is not like the German inflation of 1923 when the middle class was caught unawares...
...In Peru they are called pueblos jovenes—young towns...
...Argentines were too fond of Europe, perhaps, for they never quite came to terms with Argentina...
...It was technically incompetent and bound to fail...
...Take Hugo, for instance, a 50-yearold cleaner at a parish school, who like so many Argentine workers has the class militancy of a British miner...
...This is very peculiar...
...Justicialismo was born...
...It is amazing how easily you adapt to a monthly inflation rate of 115 percent (one million percent annual) so long as you know your wealth is protected...
...For the first time in sixty years, one elected president has conceded power to another elected president from a different party...
...Then comes the miracle...
...It is his instinct, and his political survival depends on it...
...After forty years of high inflation any Argentine with wits has learned how to protect his savings from the depredations of the government...
...Faced with a balance-of-payments crisis, Peron changed course in the 1950s and offered the farmers soft credit, but he discovered that business confidence could not be turned on and off with a switch at the central bank...
...By contrast, there was an agricultural boom in Australia after the war...
...The Asian dragons have reached industrial takeoff by doing just the opposite, by pursuing export-led growth, while dozens of countries in Africa and Latin America have languished in poverty as they clung to the religion of import substitution...
...The Leviathan state is fatter than ever...
...But in 1943 a group of pro-Axis army officers seized power and began creating the corporate monster that has ruined Argentina...
...Asked about his women during the campaign, he replied with a chuckle: "Women...
...Who was going to keep him in office against the popular will...
...The Fiat, Ford, and Peugeot factories are running at an average 24 percent capacity...
...The currency did not fly out of control until early 1989...
...Beating the disgraced Radicals in the presidential elections this year was the easy part...
...The pace quickened when a young colonel named Juan Peron was pushed to the fore by the United Workers Federation, and with breathtaking speed the credit, commerce, and industrial base of Argentina passed into the hands of the state...
...Frigerio's father fought a pitched battle against the oil workers in 1958, and the symbolism of his appointment was not lost on the union...
...There never was much evidence for this theory, and now we know that it was calamitously mistaken...
...They feared a reign of ignorance and demagoguery...
...He lacks the ideological conviction that carried Mrs...
...In June alone the Bolsa Argentina rose 152 percent in dollar terms...
...Nor did he bring the bureaucracy under control...
...The women were much more welcoming...
...Most shops put up their prices in jumps of perhaps 15 percent every three or four days, rather than marking up each day, and you soon become an expert at the arithmetic of relative prices...
...Ricardo Zinn, president of the conservative Carlos Pellegrini Foundation...
...Instead, the people who make decisions in Argentina are shielded from the full horror of what is happening...
...It costs two or three dollars for an immense bife de lomo, with an ensalada Waldorf, and an exquisite wine from the Andes...
...Over the next forty years Argentina had the highest average rate of inflation in the world, with all its poisonous effects on investment and business confidence...
...He therefore spends nearly half his salary on buses, bread, and milk...
...You can find him a job, can't you, please...
...The Radicals lost anyway...
...Would you rather I went out with men...
...Between 1983 and 1987 he had increased the number of public employees from nine percent to 23 percent of the state's population...
Vol. 22 • September 1989 • No. 9
