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What’s Wrong with Argentina? A quick tour of the country tells us the story clearly.
National Review ^ | 05/07/2012 | Matthew Schaffer

Posted on 05/07/2012 7:10:54 AM PDT by SeekAndFind

When President Cristina Fernández de Kirchner initiated the nationalization and expropriation of the Argentine assets of YPF, an oil company owned mostly by Spanish interests, it came as no surprise to anyone who has visited the country recently or watched it closely. The theft, a consistent manifestation of the Kirchner personality and the mercurial character of the Argentine political class, was more a return to business as usual for the country than a shock — and goes a long way toward explaining why Argentina is poor.

In January 1912, an impartial observer of Argentina and the United States would have had trouble guessing which had a more promising future. Both enjoyed the low-hanging fruit of abundant, underpopulated land. The Argentine pampas were as fecund, tillable, and flat as the American Midwest. Argentina had a long coastline ideal for exporting the agricultural products that were grown inland. Immigrants from all over the world were rushing in. Argentina had one major advantage over the States: It had never relied so heavily on slavery for agriculture. So it had never experienced such a wrenching civil war, nor was it destined for the racial strife and inequality that would be the major blot on America’s future. By 1912, Argentina had even started to enjoy some soft power: The tango — which had originated in Buenos Aires’ slums — had just hit Paris and would soon be the rage in New York and Finland. The capital was marketing itself as a fully European city transplanted directly into the Americas.

In January 2012, I caught a flight to Buenos Aires with a cheap Air Canada ticket, a psychological desperation for more sunlight than Boston would enjoy until April, and a vague curiosity about why Argentina, which had once so resembled the United States, was now so different. What had happened in the intervening 100 years?

When I showed up at the apartment whose guest room I had rented on Airbnb, the first things I noticed were the gold stud glimmering from my host’s right earlobe and, displayed on his desk, a framed, autographed picture of him hugging Ann Coulter. My host (call him Jake), I soon confirmed, was a gay, right-wing American expatriate, who telecommuted daily to his New York marketing firm.

I’m a runner, and running is how I get to know a new city. Usually the best way to do this is to wind inward from the main body of water around which the city is based. So after small talk, I laced my New Balances and asked Jake to point me in the direction of the Rio de la Plata. “The Rio de la Plata?” he asked. “You don’t want to go there. There’s nothing to see,” he continued, his tone flat and casual, with barely a hint of mischief. “It’s just where the helicopters go to dump the bodies whenever we have a coup.”

(This kind of black non-humor is something a visitor must get used to. The next day, on a tour of the Teatro Colón, the major opera house, my group’s guide led us from the main theater into a gilded hall just outside the choicest boxes. “Now this is where the really important stuff, what everyone really came to the opera for, would happen during the intermissions,” she said, her tone flat and casual — “the planning of assassinations, and so forth, among the Buenos Aires elite.”)

If you want a one-word answer to the question “Why isn’t Argentina rich?” your best bet is coups. Between 1930 (when, only a year after Black Thursday, Argentina’s future may have looked even brighter than America’s) and 1976, Argentina endured at least six. Until 1930, its per capita GDP had closely tracked that of countries like New Zealand, Australia, and Canada. But constant political instability in the decades that followed threw Argentina off track. The reasons are basic: When a country is unstable, it is risky to make the long-term investments required for growth. When dictators and oligarchs use the economy to reward their friends and punish their enemies, markets can’t guide the structural evolution and modernization of the economy. Political revolutions leave a country economically retrograde. By 2000, Argentina’s per capita GDP was about a quarter of that of Canada, New Zealand, and Australia. It had largely missed the boat of the 20th century’s spectacular growth.

A quick run around Buenos Aires reveals much. In Palermo in late January, wealthy playboys with Spanish surnames and dyed-blond hair stepped out of private cars, returning from vacations abroad, and asked officious questions about the brand of your correspondent’s shirt. Meanwhile, on the walkways of the Puerto Madero, illegal Bolivian immigrants sipped Yerba Mate and caroused late into the night, shouting slurs as I ran by.

Inequality yawns and gapes in this class-conscious city — the rich are showily rich, the poor are visibly poor, and the middle class work hard to keep up appearances. This despite the fact that Buenos Aires has historically proclaimed its commitments to socialism and unionism and its aversion to “Anglo-Saxon capitalism.” There is in this country a kind of grasping at wealth and an ostentation in the display of it, precisely because wealth is transient, not reliable or dependable, and liable to unpredictable confiscations by the state — a lesson lately reinforced by the experience of the Spanish owners of YPF.

My run eventually took me to the Casa Rosada, the executive mansion of “Don’t Cry for Me” fame, where I asked two college girls to document my arrival on my iPhone. But unlike college girls in the capitals of other developed countries, they were clueless with an iPhone camera and left me with more accidental photos of themselves than of the Casa. It’s not easy in this country to obtain an iPhone at a reasonable price, thanks to onerous special taxes and delayed regulatory approvals — widely seen as retaliation, several Argentines told me, for Apple’s refusal to source as much of its global supply chain in Argentine as the Kirchner administration thought judicious.

After the run, I joined Jake and pals for a dinner at Juana M., supposedly one of the hipper restaurants in the old-money neighborhood of Recoleta. As we opened the menus, Jake said with some resentment, “Oh, es muy cara, muy cara” (it’s very expensive). But when I looked at the menu and did the currency conversion, I thought this was crazy: One could get a large hunk of a world-renowned cow, a good Malbec, and a toney appetizer — plus, in econo-speak, the intangible consumption goods of original artwork and the social cachet of the place — for about $20. (The Argentine peso is incredibly cheap right now, because President Kirchner’s fouls have made foreign-exchange traders and Argentines eager to get their money out of pesos and into dollars as fast as possible.) Jake was a young professional, a decade out of college, with no dependents, receiving his salary in dollars from his New York firm. How was this meal muy cara for him? What was I missing?

In one word: inflation. Private estimates put Argentina’s annual inflation rate somewhere around 25 percent. (The government’s official number is closer to 10 percent, and it fires bureaucrats who disagree.) On the city’s restaurant menus, prices are listed on removable rectangular stickers, which are replaced with upwardly revised prices every couple of months at least. Jake’s mistaken perception that the place was muy cara illustrates the basic problem with inflation: a constant surprise at how expensive things have become and a constant uncertainty about what things are really worth, which cause people to defer purchases and economic decisions in thousands of small ways that, in the aggregate, rot an economy from the inside. High inflation was the norm in Argentina for most of the 20th century and was renewed in the 21st as President Kirchner steadily eroded the Argentine Central Bank’s independence, using its printing presses to reward friends and paper over the government’s growing debt.

None of this, of course, should discourage the prospective visitor. The Argentine peso’s loss is the dollar-holding tourist’s gain. And Argentina is lovely. The Spanish and Italian immigrants who settled the city in the early 20th century imprinted on it a festive culture, where dinner is served at 10:30, young people head to the tango clubs after 1 a.m., and the work day starts at 11. The Welsh immigrants who were brought to settle the plains in the 19th century left behind red-headed girls who are freckled by their heritage and tanned by the climate and, hence, peculiarly pretty. The makeup of the capital is complicated still more by its German speakers, many of whom descended from Nazis who fled the continent in the late ’40s, and also by South America’s largest Jewish community, largely descended from Jews who had fled the Nazis a decade earlier.

This potpourri has left a rich variety of neighborhoods and phenotypes, and a fascinating culture. The city’s architecture, its balconies, and its avenues are gorgeous, as are its parks and promenades. Stereotypes about South American warmth hold true. Young Argentines are uninhibited about making out in the public parks. Elderly Argentines are uninhibited about dancing the samba through the well-preserved barrio of San Telmo. The city’s bookstores and kiosks still display a retro Marxism, which is charming as long as you don’t think about its political consequences. In a strange way, the city’s aesthetic loveliness is almost underscored by the surreal contrast of its political dysfunction. The thought that, during the coups and dirty wars of the 1970s, helicopters flew over the high stone walls of the exquisite Recoleta Cemetery, to dump bodies in the Rio de la Plata just beyond, was horrible and sublime.

But I best saw what ails Argentina while on a weekend trip across the Rio de la Plata to Uruguay’s capital, Montevideo. When I arrived at the port my ferry was to depart from, I found the place swarming with police and their dogs. But there was no terror threat. The dogs were trained to smell out not bombs but cash. This was only the most visible manifestation of the country’s desperate capital controls. As Argentina’s currency has quickly deteriorated, and another state confiscation of wealth seems ever more likely, Argentines have become desperate to park their wealth overseas — and President Kirchner has become desperate to stop them. We passengers weren’t allowed to bring more than a few Argentine pesos or American dollars to Uruguay. Our wallets were literally held open, the bills counted, before we could board.

At dinner that night, after arriving in Montevideo, I ended up in a debate with a chain-smoking local, who had the rumpled-but-smart look of a journalist, and a Russian diplomat who was determined to pick a fight when he discovered that I was American and, worse, that the Uruguayan journalist admired my home country. The Russian diplomat (after lamenting history’s unfair misrepresentations of the Soviet Union) was also eager to let everyone who would listen know that he was “a very, very rich man.” His job at the embassy was just a sideshow. “I need the immunity for my real job.”

The real job, it turned out, was selling Apple products to wealthy Argentine visitors in Montevideo, who didn’t want to put up with the delays, restrictions, and special taxes imposed on the products in Argentina. Mother Russia was capturing revenues on the iPhones that Kirchner has tried to drive out of Argentina. The Russian also arbitraged in expensive Uruguayan real estate, which Argentines bought mainly to hedge against their own government’s inflation and confiscations, the YPF seizure being only the most recent and visible example. The diplomat-smuggler finished by turning to the journalist: “I don’t think we’ve met, but I’m sure you’ve seen my car around here — the black Z4?”

A few days later, back in Argentina, the country’s economic dysfunction was vividly demonstrated as I tried to leave for home. When I arrived with packed bags at the Buenos Aires airport, I found the whole check-in lobby strewn with toilet paper, which caused an old man to slip on the marble floor. (The toilet paper had been taken from the airport bathrooms, no doubt contributing to some uncomfortable layovers.) And the hall vibrated with obnoxiously loud drums and chants, coming from airport employees on strike, who marched back and forth across the lobby, drowning out all of the announcements. Enough employees were working to run security, which was lax, and customs, which was aggressive. If the lengthy customs cards I had to fill out and the legal threats scrawled on them were any indication, the Argentine government was fretting that perhaps I had visited the country only to undermine its revenues from beef exports. (As a general rule, the aggressiveness of a country’s customs is a good metric of its overall level of economic dysfunction.)

Strikes are a regular feature of Argentine life. Municipal employees’ unions in Buenos Aires shut down the city’s transportation system fairly regularly — a pain for tourists and international businesspeople. Argentina’s public-sector unions have been costly. They were largely responsible for the country’s latest economic disaster, its 2001 default. In that year, President Fernando de la Rúa had attempted to cut public expenditures sufficiently to satisfy Argentina’s creditors, but the public unions threw such a spectacular fit on the streets of Buenos Aires that the international bond markets decided that reform was politically impossible. Capital fled from Argentina; interest rates soared; and a decade of economic progress for the country was erased by humiliating and devastating default, which has left the country with punishingly high interest rates to this day.

The aggressiveness of Argentina’s unions is partly a by-product of its political culture, including the still-lingering influence of the Perons, who made the unions into a political power base. But it’s also — and here’s where one sympathizes with the workers — a product of inflation. Because the Argentine government fabricates its inflation figures, the real wages of public-sector workers are constantly being eroded. So they need frequent pay hikes and contract renegotiations just to keep up with the Argentine Central Bank’s printing presses. Argentina’s various economic pathologies, then, are linked together in a vicious cycle.

As I arrived in Boston and taxied home, I got a picture of what made America different from Argentina. The customs officer who greeted me in my morning, red-eyed daze was, for lack of a better word, a slacker. He didn’t actually care if I might be sneaking in a bit too much beef for resale in the States — the American beef industry, he seemed content to assume, could survive it. In the food court, the prices were exactly the same as at departure — and displayed in more or less permanent characters. The newspapers on sale at the Starbucks revealed that, yes, Congress was still stuck in gridlock, and, no, it still hadn’t done anything bold or surprising.

At 9:15 a.m., as I taxied down Commonwealth Avenue, rush hour had largely passed, as most Bostonians were already at work. The large Apple Store on Boylston Street testified that few Bostonians felt compelled to cross the Canadian border for their iPhones. The pedestrians in Boston were plainly (some might say poorly) dressed: The successful and wealthy lawyers and bankers here are pretty modest about it, knowing that they will slowly, steadily, and reliably accumulate wealth over long careers, if they just take care of their reputations. No need to grasp. Getting rich is slow, boring, ordinary business. The wealthy, and those aspiring to become wealthy, dress accordingly.

In short, life in Boston, as in most of America, looked relatively steady, stable, and bourgeois.

Argentina’s nationalization of YPF — which will win support from all of the country’s major political parties, and the cheers of the public — makes economic sense for the country in the short run, which is exactly why it is being undertaken. Argentina will appropriate natural resources and their cash flows. Only foreigners, mostly Spaniards, will get screwed. In the short run, it’s a free lunch for Argentina. The problem is, the seizure is also a return to the political and economic unpredictability that has ruined Argentina’s chances for prosperity over the past century. What foreigner will invest in the country now (and Argentina desperately needs such investment), in the wake of such a theft?

Maybe the thing that put America on a different path from Argentina wasn’t anything special or difficult or complex or cool but simply the fact that life here is more predictable. Maybe it was our simple, modest virtues of honoring commitments, repaying debts, keeping prices stable, accepting political defeats, bloodlessly transitioning power, letting foreigners get rich off of domestic resources (when so contractually entitled), and showing up at work on time. In America over the past century, ordinary businesspeople have enjoyed reliable financing from stable banks; a legal environment that, slow to change, makes it easier to start businesses and hire people; freedom from fear of confiscation by the government; and a supply of nerdy and meritocratic employees, because our economy and culture reward people more for accumulating quiet credentials than for pursuing sexy political connections. In short, maybe what set America apart was partly how divided and plodding our governance could be and how gradual in its changes life here consequently is.

Kirchner’s seizure of YPF — its aggression, its surprise, its lawlessness, its desperately short-term economic logic — is emblematic of all the things that set Argentina apart from America in the 20th century. As such, it presages another century in which Argentina will miss out on the prosperity for which it was once as well positioned as the United States.

— Matthew Shaffer lives in Cambridge, Massachusetts.


TOPICS: Business/Economy; Foreign Affairs; Government; News/Current Events
KEYWORDS: argentina

1 posted on 05/07/2012 7:11:04 AM PDT by SeekAndFind
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To: SeekAndFind

A lot of offspring from Nazi War Criminals?


2 posted on 05/07/2012 7:12:43 AM PDT by dfwgator (Don't wake up in a roadside ditch. Get rid of Romney.)
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To: dfwgator

They are in Paraguay.


3 posted on 05/07/2012 7:23:21 AM PDT by Eric in the Ozarks
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To: Eric in the Ozarks

Eichmann was in Argentina, there was a whole network of Nazis there in Argentina.


4 posted on 05/07/2012 7:24:31 AM PDT by dfwgator (Don't wake up in a roadside ditch. Get rid of Romney.)
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To: dfwgator
True, but Paraguay's president Alfredo Stroessner (1954-1989) let it be known that the welcome mat was truly rolled out for on the run Nazis and anyone else who might need paid protection.
5 posted on 05/07/2012 7:45:01 AM PDT by Eric in the Ozarks
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To: SeekAndFind
If Spain had what it takes, it would make sure that Argentina's seizure of YPF was not profitable in the short run either. Spain has a number of tools available, but probably won't use any of them. It wouldn't be European.
6 posted on 05/07/2012 7:53:12 AM PDT by Truth29
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To: Eric in the Ozarks

Mengele died in Brazil.

And Klaus Barbie? Well he was in Bolivia and Peru for a while, then he got rerouted back to France.

Paraguay actually has some al-queda types now. The backwaters are a great place for them to hunker down. No joke.


7 posted on 05/07/2012 8:06:46 AM PDT by bajabaja (Too ugly to be scanned at the airports.)
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To: SeekAndFind

Far and away the best steaks I’ve ever had were in Buenos Aires.


8 posted on 05/07/2012 8:08:30 AM PDT by Hoosier-Daddy ( "It does no good to be a super power if you have to worry what the neighbors think." BuffaloJack)
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To: Hoosier-Daddy

What you just shared is what’s NOT wrong with Argentina.


9 posted on 05/07/2012 8:10:27 AM PDT by SeekAndFind
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To: Truth29

At least Argentina didn’t seize GM or Chrysler. That would make them underhanded, union-loving, anti-capitalists.

S/off


10 posted on 05/07/2012 8:20:06 AM PDT by alpo
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To: bajabaja
I've read about the area between Paraguay and Uruguay as being Islamicized. Like most other things in South America, poor Paraguay got the last pick of the Nazis with high ranking Germans electing for better digs..
11 posted on 05/07/2012 8:21:57 AM PDT by Eric in the Ozarks
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To: SeekAndFind
as President Kirchner steadily eroded the Argentine Central Bank’s independence, using its printing presses to reward friends and paper over the government’s growing debt.

Good thing that can never happen here.

12 posted on 05/07/2012 8:38:09 AM PDT by KarlInOhio (You only have three billion heartbeats in a lifetime.How many does the government claim as its own?)
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To: SeekAndFind
High inflation was the norm in Argentina for most of the 20th century and was renewed in the 21st as President Kirchner steadily eroded the Argentine Central Bank’s independence, using its printing presses to reward friends and paper over the government’s growing debt.

When the money keeps rolling out you don't keep books
You can tell you've done well by the happy grateful looks
Accountants only slow things down, figures get in the way

13 posted on 05/07/2012 8:40:05 AM PDT by dfwgator (Don't wake up in a roadside ditch. Get rid of Romney.)
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To: Hoosier-Daddy

Really? You can not get good beef in Argentina. It is not for the public/masses consumption. The beef market is regulated so that ALL classes have affordable meat. This makes for average quality as the chosen cut for sale. The top grade is shipped to Asia as it warrants more profit. However many cattle men are going on strike as it has become more profitable to grow soy which there are no regulations on yet....

If you want GREAT beef you go to Uruguay. Uruguay has free markets and all grades of meat make it to the consumer.

I have spent time in each country and it is true that Uruguay has become the Switzerland of South America. The rich from Brazil and Argentina come here for protection..., they call it vacation but it is where they keep their wealth... or hide it. Land values have become pricey especially on the coast and the casino cities like Punte del Este are so expensive like the Riviera in Europe.

Argentina has the potential just the wrong or misguided ideology for decades holding the country and it’s people back. The fiscal system is a joke as on a daily basis everyone around you is holding up notes checking for counterfeit paper... And the best trick in Buenos Aires is handing back notes after the switch is made... In a restaurant or taxi you hand over the cash.... they do a quick viewing up to the window or light or sun and then w/ the slight of hand change paper, hand you back a fake and scream in a foreign language how you gave them phoney money.... try arguing that!


14 posted on 05/07/2012 9:05:15 AM PDT by Republic Rocker
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To: dfwgator
Some, yes, but the ethnic make up of Argentina is largely Spanish and Italian with a good mix of British, Germans, and European Jews thrown in for good measure. Unlike the rest of South America there is not a noticeable dominance of native "Indian" or black and mulatto African slave descendants in the faces one sees in the streets.

The German part has more of its origins in late 19th and early 20th centuries immigration than escaping Nazi war criminals. You see the same thing in the southern part of Brazil and in Paraguay and Uruguay.

But the Nazis were quietly welcomed into a country where Peronism (a trade union based populist politics for which "national socialism" is a good descriptor) became the dominant political force after a military coup in 1943 and Juan Peron's election to president (with Eva Duarte - Evita - at his side) in 1946. We should get down on our knees and thank God that this part of the hemisphere was settled by English and not Spanish or Portuguese subjects.

15 posted on 05/07/2012 9:13:40 AM PDT by katana (Just my opinions)
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To: SeekAndFind

Thanks for the posting. Labored through the Schaffer Argentine tour de jour report with the “Rancid Aries” persective. Aside from rampant inflatio, some historical stuff, and the current regime attemtpting to keep all the cash in the country so it can tax it. Still haven’t the foggiest of what makes that country do what it’s doing and what its citizens think.


16 posted on 05/07/2012 9:18:15 AM PDT by mosesdapoet (The best way to punish a - country is let professors run it. Fredrick the Great p/p)
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To: Republic Rocker

The best steaks I ever had in my life were in Buenos Aires. I failed to mention that I had them about 20 years ago.


17 posted on 05/07/2012 9:19:52 AM PDT by Hoosier-Daddy ( "It does no good to be a super power if you have to worry what the neighbors think." BuffaloJack)
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To: Hoosier-Daddy
Ditto. I left there in 1989 and can STILL taste that world-class Argie beef. My last meal there consisted of a "bife de lomo (a filet about the size of a softball), salad, "papas pie (straw French fries) and my own bottle of Andean white wine for <$5. For my entire three years there, we (Yanquis) really lived large.

Montevideo/Punta = the antidote to BA. In Puerto Stroessner, Paraguay, (later, post 1989, Puerto del Este), you can buy anything: it's a smuggler's paradise.

18 posted on 05/07/2012 9:33:46 AM PDT by Ax
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To: mosesdapoet
what makes that country do what it’s doing and what its citizens think.

A sort of hostility towards the outside world and "Anglo-Saxon Capitalism" in particular. Politicians have successfully focused this on the IMF. Whenever things get tough for regular Argentines they tend to blame the IMF and dark global forces, rather than their own leaders.
19 posted on 05/07/2012 9:51:04 AM PDT by Buckeye McFrog
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To: mosesdapoet; SeekAndFind

Agree..a good piece..thanks for posting. I wish the author would have addressed how the average Argentinain feels about the Falklands..will the Argies try again?


20 posted on 05/07/2012 10:11:11 AM PDT by ken5050 (FRACK Obama!!!)
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To: ken5050

See the post from two days ago about a vid by an Argie athlete doing his training in the streets of the Falklands’ main town, with commentary about how “nuestras Malvinas” will be Argentine once again.

Geez, what else do the Argies have to be nationalistic about? Given that neighboring & prosperous Uruguay & Chile have about the same climate & ethnic mix, Argentine pride must be a tall order indeed.


21 posted on 05/07/2012 11:02:06 AM PDT by elcid1970 (Nuke Mecca now. Death to Islam means freedom for all mankind.")
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To: SeekAndFind
. . . a vague curiosity about why Argentina, which had once so resembled the United States, was now so different. What had happened in the intervening 100 years?
and
". . . its aversion to “Anglo-Saxon capitalism.”

I think I see the problem.

22 posted on 05/07/2012 12:46:39 PM PDT by Oatka (This is America. Assimilate or evaporate.)
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