Mightier than the dollar
With the “blue” green back hitting record levels for this year at least in a country sinking ever deeper into the red (with every chance of soon eclipsing last spring’s all-time peaks), it might surprise some readers to learn that once upon a time Argentina’s currency could look down on the almighty dollar along with pound sterling and very few other coin a ges in a pre-euro world – and yet incredibly enough, back in mid-1985 you did not even need all of a newly - minted austral to purchase one whole bank note bearing George Washington’s portrait (just 80 cents sufficed). It might also surprise many readers to learn that there were ever times when Argentina’s currency was not called what is fast becoming a four-letter word – namely, peso – but the austral was this country’s official denomination for 70 months between 1985 and 1991. All the work of the former economy minister Juan Vital Sourrouille, who would have turned 81 next month but died last Wednesday.
Sourrouille died almost forgotten but within my lifetime (which began on today’s date in mid-century) only two of the 58 ministers in that period have ridden the tiger of Argentina’s volatile economy for longer than his 1,501 days – José Alfredo Martínez de Hoz (1,828 days) and Domingo Cavallo (2,261 days) since the Peronist Ramón Cereijo (1946-1952). Like few other political figures that ministry consumes his biography almost entirely with little remarkable to record either before or since. Except perhaps for his nickname “Quatrocchi” (four eyes) conferred on him very early in life by his school mates due to his pebble glasses – this conveys his cerebral image as well as anything. Dedicating his whole life to the dismal science after graduating as an accountant, Sourrouille was an economist pure and simple with none of the usual prefixes, whether “orthodox” or its opposites.
So let us now dissect that ministerial career. Planning secretary at the Economy Ministry between late 1983 and early 1985 under the Radical presidency of Raúl Alfonsín, Sourrouille jumped to the top of the portfolio on February 19, 1985. Alfonsín’s first minister Bernardo Grinspun had come to grief from failing to place negotiations with the International Monetary Fund on track amidst nagging inflation with midterm elections looming later that year. Does any of that sound familiar today?
Then as now inflation was the root of most problems. The 19801982 financial crisis eventually bottomed out into a curious twilight zone which was neither monetary stability nor runaway hyperinflation – instead a high and heavily index-linked inflationary plateau with the cost of living clocking in at around 25 percent month in, month out throughout 1983 and 1984. But in early 1985 the monthly inflation index accelerated to levels more like 30 percent and threatened to move beyond with hyperinflation hitting various countries worldwide in that period ranging from Bolivia to Israel (the fastest inflation in Latin American history in the former case with annual rates of up to 60,000 percent). Clearly Sourrouille had to move fast.
But the hitherto planning secretary had been planning a few things in the preceding months and within a dozen weeks the Austral Plan was all ready for President Alfonsín to announce. It was a shock package whose basic elements were a total wage and price freeze, the elimination of all index-linking (extended to the exchange and interest rates) and a halt to all money-printing with the dose of fiscal austerity needed to make that realistic – inflation plunged from 30 to six percent in the first month of the new austral currency.
The November midterms that year were a resounding triumph for Alfonsín against a Peronism split between traditional and Renewal sectors – the Radicals took 43 percent of the vote, only garnering less Congress seats than the opposition in three provinces (six others were tied). It remains debatable whether all the credit for this success should go to the humble nerd Quatrocchi. The junta trials were then five weeks away from their final verdict and much of the citizenry considered it vital to buttress the new democratic government against a still very real military threat (which was to materialise at least four times in the next five years) – Alfonsín played to that mentality for all its worth with his absurd state of siege in October (the dozen “antidemocratic conspirators” denounced then included the highly respected pundit Rosendo Fraga who has done nothing in the following 35 years to justify that smear). But there can be little doubt that with monthly inflation of 30 percent and beyond the Radicals would have crashed to a humiliating defeat.
As they did at the next midterms in 1987 (“What does UCR stand for? Unicamente Córdoba y Ríonegro” was the political joke that year since they only won in those two provinces). Capitulation to military pressure in the form of the 1986-1987 amnesty legislation might well have been a major factor too but meanwhile the wheels had come off the Austral Plan. Low global commodity prices conspired against a sufficient inflow of dollars to defend the higher level of the austral and boost reserves while Argentina’s notorious trade unions (as reflected by the 13 general strikes called by then-cgt secretary-general Saúl Ubaldini) soon started feeding wage-push inflation into the equation with the pioneering privatisation efforts of public works minister Rodolfo Terragno obstructed by Peronism (only to be adopted a couple of years later by the Peronist Carlos Menem).
Sourrouille’s acquired prestige was strong enough to survive the midterm setback and retain Alfonsín’s loyalty but the 1989 Radical presidential candidate Eduardo Angeloz insisted on the removal of both the minister and his Austral Plan, replacing it with his own somewhat amorphous Spring Plan based on deregulation and privatisation (also to be adopted by Menem). The only result was to see a monthly inflation of 19 percent in the last month of Sourrouille (March, 1989) soar to 80 percent just two months later and 197 percent two months after that as hyperinflation rocked the country.
The successive fates of the austral and convertibility would suggest that Argentina’s currency is like Icarus – the closer it flies to the sun, the harder the economy crashes since inaugurating an exchange rate superior to the greenback and pegging the peso to the dollar respectively ended in the 1989 hyperinflation and the 2001-2002 meltdown. These pandemic times differ sharply from 1985 – currency options now include bitcoin and the barter culture of the 2001-2002 meltdown has seeped into the monetary sphere with the Senebi dollar, among other novelties – but a deeper study of the austral experiment would still seem especially timely in the hour of its master mind’s death.
The successive fates of the austral and convertibility would suggest that Argentina’s currency is like Icarus – the closer it flies to the sun, the harder the economy crashes.
Biden wants his country to lead a coalition of the willing to help him wage what, he hopes, will remain a cold war against China, Russia and other autocracies.
As well as telling North Americans that when travelling abroad it would be better for them to give certain crime-ridden places a wide berth, the US State Department regularly advises investors against putting their money in dodgy countries where the risk of losing it is high. Unfortunately for just about all of us, Argentina is one such country. In its latest report, which was made public a couple of days ago, the State Department warns businessmen interested in earning an honest penny here that they would run into a wide range of difficulties, among them corruption, un trust worthy courts, un predictable interventionist policies, rigid labour laws, capital, export and price controls. As far as Joe Biden’s administration is concerned, Argentina is not for them.
For those Kirchnerites who thought that under the man they amused themselves by calling “Juan Domingo Biden” the United States would be on their side, all this must be extremely galling. They hoped that – thanks to the largely imaginary affinity they saw between their brand of Peronism and the left-leaning Democrat ethos pushed by Bernie Sanders and a like-minded “squad” of legislators – the new US government would be as kind to them as Donald Trump’s had been to Mauricio Macri and his team mates. Instead, they have just been reminded that there is little to choose between Biden’s approach and that of the Wall Street vultures who dared to confront Cristina Fernández de Kirchner when she occupied the Pink House.
The State Department’s willingness to treat the Kirchnerite government’s efforts with open contempt could have unpleasant consequences not just for Argentina but also for other countries in the region – at stake are some very important geopolitical issues. Cristina and the men and women surrounding her have already made it clear that they find it far easier to get along with Vladimir Putin, China’s Xi Jinping, the Iranian ayatollahs and the squalid dictators running Venezuela, Cuba and Nicaragua than with the North Americans and Europeans.
There is a straight forward reason for this; autocrats take a pragmatic view of corruption. It depends on who steals from whom and what they propose to do with the loot. When malefactors take what they regard as an unhealthy interest in politics and start dreaming aloud of reaching the top, they have no qualms when it comes to putting them to death for their sins, as frequently happens in China, but if they play ball their behaviour is tolerated because it makes them vulnerable to officially-sanctioned black mail.
Unlike Trump, who assumed the United States was powerful enough to go it alone and could therefore do without foreign allies, Biden wants his country to lead a coalition of the willing to help him wage what, he hopes, will remain a cold war against China, Russia and other autocracies. In his way, he is restoring the battle lines that crisscrossed the world when the Soviet Union was still a going concern and the US was determined to “contain” it and, if possible, roll it back, even if this entailed displacing by devious means legitimate foreign governments that showed signs of going over to the enemy. While it seems unlikely that Washington will revert to the blatantly interventionist policies of the past, it would be astonishing if it did not apply economic and other pressures to a similar end. Indeed, by distributing large amounts of surplus vaccines free to poorer countries, it is already doing so.
Seeing that the Kirchnerites have no choice but to interpret the latest State Department report on how the Argentine economy is doing in political terms,i tis bound top ro v eco un te rproduc ti ve. After all, they can hardly be expected to adopt what they would calla“ne oliberal ”strateg ya k in toMacri’ s in order to please a country most say they greatly dis like. When debating with the opposition, government spokes people already insist that the kind of policies the US indirectly recommends have already been tried here by Macri and failed miserably. So instead of taking seriously the criticism of what they are up to and promising to do better, they will simply brush it off and carry on as before, which virtually guarantees that sooner rather than later the economy will go under, as Venezuela’s did several years ago.
Since the middle of the last century, when Juan Domingo Perón tried and failed to change course after the gold ingots the country had piled up during World War II and its aftermath ran out, all Argentine governments have faced a nasty dilemma. They could either undertake the much - feared structural reforms that would be needed to make the economy resemble those of countries which were rapidly getting richer, or they could leave things much as they were and pray that nothing really bad happened under their watch.
Time and time again, it was realised that the political costs of the root-and branch reforms that would have to be carried out to bring the economy up to par with those of the developed countries would be far greater than any government could comfortably tolerate. As the years went by, they became more prohibitive. Perhaps some members of the Kirchnerite government, such as the Economy Minister Martín Guzmán and even President Alberto Fernández, when he is not play-acting, do believe that in the longish run “orthodox” structural reforms would benefit most people, but even so they know they cannot ram them through, so they take a back seat and let others defend their inaction by going on about national sovereignty and the harm all Kirchnerites agree was done by Macri’s half-hearted attempt to do what all serious economists said was necessary to put an end to Argentina’s long and increasingly painful decline.
The US State Department’s comments on how the government is handling the economy play into the hands of hardliners who enjoy blaming the country’s desperate plight on the evil machinations of the “empire.” For them, China (in this game, Putin’s Russia is a bit player) is notathreat bu tamostwelco me alterna ti ve–af te rall,theC hin ese, who these days have plenty of money, have yet to acquire the habit of telling their prospective partners how best to manage their affairs, as the US habitually does, and have no interest at all in the ethical questions Westerners are prone to worry about. Their current indifference to such matters can be attributed to the lofty conviction that it would be foolish to expect foreigners to measure up to the exacting standards prevailing in the Middle Kingdom, but should they get the upper hand, as they well could in the not too distant future, they would surely become far more demanding.