Argentina

LAST summer, in the once proud city of Buenos Aires, the lights constantly flickered and died; some sectors were without current for days on end while worn-out generators were being patched up. The rain fell and the sun shone on turbines and generators ordered from England five years ago, while the government still discussed ways and means of building a plant to house them.

The suburban train service is so poor that one day irate passengers set fire to the cars. In the city, the most decrepit taxis in the Western world shudder and shake over streets pock-marked with holes deep enough to burst a tire or break a spring. And, as a monumental symbol of general stagnation, there stands on the corner of the “widest avenue in the world” the skeleton of a municipal office building begun more than ten years ago and not yet finished. One should add, of course, that a superb steak can still be bought for less than a dollar, since this compensates for much in the eyes of the Argentines.

The general process of decline and decay, although it has now reached a paroxysm, is not recent. The United Nations Economic Commission for Latin America points out that, while Argentina had an annual per capita growth rate of about 1.2 per cent during the first thirty years of this century, it has since then achieved an average of only .6 per cent. This means that the average per capita income has increased barely more than 50 per cent since 1900, whereas Mexico, in the decade from 1940 to 1949 alone, increased its average per capita income 42 per cent, and Brazil, in the five years after 1955, by 21 per cent.

No other major country in the Western world has grown so slowly. Furthermore, Argentina suffers from remarkably few of the usual handicaps to development. Its population is almost entirely European in origin; the illiteracy rate is one of the lowest in the hemisphere. Argentina has engaged in no wars since a campaign against the Indians in 1879; in fact, as a major supplier of grain, meat, hides, and wool, it has profited handsomely from the wars of other people. The terrain of the country, one of the greatest plains in the world, offers no particular obstacles to transportation. The richness and accessibility of the fields mean cheap and abundant food for everyone.

Frondizi’s conservative program

In a country with so stagnant an economy, the impetus gradually shifted from an effort to produce more to a pitched battle among the various sectors of the population to grab each for itself a larger piece of the dwindling pie. The result was the familiar wage-price spiral, inflation, social disorder, and approaching bankruptcy. In these circumstances, President Arturo Frondizi, nine months after taking office in May, 1958, propounded a new policy, totally different from his previously professed philosophy, which he calls the “program for stabilization and development.”

In its financial aspects, this program is a simple technical application of orthodox economics as set forth by the International Monetary Fund: abolish government subsidies and preferential rates of exchange; tighten credit; let prices find a realistic level, but discourage wage increases, except as justified by increased productivity; encourage exports; limit imports; balance the budget.

These measures suffered from the start because there was no influential body of political opinion which supported them. As in many other countries facing the pinch of hardship, in Argentina people of all shades of opinion had come to believe that government controls were the only way to ensure their profits, their wages, and low prices for the necessities of life. The new policy was adopted reluctantly as the only alternative to bankruptcy.

New money

In spite of their unpopularity, resulting in only a partial application, these measures have today resulted in a certain degree of financial stability. The peso, after a devaluation of some 50 per cent and some wild fluctuations thereafter, has held to within a point or two of its quotation in August, 1959. The cost of living, which since 1955 had more than quintupled, was held to a modest 12 per cent rise in 1960. This relative stability, coupled with a more favorable investment climate, has encouraged foreign capital to come in — an estimated $300 million since the start of the program. Some Argentine capital is also being repatriated, partly because tight credit has obliged businessmen to mobilize their reserves. High rates of interest have also attracted a certain amount of “hot money” in short-term loans. Furthermore, the Argentine government and local firms are finding it easier to obtain credit abroad for the purchase of machinery and raw materials.

The result of all this new money is a dramatically favorable balance of payments, with a surplus of some $289 million. The balance of trade, however, is in deficit to the amount of $111 million, or about 10 per cent of the import account. Exports have shown practically no improvement since 1959.

The neglect of agriculture

This trade deficit, which has become chronic in Argentina, is, from the long-term point of view, one of the most disturbing factors in the financial picture. Argentina’s exports are almost entirely agricultural. The terms of trade for these products have not been unfavorable recently, and, unlike Brazil’s coffee, there is a ready market for them. The problem, essentially, is to increase volume.

However, Argentina, which in the early part of the century was one of the richest producers in the world, is now one of the most inefficient. The productivity of cattle, for instance, measured by the yield of pounds of beef per head of cattle in the herd, has been steady in Argentina since 1930 at 100 pounds per head. In the United States it has risen to 150 pounds. If Argentina had made only half the progress the United States did, its exportable surplus of beef would be doubled, adding some $275 million to its export account annually. The same is true of grains.

Various reasons are given for the present low productivity of the once prodigious Argentine soil. It is certain that the tax structure is unfavorable to the Argentine producer, obliging him to pay both an export tax on his produce and an import tax on his equipment. It costs two and a half times as much wheat to buy a tractor in Argentina as in the United States, for instance. The producer is further hampered by the deterioration in transport facilities, labor laws and union rules illadapted to farm conditions, and a certain incoherence in the fixing of support prices, which has had the effect of destroying the orderly rotation of crops.

The results of all this are beginning to be frightening. Less acreage was sown to wheat last year than at any time since 1902. A severe drought further reduced the crop, and there will be practically no exportable surplus in 1961. Since Argentina’s only currency to finance the industry it covets is the produce of its soil, the official neglect of agriculture is difficult to understand. The balance of payments cannot depend indefinitely on the flow of loans and credits from abroad.

The national budget

The second great shadow in the financial picture is the continuing deficit in the national budget. For the fiscal year ending in September, 1960, this amounted to 29 billion pesos. For the present year, the government optimistically estimates the deficit at some 19 billion. The Argentine Chamber of Commerce, however, in a detailed study published recently, arrived at the figure of 36 billion. Other estimates go even higher; the figure of 60 billion has been mentioned frequently. Such a deficit, in relation to the gross national product, would be, in American terms, a staggering $33 billion.

The government makes a great point of proving that the deficit is due entirely to the state-owned enterprises, particularly the railroads, and not to the central administration, which can meet its bills with the revenues of existing taxes — incidentally, among the highest in Latin America. The fact remains that Argentina has one of the largest bureaucracies anywhere, with nearly 800,000 people working for the federal government alone (out of a total population of 20 million), plus several hundred thousand more in provincial and municipal offices. The new policies aimed to reduce the bureaucracy. After two years, the reduction is less than 3 per cent.

One of the simplest ways of reducing the deficit would be to return to private hands the highly inefficient state enterprises. Official suggestions to this effect have been greeted with horror by politicians of practically all persuasions, including those of the President’s own party, for whom government ownership of public utilities is a basic credo. Furthermore. private enterprise has shown no great enthusiasm to take over these companies, which must struggle with obsolete plant, politics, featherbedding on the part of the unions, and a completely unrealistic rate structure.

Bright spots in industry

The development aspect of the new program is, fortunately, more encouraging. The most dramatically favorable factor has been the victory in the battle for oil. Two years ago, Argentina was able to supply only 30 per cent of its own oil needs and spent some $300 million for petroleum imports. In 1961, it is confidently expected that the country will be self-sufficient, and even have a small exportable surplus. This does not mean a total saving of $300 million in the balance of payments. The contracts of various types for the extraction of the oil require the disbursement of dollars. Argentina will still have to pay over $100 million for its oil.

In the industrial field, there are several striking developments. Argentina’s growth has long been hampered by the lack of any significant production of steel. However, the government-owned steel mill at San Nicolás, begun in 1947, has finally come into production. It should produce some 450,000 tons this year, using imported iron and coal.

Further hopes for progress in steel center around the largely unexplored iron deposits in the bleak hills of Patagonia known as the Sierra Grande. An agreement has recently been signed with a group of American, German, and Argentine companies to explore the region, mine the ore, and eventually build a steel mill.

Another promising development is in the field of petrochemicals, using as raw material the country’s abundant supply of natural gas. Four American companies will invest $70 million this year in an industrial complex to produce synthetic rubber, benzene, and carbon black. The motor vehicle industry is also expanding rapidly, and understandably so. The sight of the ancient vehicles rattling through the streets of Buenos Aires is enough to make any car manufacturer’s mouth water. The first stage has depended to a large degree on the importation of finished parts, and has therefore been a heavy drain on the balance of payments. The government has stipulated that an increasing proportion of locally manufactured components must be incorporated in the new cars.

Except for oil, however, most of these promising developments are still in the planning stage or have just begun to get under way. They have not yet had much impact on the economy, which the current report of the UN Economic Commission for Latin America, usually chary of adjectives, characterizes as “sluggish.”

Political troublemakers

When Frondizi took office in May, 1958, it was proudly stated that he was the first constitutionally elected President in nearly thirty years. Since then he has survived twentynine coups d’!tat. The habits of unconstitutionality die hard.

The chief troublemakers have been labor and the armed forces. The labor problem, in its political aspect, was to confine to purely union matters the Peronist-dominated unions, accustomed under the dictator to playing the leading political role in the country. By an astute policy of division and persuasion, this problem now appears to be on the road to solution. In any case, the government felt sure enough of itself in March of this year to hand back the central union organization to labor control. It had been under government supervision since the revolution in 1955.

The armed forces present a knottier problem. They are, in fact, a state within a state. They own farms, administer a good deal of the mineral wealth of the country, and run a steel mill and a wide variety of other factories. Their budget is never published. Informed guesses put it at about 35 per cent of the national budget. They consider themselves the guardians of national sovereignty and the appointed mentors of economic policy, internal politics, and foreign policy. In a lengthy memorandum during a crisis in October, 1960, the commander in chief of the army instructed the President, among other things, to repudiate his policy of “integrating” Peronists into political life and to fire anyone in the government who supported that policy, to revise the labor laws, balance the budget, improve the balance of payments, and change the directorate of the national oil monopoly.

It must be said, to their credit, that the military are the most resolutely anti-Communist and antiPeronist force in the country. They also consider themselves stanch democrats, although it is doubtful whether their conception of their role falls within our definition of democracy.

With two extrapolitical forces such as the military and the unions attempting to dominate political life, it is not surprising that politics itself more often resembles a game of Checkers than a serious consideration of the country’s problems. Thus, as the President, elected on a leftist platform, moved toward the right in the application of orthodox economics, the major opposition party, previously on his right, switched around and came in on his left. This party, the Radicals of the People, now raises the popular war cry of antiimperialism and attacks the new economic policy not on its merits but as something imposed by rapacious Uncle Sam.

Although there is a vociferous body of opinion which is hostile to the United States, blaming us for everything from the high cost of living to the low price of wheat, official Argentine foreign policy is as friendly to us as any on the continent. This is a vast and favorable change from the days of World War II, when Argentina was as close to being our enemy as any other nation in Latin America.