Argentina: Debt Without Destitution

Wall Street Journal, 2/22/84, Neil Ulman

Summary by Josef Skoldeberg

Main Point: Argentina is currently facing the problems of its 43 billion dollar foreign debt. Government spending has sent the economy into shambles but the land in Argentina is rich and the agriculture industry along with the energy and mineral resources may be able to revive the economy

Summary: While the country is in bad economic times it is not as bas as many of us may think. Yes people are lining up to the soup kitchens and there are reports of hunger in some northern provinces. But for Argentina these are new and very disturbing signs. Actually the economy is virtually self sufficient on oil and food. The problem with the economy stems not from a lack of natural wealth but from a 40 year struggle on how to divide it among the 28 million citizen of the country.

Last year inflation ran 430% and the budget deficit is 14% of GNP. The biggest problems may lie in the fact that about 70% of government expenditures are on wages and salaries. Much of this is due to the government subsidizing the huge amount (60% of the industrial sector) of state-owned businesses.

The government says it has plans to right the economy by raising real wages across the board, decreasing the deficit and drastically cutting government spending at the same. The government claims that the extra money will come from cutting down on tax evasion(estimated to be at 50%) but many experts are saying that the numbers just aren’t adding up.

The farmers and ranchers of Argentina are proposing another solution. Since agriculture continues to pay Argentinas bills why not increase production. Currently agriculture directly effects GNP by 30% and indirectly by 75%. The argument is that a boom in the agricultural industry will be the best way to stimulate the economy and create jobs. For this to happen the farmers and ranchers are saying that the government must allow them to earn world free-market prices for meat and grain products and allow them world free-market prices for imported supplies. The government would have to lessen the now high tariffs that are in place for products such as fertilizers, herbicides and pesticides that would be needed to switch to more high intensity production methods. The tariffs are designed to protect national industry but they are hindering competitiveness in the world market. Industry leaders are also calling for a stop of the current foreign exchange retention on exported products. The government keeps 25% of the foreign exchange price for beef and then gives the rest back to the farmers. The retention on wheat exports is 15%. The ideas can be a hard sell since taxing the rich land owners has never been to big of a problem for urban voters.

Many are saying that attracting foreign capital and returning Argentinian capital stashed in other countries is the only way to go. Some popular ideas have been: develop its energy and mineral resources, boost farm output, and privatize state run enterprises.