Reforms came at a great social cost, failed to achieve promise of low inflation, productivity
By Ignacio Portes
Herald Staff
Thursday, March 24, 2016
Although the large-scale human rights violations stand out most in people’s minds as the most painful legacy from the years of 1976-1983, the economic legacy of the military dictatorship was also hugely consequential for Argentina.
The military Junta took power at a time in which the post-war consensus of Keynesian economics (according to which state intervention was fundamental in order to ensure steady growth rates and full employment) began to be questioned on a worldwide scale, with the dictatorship in neighbouring Chile one of the first neoliberal experiments across the globe to garner attention.
Then-Economy minister José Alfredo Martínez de Hoz — a descendant of one of the wealthiest, most traditional families in the country — agreed with several of those ideas and prioritized lowering inflation and opening up the country to foreign trade, with the goal of making the country more productive and competitive.
But the dictatorship ended up achieving neither. Although inflation initially slowed down to 100 percent per year, by 1983 yearly rates stood at 400 percent, twice the figure registered in 1975 and 20 times higher than that of 1974.
The country didn’t become more productive either. Although grain exporters initially saw their profits and output rise, aided by growing demand from the Soviet bloc and a reduction in export duties, bankruptcy was common and most sectors, including agriculture, ended up struggling by the time the dictatorship was drawing to a close.
From plata dulce to debt collapse
The government had said it would only reduce tariffs on imports gradually, in order to cushion the blow for local industries who would have to compete with cheaper foreign goods. But the prices allowed by Martínez de Hoz’s “tablita” of currency rates meant that an avalanche of purchases from abroad took place nonethetheless.
That led to an initial feeling of prosperity, in which trips abroad became more commonplace and debt-fuelled consumption created the “plata dulce” (“sweet money”) feeling, which peaked around 1979. But soon local production was in tatters, many local companies went under and the state also suffered from multiple macroeconomic crises as exports hit a wall.
With debt and banking insolvencies also mounting and the deep recession that hit in 1981, the dictatorship never came close to getting a grip on the economy again.
Martínez de Hoz ended up losing power on a par with dictator Jorge Rafael Videla, and the subsequent years saw a succession of presidents and economy ministers try multiple, often contradictory approaches in a desperate attempt to try and regain stability, all of which failed under increasingly deteriorating conditions.
The debt crisis meant that the state could not tap into foreign loans any more to cover its losses. Meanwhile, military expenses kept rising, adding to the bill of nationalized private losses and pushing the state closer to bankruptcy. The result was borderline hyperinflation.
Damaging results and a heavy burden
Four of the eight years under the dictatorship were spent in recession, meaning that economic output grew at a paltry 0.67 percent per year on average, well below the pace of population growth. If the generally-accepted standard of gross domestic product (GDP) per capita is followed, the economy actually shrank.
Foreign debt, meanwhile, sky-rocketed and unemployment didn’t improve much either.
Poverty and destitution are harder to measure in retrospect, but the available Greater Buenos Aires estimates suggest they rose from single-digit to double-digit rates.
The immediate consequences however wouldn’t end up being the dictatorship’s legacy, as democracy ended up inheriting the social and macroeconomic burden.
Argentina saw little to no growth for almost a full decade. Raúl Alfonsín’s government struggled to find funds for social aid during his presidency and the country’s debt eventually became unpayable, either having to be restructured or simply wiped out by 1989’s hyperinflation.
The sale of much-criticized state-owned companies in the 1990s, seen at the time as key to raising cash for the country’s busted finances and improving the quality of the services they provided, also owes much to the days of military mismanagement, which loaded firms with debt and inefficiencies.
The combination of a cheap dollar, an open economy and large debts would even be tried again in the 1990s, but while there was growth in GDP, it came at great social cost.
That is why, in the eyes of many, the dictatorship is viewed economically as the beginning of a larger era, one which came at the price of a severe drop in social indicators and many people’s standards of living.
@ignacioportes