The economy and economic policy: of the old

to the new hardening

In the year 2001, before the collapse of the convertibility regime, the value of
annual per capita product was barely equal to that of 1975, measured at prices
constants. In addition, inequalities in their distribution had become more pronounced
considerably

Indebtedness and deindustrialization are other thematic axes that it has.

the economic history of Argentina through successive governments and their
tension perspective between the State and the Market

Two deep crises struck Argentina in the 20th century; The Rodrigazo, from the middle
from 1975 with a period of hyperinflation and the crisis of 2001 that ended the
decade of convertibility, the essential difference in these 2 crises is that while
that in El Rodrigazo the financial components of the crisis had little weight and
which was taken as the last breath of the closed economy of the second
post-war, unlike what happened in 2001 where problems with loans
international and external as well as internal debt were crucial,
taking it as a crisis of an economy with a high degree of mobility of
capitals.

Since the beginning of the 30s, Argentina had experienced little income.
of external capitals while the outflows of funds were limited by
measures of currency control, one manifestation of this is the amount of debt
external that it had pre-1970, where the amount was minuscule. Considering that the
The 20th century began with an economy open to trade, where the main source
the economic era was the agro-export sector and that concluded with the global depression and
the closing of foreign markets in the 30'-32'.

Thus, during the following years, the national economy moved towards a
a different scheme from the previous one, the role of the agricultural sector weakened and, in
change, industrial activity gained greater importance, pointing towards the
the domestic market now protected from foreign competition, with the idea of
industrialize the country with the phase of 'import substitution industrialization' and
which concluded in a certain way with the crisis of 1975.

An open economy began in which the problem of

monetary indebtedness, this period develops in conjunction with a phase
of global financial globalization, where with the inclusion of lendable funds,
the so-called 'Petrodollars'. This allows Latin American economies to access
to private external financing, in significant amounts and with rates
relatively low.

Although the value of GDP did not vary between 1975 and the 2000s, the participation of the
The productive sectors of the country were notably altered. The most significant events
Notable is the manufacturing sector, which lost a third of what it was in 1975.
generating in 2000 a 16%, as there was also a significant drop in the
construction sector representing 3.7%, although the agricultural sector had
increased its representation to 8.7%.

This recessionary trend in the industrial sector since the 1970s is one of the factors.
that explain the poor performance of national job creation.
However, even during the period from 1990 to 1994 when the speed
the expansion of the manufacturing sector increased massively, it resulted
unsatisfactory the creation of jobs in the sector. Although in this case
the fact that labor productivity increases were very large weighed heavily,
thanks to the incorporation of imported capital goods favored by the 'dollar
cheap". Therefore, fewer work hours were needed to produce the
same assets and that in the same sense reorganization processes were carried out
productive with which companies try to face the new conditions to
open trade and that in many cases, these companies were not successful,
finishing breaking

The worsening of the labor outlook and the declining trend of wages
they are among the factors that contributed to the deterioration of distributive equity,
other indicators of social vulnerability also worsened alongside
they worsen equity. Thus, the percentage of individuals below the line of
poverty was 4.4% in 1974, but it had risen to 8.3% in 1980, and would then jump to
21.8% in 1991, and 35.4% in 2001.

In these approaches, it is important to distinguish 3 main subperiods;

An initial phase of financial opening, debt, and crisis, that closes in

1982, and it takes place entirely during the military government of the Process.
intermediate phase, between 1982 and 1990, during which it is encompassed
entirely the first democratic government, with the presidency of Raúl Alfonsín.
In these years, access to external credit markets is no longer available.
private, but one must face the burden of the debt acquired during the stage
previously, which greatly conditions and limits the margins of action of the
economic policies. And a final phase whose dominant elements resemble
those of the first: commercial and financial opening, debt and crisis; this is the
decade of convertibility, which develops from the beginning of the first government of
Carlos Menem until the chaotic end of the leadership by Fernando de la Rúa

THE ECONOMY OF THE PROCESS:

FINANCIAL REFORM AND OPENING
DEBT AND CRISIS

Accumulation with "financial repression"

The dominant mode of accumulation in the Argentine economy, with a focus on the
import substitution industrialization had shaped an economy
semi-closed, with a protected industrial sector that is strongly oligopolized and a
underperforming agro-export sector. A notable first fact was the
growth rate of GDP in the subsequent years, between 1946 and 1974 the GDP
increased at a rate of 3.5% per year without experiencing a single recession, and that
vividly contrasts with the stagnation that would follow post-75'.
That economic expansion was supported by accumulation financed almost
exclusively with the savings generated internally. Throughout the period 1961-1975 the
investment remained close to 20 points of GDP, of which only the equivalent
a 0.3% of the product per year. This relative success of the promotion policies of
non-traditional exports caused industrial exports, which
they were only 3% in the 60s, it will reach 24% in 1975.

If the balance of payments showed a relatively long-term trend

favorable, on the fiscal level, on the contrary, tensions and problems were accumulating,
linked to the forms of financing for the accumulation that characterized
to the substitute model. The investment was funded partly through mechanisms
of forced savings and transfers of financial wealth between sectors, such as the
called 'inflation tax'. Interest rate regulations, the
Directed credit mechanisms and exchange controls formed a regime
what is often referred to as "financial repression".

High inflation

In 1975, a crisis was occurring, with a situation of repressed inflation and a very
high fiscal deficit, largely covered by monetary issuance.
The Rodrigazo was an attempt to produce a strong real devaluation and to increase the
public tariffs through a nominal shock, to correct the imbalances of
the balance of payments and fiscal situation that the economy was presenting at that time coincided with
that serious political crisis (The death of Perón) and found intense resistance
salary. The inflationary acceleration that took place as a consequence of that
a set of factors marked the beginning of a new stage.
This persistence of very high inflation rates over an extended period
favored the extension of practices, institutions, and training mechanisms of
expectations highly adapted to high inflation. It was characterized mainly according to
Frenkel for a web of contracts in which indexing predominates.
automatic to past inflation, and through mechanisms of expectation formation
congruent with such practices.
In this way, the set of norms and practices that result from behaviors
Defensive microeconomic policies produce a global outcome of greater instability.
economic and uncertainty. If short-term instability was a feature
characteristic of the Argentine economy in the phase of heterodox accumulation, the
The high inflation regime configuration created conditions in which the intensity
the macroeconomic fluctuations could become even greater.

From financial opening to crisis

The military coup orchestrated by the National Reorganization Process began on

attempt of radical change in the functioning of the economy, The model of
semi-closed development and the decisive role of the State in resource allocation and
In the distribution of income, they were then questioned globally. The bias
nationalist-interventionist of the military establishments and their traditions
resistances to liberal criticisms of the heterodox model yielded to the
conviction that he had created the conditions in which subversion
Politics and social issues developed from the late sixties.
In economic terms, it was about giving the markets the central role in the
resource allocation, it was pointed out at least in the discourse, since in the
practice distanced itself greatly when rendering it, The brief phase of 1976 - 1977
it presented an essential trait: before a drastic change in the way of
accumulation, then a recomposition of the conditions occurred
functioning of the current model previously. The result of trade with
The external environment improved rapidly, and the same happened with the fiscal situation.

In those years, agricultural production increased considerably due to changes in

technological type and organization of production whose widespread adoption
coincides with the start of the Process.

However, the military government did not undertake substantive measures to modify
some of the structural problems clearly visible in the first half
from the seventies, such as those related to the financing of the pension system and
the current industrial promotion regimes. Moreover, contradictorily with the
anti-statist speech adopted by the economic leadership of the time, after
an initial reduction of public spending based on the freezing of salaries,
a strong increase was observed in it, due to a notable expansion of the
public investment. This policy favored the growth of various sectors
business suppliers and contractors of the State, beneficiaries as well, in
some cases of industrial promotion.

In mid-1977, a financial reform profoundly changed the way of

operation of the financial system, freeing interest rates and placing in
the hands of banks the decisions on credit allocation, which previously
largely corresponded to the Central Bank. In other words, an effort was made to establish
market rules for internal financial operation.

Macroeconomic policy emphasized money creation: the Bank

The central bank began to implement very restrictive monetary measures. In the new
financial conditions, this also gave rise to a novel fact: an occurrence took place
a very strong and rapid rise in interest rates, now free.

A few months into the implementation, that restrictive monetary policy was not yet showing results.
Good results in the area of inflation control. However, as it increases
strongly the cost of credit, threatened to abort the economic recovery.
This did not make her popular among the military, who viewed the risk of a
recession, which could pose difficulties in the repressive process they were undergoing
developing.

It is then that a new stabilization policy begins to take shape,

designed on completely different bases. A stabilization policy "of
open economy," which would be based on the so-called "monetary approach to
balance of payments. This new stage during the military government encompasses the decisive
period 1978-1981. Similar design policies, which were to have destinations
similar ones were applied almost simultaneously in Chile and Uruguay, configuring
what is known as "the financial opening experiences of the Southern Cone of
Latin America, from the late 1970s.

Pages 18 to 36

The problem that indexing practices meant for policy of

stabilization was explicitly recognized by the authorities around 1978
economic. Since the end of that year, an attempt was made to break the plot.
of indexed contracts and the mechanisms for forming expectations based on
from past inflation, using the nominal exchange rate as an instrument
anti-inflationary. It was decided not to directly intervene in private contracts.
The 'disciplining' of price setters and wage earners should
arises from the trade opening, the pace of which was decided to accelerate. The opening
would lead to an increase in competition, particularly in the industrial sector
until then protected. With the opening and the setting of the rates of
monthly devaluation according to a decreasing sequence (the
With the "tablita", domestic inflation should tend to equal international inflation.
The plan involved higher taxes or tariffs and fewer subsidies. Thus, in the long run, with
the fixed exchange rate parity, domestic inflation and international inflation would turn out to be the same.
At the time of the launch of the new plan, in late December 1978, the rates of
monthly inflation was around 9%. However, the correction
the exchange rate was 5.2% in the first month of this policy's validity, very
below the inflation of the previous months, and would decrease month by month,
tending to zero, according to the sequence announced with some advance notice.
Meanwhile, the 'disciplining' of price setters and wage earners
seemed to progress slowly as internal prices and wages in
dollars were rising, a new element, which would prove decisive due to its long-term effects
The deadline regarding the economy appeared intensely on the economic scene:
international capital movements. In the accumulation phase
heterodox, capital movements were limited and were typically
subjects to restrictions. The change in this period was drastic. The controls on the
capital movements were progressively eliminated, and the economy transitioned to
to be financially open.
The exchange rate was used as a tool for price stabilization and
not to reach a certain balance of trade. Negative rates encouraged
the demand for internal and external credit, which in turn fueled the
aggregate demand and favored the expansion of the economy.
Towards the end of 1979, however, the already notorious overvaluation of the currency
It seemed to make getting into debt in dollars increasingly risky. This had repercussions.
in domestic interest rates, which rose driven by the higher
expectations of devaluation and due to the greater risk, and became positive in
real terms.
The agricultural sector and the industrial sector were especially victims of the
factors. The term "deindustrialization" was coined in these years, in the
that the internal production of manufactures was increasingly displaced
for imports of goods produced in the rest of the world. The sector
Agricultural and livestock production is also affected by the decline in its profitability rate.
In that critical context, the expectation of a change in political bankruptcy would be
abandonment of the established devaluation guidelines gained traction over time
time and led to the reversal of capital movements.
State-owned companies canceled internal credits using funds obtained.
through foreign borrowing. This improved the situation of the
local banks, when returning funds previously obtained as a loan from
so that banks had greater resources to reintegrate
at the same time the public deposits, which sought to exchange them for dollars.
In order to partially alleviate the ongoing financial crisis, the Central Bank granted
credits (discounts) to the banks that were facing difficulties to cope
to the drainage of deposits. Given the scarce prevailing confidence in the continuity of the
Currency policy, this monetary creation fed back into the run against the peso.
The notable capital flight that occurred in 1980-1981 turned Argentina
in a dollarized economy, in the sense that a significant fraction of the
total financial holdings of the internal private sector came to be constituted by
foreign currency or assets abroad.
The chaotic adjustment and the economic inheritance of democracy
From this crisis began the final phase of the military regime's economy. It is the
stage called "chaotic adjustment", extended between 1981 and 1983, that is, until the
beginning of the democratic transition. led to a situation of growing
lack of control of the economy. Operating within narrow margins, the policies
Economic factors during this period were dominated by two basic elements: in
First, due to attempts to rebalance the balance of payments, which had been
deteriorated significantly between 1978 and 1980, through strong devaluations and the
use of various mechanisms that resulted in massive subsidies to
private external debt, such as currency insurance; secondly,
for the actions aimed at reducing the over-indebtedness of important
sectors of private companies that had resulted from the previous phase, and that was
aggravated by the effect of devaluations on debts in currency
foreign. tariff shocks aimed at alleviating the imbalance
fiscal, combined with the massive nominal devaluations, strained the regime
of high inflation placing the economy permanently on the brink of
hyperinflation. The balance of payments showed a structural change. As
consequence of the new and very high levels of the country's indebtedness, and
from the increases in international interest rates starting in 1979, the account
current became chronically deficit, despite the important
improvement that was achieved in the trade balance.