Argentina Crisis: Will We Learn Our Economic History Lesson?

The Macri administration should take a hard look at its own economic policies and stop blaming the Kirchner governments that preceded it. Otherwise, the same story will repeat.

Protests held at Central Bank of Argentina
Protests held at Central Bank of Argentina
Rubén Lo Vuolo*


BUENOS AIRES — A year ago I wrote in this newspaper that Argentina — as it so often has in the face of crises brought on by over-spending and protectionism — was once again embracing neoliberal orthodoxy and all the economic pitfalls that come with it. The events of recent weeks underscore the risks even more.

I stated, in my previous essay, that capitalistic cycles often begin after an inherited recession. The economic slump is what justifies the shift back toward free-market policies. The promise made is that capital — encouraged by prospects of big financial returns guaranteed by the state — will be transformed into investments that fuel economic growth.

"The arrival of capital exceeds the current account deficit, and reserves grow," I wrote. "But in time the trade deficit grows too, and afterwards, the current account deficit itself. That is how the reversion cycle begins, with erosion of liquidity, falling asset prices, loss of reserves etc."

Rising debt is characteristic of these neoliberal phases and explained in terms of an inherited fiscal deficit. In reality, though, it's meant to stimulate the economy and win elections. At some point, financial operators decide there are too many inconsistencies, and start to leave. The government then "tries to cut the public deficit and eventually there is devaluation."

From there, a process of economic contraction begins and gains force as "the country risk and interest rates rise further, until it finally aggravates the financial crisis and the exchange market with falling Central Bank reserves." The causes are domestic policies, but "the intensity of these adjustments depends on the circumstances of the international setting... the greatest uncertainty being the duration of these cyclical, historical phases (which depends more on external than internal factors)."

Bigger public spending cuts and an economic slowdown are expected in Argentina — Photo:Hernána Piñera/Flickr

That's the pattern we've seen before. And as the financial turmoil of recent weeks suggests, history is once again repeating itself. President Mauricio Macri and his Cambiemos (Let's Change) allies believed that their victory in the last elections gave them the power to lower interest rates, loosen inflation targets and — with an eye toward future elections — keep public spending high.

Notably, the "populist" government of Brazil's last president, Dilma Rousseff, sought to do something similar. It tried to lower interest rates and alter the pacts the Workers Party had made in terms of financial and monetary orthodoxy under her predecessor, Lula da Silva. Both attempts proved short-lived, as financial operators reminded those governments that in an open and indebted economy, creditors are in charge. In the end, and irrespective of their political colors, both promised to embrace monetary orthodoxy and assure financial returns in exchange for creditors backing them and generating "confidence."

Populism wins votes because of neoliberalism's failures

The Macri government's flawed policies have hastened the end of an expansive phase. Interest rates have risen to levels far above what was needed to end the exchange restrictions bequeathed by the last government. The country's external deficit, in the meantime, is growing, as is the fiscal deficit and general indebtedness. The administration can't, in other words, keep blaming its predecessor.

If, in addition, it is promising to lower taxes (with more debt to service and a slowing economy), a projected combination of spending deficit and an overdue devaluation will be explosive. Instead of criticizing the last government, the Macri administration should understand that populism wins votes precisely because of the repeated failures of neoliberal policies (be they disguised or not). The same applies to "progressive" populist regimes whose own inconsistent economic policies so often pave the way for the return of neoliberalism.

The government should reflect on this because the brief expansion is now over, and bigger public spending cuts (where?) and an economic slowdown are expected. Their social effects will be more negative than before. Little wonder that the government's "zero poverty" promise has disappeared from official discourse. Declarations being made now in defense of continuing government policies under IMF supervision will not help Argentines forget the ghosts of the past. The government would do better to change the policies that created the present scenario, and thus avoid repeating the same old mistakes.

*The author is an economist and director of the Centro Interdisciplinario para el Estudio de Políticas Públicas (Ciepp) think tank

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In Argentina, A Visit To World's Highest Solar Energy Park

With loans and solar panels from China, the massive solar park has been opened a year and is already powering the surrounding areas. Now the Chinese supplier is pushing for an expansion.

960,000 solar panels have been installed at the Cauchari park

Silvia Naishtat

CAUCHARI — Driving across the border with Chile into the northwest Argentine department of Susques, you may spot what looks like a black mass in the distance. Arriving at a 4,000-meter altitude in the municipality of Cauchari, what comes into view instead is an assembly of 960,000 solar panels. It is the world's highest photovoltaic (PV) park, which is also the second biggest solar energy facility in Latin America, after Mexico's Aguascalientes plant.

Spread over 800 hectares in an arid landscape, the Cauchari park has been operating for a year, and has so far turned sunshine into 315 megawatts of electricity, enough to power the local provincial capital of Jujuy through the national grid.

It has also generated some $50 million for the province, which Governor Gerardo Morales has allocated to building 239 schools.

Abundant sunshine, low temperatures

The physicist Martín Albornoz says Cauchari, which means "link to the sun," is exposed to the best solar radiation anywhere. The area has 260 days of sunshine, with no smog and relatively low temperatures, which helps keep the panels in optimal conditions.

Its construction began with a loan of more than $331 million from China's Eximbank, which allowed the purchase of panels made in Shanghai. They arrived in Buenos Aires in 2,500 containers and were later trucked a considerable distance to the site in Cauchari . This was a titanic project that required 1,200 builders and 10-ton cranes, but will save some 780,000 tons of CO2 emissions a year.

It is now run by 60 technicians. Its panels, with a 25-year guarantee, follow the sun's path and are cleaned twice a year. The plant is expected to have a service life of 40 years. Its choice of location was based on power lines traced in the 1990s to export power to Chile, now fed by the park.

Chinese engineers working in an office at the Cauchari park


Chinese want to expand

The plant belongs to the public-sector firm Jemse (Jujuy Energía y Minería), created in 2011 by the province's then governor Eduardo Fellner. Jemse's president, Felipe Albornoz, says that once Chinese credits are repaid in 20 years, Cauchari will earn the province $600 million.

The Argentine Energy ministry must now decide on the park's proposed expansion. The Chinese would pay in $200 million, which will help install 400,000 additional panels and generate enough power for the entire province of Jujuy.

The park's CEO, Guillermo Hoerth, observes that state policies are key to turning Jujuy into a green province. "We must change the production model. The world is rapidly cutting fossil fuel emissions. This is a great opportunity," Hoerth says.

The province's energy chief, Mario Pizarro, says in turn that Susques and three other provincial districts are already self-sufficient with clean energy, and three other districts would soon follow.

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