Argentina Nears Its Regularly Scheduled Meltdown
Argentina Nears Its Regularly Scheduled Meltdown
In Buenos Aires these days, a sobering theory is making the rounds at coffee houses and backyard asado grill-outs: Argentina is destined to experience an economic meltdown about once per decade, and there isn't much anyone here can do about it. "We have always had instability," said David Gambarin, an affable 90-year-old real-estate broker who still puts on a suit and goes to his office in downtown Buenos Aires. "This is how we Argentines are."
Barely a decade after its 2001 crash, Argentina is on the verge of turmoil again. The peso plunged in January, and economists say that a mix of inflation and recession is likely to follow. Already, butchers and store owners are jacking up prices. To hold inflation back, President Cristina Kirchner is restricting access to dollars and threatening shopkeepers with closure, but economists note that such tactics have failed in the past.
Like many here, Mr. Gambarin is greeting the tumult with resignation. A Russian immigrant who arrived in Buenos Aires as a boy, he has lived through five coups. His two children have weathered a dictatorship, bank collapses and inflation rates that surged so quickly in the 1980s that shoppers ran to the checkout lines to buy items before they were marked up again. The current downturn will be the second crisis in the adult lives of Mr. Gambarin's four grandchildren.
"We seem to do everything possible to fulfill the prophecy of never-ending crisis," said Mr. Gambarin's 64-year-old son-in-law, Rodolfo Cohan, over coffee at his apartment in the middle-class Belgrano neighborhood.
In the 1940s, President Juan Peron closed the Argentine economy to trade with the rest of the world. In the 1960s, the country endured stagnation, inflation and military coups. In 1975, 1981 and 1989, failed economic plans led the currency to plunge. The last crisis hit in 2001, when Argentina defaulted on about $100 billion in sovereign bonds. The default—the largest ever at the time—brought down Argentina's banks, currency and government.
Economists classify Argentina as an "emerging market," but its economy, which depends on commodities such as beef and soy, has been in decline for a century. In 1910, Argentina was among the world's 10 wealthiest countries; today, its per capita income is less than half that of the U.S. There is little debate about the cause of Argentina's serial financial woes. "Bad government," says the economist Marina Dal Poggetto, a partner at the Estudio Bein consultancy in Buenos Aires.
For decades, Argentine leaders have overspent during good years and failed to save for lean ones. To prolong the good times, governments have borrowed heavily or simply printed money. What followed were bouts of inflation, currency crashes, bank collapses…and worse.
The wall behind Ms. Dal Poggeto's desk is covered with picture frames containing row after row of Argentine currencies discarded in various failed economic plans. Argentina has chopped 13 zeros from its bank notes since 1969. In 1991, for example, the 10,000 austral note was replaced by the one peso note, worth $1. Today, that same one peso note is worth 9 cents.
Well-to-do and middle-class Argentines have a long history of saving in dollars in case their own currency crashes. The government estimates that Argentines have $160 billion stashed offshore or in home safes. Illegal dollar sellers, called arbolitos, are everywhere in Buenos Aires today.
For the poorest Argentines, crises can mean calamity. With little access to dollars, the poor watch helplessly as inflation wipes out the value of their wages, leaving them unable to buy food. Mobs, sometimes in the many hundreds, looted supermarkets across Argentina in the crises of 1989 and 2001.
Mr. Gambarin says that he used his wits to build a real-estate business during a lifetime of turbulence, starting his career around the time of Mr. Peron's rise. Mr. Gambarin's daughter, Nilta, and his son-in-law, Rodolfo Cohan, began their married lives at the start of one of Argentina's darkest eras, the "Dirty War" from 1976 to 1983, when some 10,000 to 30,000 people were killed, mainly by state security services.
The Cohans' first child was born in 1975, the year of the "Rodrigazo"—a jarring currency devaluation named after Economy Minister Celestino Rodrigo. The policy wiped out savings and wages and produced 35% inflation a month. Their second child came the next year, as military officers ousted the "Rodrigazo" government and imposed a murderous dictatorship. Their third child came along in 1982, the year the military went to war with the U.K. over the Falkland Islands—largely seen as a bid to distract Argentines from their collapsing economy.
Now a new generation is coming of age in turmoil. "Crisis is in the Argentine DNA," says Mr. Cohan's third child, Luciano Cohan. It is also in the lesson plans. When Luciano studied economics at the University of Buenos Aires, one of the school's top professors was Axel Kicillof, an economist with lamb-chop sideburns whose dissertation was a Marxist take on John Maynard Keynes. Today, Mr. Kicillof is Argentina's economy minister—the mind behind its nationalizations and its price, import and currency controls.