NCPA - National Center for Policy Analysis

Confusion Over Argentina's "Market" Economy

May 30, 1997

Argentines perceive their new economy as a "market" system, even though it abounds with private monopoly concessions and other distortions. This has led to confusion and left the concept of free enterprise suspect in their assessments. As one cab driver reportedly said, "The country is doing very well but the people are not doing well at all."

  • It is estimated that Argentina's gross domestic product grew at an 8 percent annualized rate in the first quarter of this year -- as tax revenues and exports increased.
  • After an annual inflation rate of nearly 5,000 percent as recently as 1989, the one-to-one parity of the peso to the U.S. dollar is intact and inflation is low today.
  • Yet the country struggles to endure a 21 percent value-added tax, with high interest and 17 percent unemployment.

Although there is considerable public discontent today, few Argentines want to revert to the chaos of the 1980s. In 1988, Argentina's current president took office six months ahead of schedule when his predecessor resigned, calling the country "ungovernable."

Knowledgeable observers say Argentina must advance its political and judicial systems toward greater democracy and respect for rule of law.

  • While Argentines in the private sector have met the challenge to increase their competitiveness, they are confronted by a political culture that shamelessly flaunts its privileges, guards its power and provides itself impunity from justice.
  • With a long history of military coups and dictatorships, Argentina is only beginning to experiment with democracy.
  • True market reform cries out for more flexible labor laws, but these are blocked by the Peronist Party, which owes its allegiance to union leaders.
  • Without actual proof, Argentines believe their judicial system is biased from the top down, leaving them to suspect that the government is able to protect its own functionaries from corruption charges and to attack its enemies through the court system.

Observers say that beneficial change will come about as the private sector is strengthened and civil society sharpens its focus on these problems.

Source: Mary Anastasia O'Grady, "Don't Blame the Free Market for Argentina's Woes," Wall Street Journal, May 30, 1997.


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