NCPA - National Center for Policy Analysis

Timid Reforms Doomed Argentina

January 31, 2002

Although Argentina's national government moved away from the worst statist excesses over the past several decades, it never implemented the types of full-fledged reforms that could have saved it from its present plight. Worse yet, provincial governments there continued their spendthrift ways, adding to the toll of economic misery.

As the Cato Institute's Brink Lindsey observes, government spending as a percentage of gross domestic product climbed to 21 percent in 2000 from 9.4 in 1989.

Here are a few of the elements that led Argentina into hyperinflation, default on international debt, frozen bank accounts and minimal economic growth:

  • It raised taxes and manipulated the currency conversion rate.
  • Leaders did nothing to relax rigid labor laws, while further slapping the private sector with even more burdensome rules -- particularly at the provincial level -- thus hampering entrepreneurship and business formations.
  • Economic policy has remained highly political -- with corruption a problem.
  • Nor should it be overlooked that the country's legal system is neither independent nor efficient.

For years, the World Bank and the International Monetary Fund subsidized Argentina's worst policies. Now there is little that the U.S. or other industrialized states can do.

Source: Doug Bandow (Cato Institute), "Half Measures: Argentina Failed to Fully Accept Free Markets," Investor's Business Daily, January 31, 2002.


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