Argentina's political factors over the past decade

Argentina

Political System

Argentina was founded in 1816 as the United Province of Rio Plata, and today's nation is what remained after Bolivia, Paraguay and Uruguay split from that country (CIA World Factbook, 2012). Argentina is a republic, and throughout most of the 20th century its political system was characterized by instability. The central government has three branches, the executive, legislative and judicial. The current

President is Cristina Fernandez de Kirchner. There are 23 administrative divisions and one autonomous city (Buenos Aires).

The instability in Argentina's government, often with forms of military intervention, came in 1983. Since that point, Argentina has enjoyed a democratic system, albeit sometimes with limited transparency. During the 1990s the country had peso-dollar convertibility as a key economic policy, but this system proved unsustainable. In 1999 Fernando de la Rua was elected as President, and faced a currency crisis. The convertibility scheme was brought about to deal with hyperinflation, but it harmed Argentina's international competitiveness. In 2003, Nestor Kirchner won a runoff election against Carlos Menem and began putting Argentina on the path to recovery. Argentina enjoyed rapid economic growth through much of the 2000s.

Each province has its own constitution, and there is another constitution at the federal level. Both the president and vice-president are elected directly to 4-year terms, and once elected the President has the power to appoint cabinet ministers. The President maintains a veto. The house has two chambers, the Chamber of Deputies and the Senate, and members of both are elected to limited terms through a system of proportional representation. Similar to the U.S., the President appoints members to the Supreme Court with the consent of the Senate through a vetting process (U.S. Department of State, 2012). There are a handful of major political parties, but also new parties and influences form for each election cycle. The military, once a major factor in Argentine public life, is a volunteer force and fully under civilian authority, having lost much of its statute through a series of abuses (Ibid).

Buenos Aires city is autonomy, and is therefore a distinct political jurisdiction from Buenos Aires province that surrounds it. The autonomous city status grants the city a legislature that is elected to four-year terms. The Chief of Government is the head of Buenos Aires and is also elected to a four-year term. Because of the strong presence of the national government, Buenos Aires has a lower degree of autonomy than the provinces do, within the Argentine political system. The citizens of Buenos Aires do elect officials to public office in the House, however.

Economic Policy

Argentina has the underpinnings of a strong economy. It is rich in natural resources and has a well-educated population, as well as a diversified industrial base (CIA World Factbook, 2012). A century of incompetent leadership, however, has left Argentina well below the level of wealth it should have, and the quality of life for its people has likewise lagged potential. Prior to the dollar-peso peg, in the 1990s, Argentina was locked in a cycle of hyperinflation, multiple economic crises, capital flight and external debt (Ibid). The currency peg collapsed and plunged the country into another depression, culminating in a default in 2001. Since that point, Argentina's economy enjoyed a strong recovery, leveraging the industrial capacity and rich resources of the country. This boom was guided by expansionary fiscal and monetary policies, such as the maintenance of low interest rates and the increasing of public sector spending, particularly on salaries. By 2007, inflation was again a problem, and the government took to active economic policy to deal with it, including price constraints on business and export taxes.

The past few years, under Fernandez de Kirchner, have seen slower growth. This is attributed mainly to sluggish export growth on account of the global recession and ongoing government efforts to curb exports. These efforts run contrary, however, to the continued expansionary fiscal and monetary policies of the Fernandez de Kirchner government (CIA World Factbook, 2012). These policies have kept inflation at high levels in Argentina. Some of the consequences of these policies are that the world bond market is still uninterested in Argentinian paper, as strong government intervention in the economy is deemed detrimental and there are lingering negative sentiments on account of the debt default (Bronstein, 2012).

The inflation crisis has had a number of impacts on the country. The President's approval rating fell, leading to distractionary saber-rattling about the Falklands (Gilbert, 2012). In addition, the IMF has threatened the country with censure if it does not improve the quality of reporting of economic statistics (Rastello & Raszewski, 2012). The central government has fined economists for publishing accurate inflation figures, which show it to be in the range of 24%. There is also instability with respect to street crime and a growing welfare state, increased corruption, moves to eliminate Constitutional term limits for President, and the nationalization of an Argentine subsidiary of a Spanish oil company.

The Argentine treasury is increasing being financed by the central bank, which is a significant causal factor for the inflation that the country is facing. The country has expanded its welfare state both in terms of providing more to the country's poor but also for bizarre political projects like buying back the rights to football games to show them for free on national broadcasters -- at a cost of $1 billion (Gilbert, 2012). The country is basically printing money to pay for its welfare state ambitions (Kerner, 2012).

Monetary and fiscal policy are also expansionary. There are provisions in place to stem capital outflow, which remains a major risk for the country. Argentine citizens face limits on the purchase of dollars, and the country is considering the conversion of sovereign debt from dollars to pesos in an attempt to retain more hard currency in the system. These limits have also kept the peso from devaluing at a natural rate. With expansionary monetary and fiscal policy the norm, the outlook for Argentina's economy is generally not positive, as these policies conflict with the needs of the country to develop stability and to curb runaway inflation.

III. Political and Social Conditions Today

Argentina today is a product of the past ten years. The recession still weighs on the country's ability to borrow, and the successive Kirchner and Fernandez de Kirchner populist governments have eschewed the factors that normally product stable societies and economic growth. This period of political stability appears to be coming to an end. Just over a year ago, Fernandez de Kirchner, who succeeded her husband, was elected to a second term, but the nation's economic policies have since unraveled. Inflation is much higher than the official rate suggests, but that this gap exists is evidence of a lack of transparency. The IMF has been critical of this lack of transparency as well. Rather than seek to restore the electorate's faith in the country's leadership, Fernandez de Kirchner has investigate Constitutional reform to allow her to consolidate power in another election, and has continued with the same economic policies that have led to the problems today. External investors are concerned -- rightfully -- that Argentina's situation is unstable and that the value of their investments might be at risk.

That said, the country has enjoyed strong economic growth for most of the last decade. Argentina's vast resource wealth and its manufacturing base have led this growth. After stagnant year in 2009, the CIA World Factbook reports that Argentina's real GDP grew 9.2% in 2010 and 8.9% in 2011. This growth would be encouraging if the economy was better managed. The heavy hand of the state, however, skews market outcomes, and reduces foreign confidence in the country. Even the rising crime rate is symptomatic of the country's governance problems, as the rule of law is beginning to diminish in Buenos Aires.

The recent actions of the government has caused Argentina significant diplomacy issues. Three issues come to mind. The first is the nationalization of YPF, which has all but destroyed relations with Spain. The Falklands shenanigans continues to damage the country's image with the West, which has not been good anyway since Fernandez de Kirchner chose to align with Hugo Chavez. The foreign investment community, already wary, is now taking extreme caution with Argentina and the normally-staid IMF has threatened its strongest censure. Internally, the government's approval rating has also taken a beating, so there is little in the way of diplomatic victories since Fernandez de Kirchner was re-elected.

Daily life also continues to be a struggle. The economy, which had been growing rapidly, has begun to stagnate. Inflation is very high, making it difficult for Argentines in the private sector to keep up their living standards, even as the government prints money to finance the private sector. Contributing to the public unrest is the rising crime rate, a function of poor governance and escalating poverty. Argentines still live well by South American standards, but they are also fearful about another wealth-eroding recession, and the limits placed on their ability to acquire dollars only exacerbates that fear.

2012 Argentina

The economic boom that ran until 2011 has officially ended in Argentina. While the rapid growth is largely thought to have been the result of Chinese purchase of grain exports, the Argentine government saw it as a vindication of their expansionary policies and welfare state ambitions. The country's GDP growth rate is expected to slow down to 2.2% in 2012, from the 8.9% last year (Oppenheimer, 2012). Chinese grain purchases remain high and commodity prices are high as well, leaving the political situation as the main culprit for the growth problem and the high (25%) inflation rate. Public spending continues to increase -- sometimes financed by the central bank and even from the Social Security System (Ibid).

Argentina's major industries remain in agriculture and manufacturing. Brazil is the major export market, and its economy is tied to Chinese demand, so a lot of Argentina's potential is tied to China. The country is a net fuel importer as well (CIA World Factbook, 2012). The strength in these industries remains, and that is the only reason the country has not already descended into economic chaos. Agricultural subsidies are ensuring the international competitiveness of grain, but put the country at risk is subsidies decline (Oppenheimer, 2012).

Also of note is the lack of tangible economic development policies. Argentina's profligate spending has not resulted in a better education system, development of a viable post-industrial economy or any serious foreign direct investment. Political maneuvers designed to provide short-term increases in popularity are not winning the country any friends overseas, so ultimately Argentina is suffering an economic and political failing of its own making.

Fernandez de Kirchner is in her final term, unless she amends the Constitution. The next Presidential election is scheduled for 2015, which is a long time for the situation in Argentina to change. However, there are legislative elections scheduled for 2013 as well, and these will be a test for the sitting government, to hold onto its power in the legislative branch (Oppenheimer, 2012). It is unknown at this point what approach Fernandez de Kirchner will take with respect to her own future, but that might depend on the outcome of the 2013 elections.

Overall, Argentina is at serious risk. Unless there is a global commodities bubble, it is expected that Argentina could have another devaluation of its currency. The state's denial of the inflation situation is not helping the inflation situation. Another issue is the health of the country's debt, as any currency collapse of pesification of the debt would undermine the country's already shaky standing in global financial markets. All signs today point to the potential of economic disaster in 2013. If the government prints money to try to buy popularity for the 2013 elections, or wants to escalate tensions with Western nations further, its economic future in the short-term is in serious doubt.