Argentina is notorious for frequent military coup, unrelenting political regime changes and economic policy changes, government opportunism and an unstable macroeconomic environment. Argentina has highly fragmented political parties and interest groups, growing conflicting interests between those factions and perpetually threatening military forces. Argentina has very high unemployment rate and widening inequality in income distribution. Though in recent years Argentine economy shows remarkable economic success and enormous inflow of foreign investment, many international investors have reservations about investing in Argentina because of the history and reputation of Argentine government.
Argentina is a constitutional federal republic. Argentine political system shares structural similarity with that of the United States. Like the United States, Argentina is constitution-based and political power is distributed among three independent branches: executive, legislative and judicial branches. The executive branch is headed by president and vice president, who are elected by popular vote. The legislative branch consists of two chambers- the Senate and Chamber of Deputies, and members of both chambers are also election-based. The judicial branch is headed by the Supreme Court, and the Supreme Court judges are appointed by the president with approval of the Senate.
However, underneath the structural similarity there exist significant differences. First, unlike the United States where the three branch are operating independently and power is relatively even distributed among them, political power in Argentina is highly concentrated in the executive branch and there exist little checks and balances among the three branches. Second, though the Argentine constitution is supposed to balance the power between the government and the twenty-three provinces, power is clearly dominated by the federal government. Third, Argentina has highly fragmented political parties: Justicialist Party is the Peronist party, Radical Civic Union is a moderately left-to-center party, Union of the Democratic Center is a conservative party, Dignity and Independence Political Party is a right-wing party, Front for a Country is a four party coalition, and several provincial parties. Fourth, Argentina has a strong yet fragmented political pressure groups: Peronist-dominated labor movement, manufacturers' association called Industrial Union, landowners' association called Rural Union, various business organizations, students, the Roman Catholic Church and the Armed Forces.
Resulted from the history of Argentine political life over the past century, these significant differences have been shaping the political and economic environment in Argentina, and expect to have profound impact on the future prospects of the Argentine economy.
A brief review of the Argentine political history will help us understand the present political environment. In the book "The Political Economy of Argentina, Power and Class Since 1930" author Monica Peralta-Ramos pointed out two dominant traits which have persisted in the entire political history since Argentina won independence from Spain in 1816: (1) the inability of government elites to reconcile conflicting interests, and (2) the resolution of conflicts through coercion rather than consensus. Two basic political conflicts are (1) between the working class and bourgeoisie class, and (2) between agrarian, industrial and financial segments within the bourgeoisie class.
Argentina government went through a series of political regime changes and corresponding development plans for the economy. As in many countries, political confrontation is fundamentally caused by economic tension. The stagnation of the economy showed that the existing development model didn't work, and therefore each political regime tried a different economic development plan, or the political regime was forced to implement new economic policies under the pressure of political interest groups. However, many economic policies effectively shifted income from one class to another, usually in favor of the classes which had stronger political influence on the policy makers. Some policies also engendered a new class. As a result, the tension between existing classes tended to intensify and be more fragmented.But the political elites were unable to resolve those conflicts. Hence transition from one development model to another actually led to another regime change, and this has been a vicious cycle in Argentine political history.
Next few sections give a brief review on important transition points in Argentine political history.
Before 1930, by leveraging its abundant natural resources, Argentina operated under an export-oriented development model, where agricultural goods exports were particularly strong. The main classes were the rural bourgeoisie and the working class.
Following the international crisis of 1930 Argentina adopted import-substitution industrialization policies, which seemed to make sense given the international condition. The industrialization created a new class of economic actors: industrial bourgeoisie. The main conflict between the agrarian and industrial bourgeoisie was which industry segments received more of the government subsidizes.
When class struggle among the agrarian and industrial bourgeoisie and the working class intensified, as a result of a military coup in 1943 Argentina entered a new political phenomenon - Peronismo. The Peronismo represented the alliance between the interests of the national segment of the industrial bourgeoisie and those of the working class. The agrarian and industrial bourgeoisie continually fought for policies that would effectively transfer income from one segment to another in their favor.
After one military coup after another, in the 1960s, the industrial bourgeoisie gained more political power and the government shifted to a development model to promote capital intensive industries. Economically speaking, this was an effective policy, however, from political perspective, this model exacerbated the class struggle. The development of capital-intensive industries strongly depended on foreign technology import. As a result of importing foreign capital, foreign debt increased. The financing of the foreign debt caused by industrial bourgeoisie's importing foreign technology relied on the currency revenue from agrarian bourgeoisie's exporting agricultural goods. Paradoxically the accumulation of capital was done on the basis of the growing conflict between the principal segments of the bourgeoisie.
Unable to resolve the conflicting interests by consensus, Peronismo entered a new social phenomenon - state terrorism whereby the government used extreme coercion or violence to resolve the conflicts. In the 1980s, the government changed its development plan, instead of resolving the the conflicts between the agrarian and industrial bourgeoisie, the government escaped from the existing conflicts and intentionally consolidated and promote financial capital, and as a result, a new class emerged: the financial bourgeoisie.
The arising of the financial bourgeoisie made the Argentine political environment more fragmented, more complicated, and hence more unstable.
Before the 1989 presidential election, the Radical party was in control of the government. The Radical administration implemented "a risky anti-inflationary program calling for fairly orthodox fiscal and monetary policies combined with a sudden heterodox shock." (Williams Smith, "Hyperinflation, Macroeconomic Instability and Neoliberal Restructuring in Democratic Argentina") The major piece of the program was the Austral Plan, which eliminated the indexation of public and private sector prices and created a new Argentine currency called Austral to be pegged with the dollar. Initially there was some success of the Austral Plan in bringing down the inflation, however, a number of economic factors inevitably led the already fragile economy to collapse. First, there was a large flow of capital flight. In an attempt to slow the capital flight, the government raised interest rates. The high interest rates brought the Argentine economy into recession. Second, there was shortage on foreign currency reserve. The low foreign currency reserve encouraged speculation on the exchange rates. For decades, Argentina had been alternating with one development model and another, and failed at every policy shift. By then, the available development model seemed to be exhausted, and the government was forced to relax price control and accept high inflation. The consequence was that the annual inflation soared to 4,923% in 1989.
Menem was elected as president and took office in 1989. To restore the Argentine economy, the Menem government made a fundamental shift: transform the Argentine economy into a market-based economy. The minister of economy, appointed by the president, was an American trained economist. A series of market-based policies were quickly put into place : opening up the market and liberalizing trade, opening up to foreign investment and liberalizing capital, putting end to monopolies and deregulating in domestic markets to increase competition, privatizing national enterprises, reducing public expenditure, pegging the peso to the dollar and requiring the Central Bank be able to convert the peso in hard currency (the Convertibility Plan), and increasing foreign reserve. Under these neoliberal economic reform, the Argentine macroeconomic environment has been showing signs of stabilization and confidence.
How does the market-based economy impact on the political landscape in Argentina? It is undisputable that the current market-based development model has revived the Argentine economy, however, tough economic and political issues remain. Argentina has a high unemployment rate (17% in 1996) and is decreasing slowly. While the per capita per GDP has risen tremendously and general living standard has increased, the gap between the haves and the have-nots are widening. Economists have been debating whether the widening income gap engenders social unrest in Argentina. It is important to point out that the current have-nots are economically much better off than any period in recent Argentine economic history. The memory of hyperinflation is still vivid to everyone in Argentina.