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Cristina Fernandez de Kirchner at the Casa Rosada Presidential Palace, Buenos Aires, February 12, 2014 (Daniel Garcia/AFP/Getty Images)

Argentina's Downward Spiral

Jaime Daremblum

Since the early 2000s, tens of millions of people have emerged from poverty in Brazil and Peru; Colombia has transformed itself from a potential failed state into a fast-growing economic star; and Chile’s per capita income has increased dramatically, moving above the $20,000 benchmark. Surely these are the very best of times for South America?

Not quite. The gains in Brazil, Peru, Colombia and Chile have occurred during a period of severe democratic erosion in Venezuela, Bolivia, Ecuador and Argentina. Each of the latter four countries have become elected autocracies led by caudillo-style populists who retain the superficial trappings of democracy while persecuting political opponents, attacking independent journalists and seeking near-dictatorial control over public institutions. As a result, the rule of law in these nations has been either crippled or demolished.

Take Argentina. Its current president, Cristina Kirchner, succeeded her late husband, Néstor Kirchner, in December 2007, and over the past six years she has governed as an increasingly radical leftist. At a January 15 Hudson Institute conference, former U.S. ambassador Lino Gutiérrez explained that, while the Néstor Kirchner government often used “heavy-handed” political tactics, “I don’t think anybody was that worried about democracy in 2005 [and] 2006. But gradually things got worse.” When you look at Argentina today, said Gutiérrez, “you see police strikes, you see energy cuts, you see looting, you see a depletion of reserves, you see runaway inflation … you see corruption scandals among government ministers.” The Argentine economy, he added, has become “a slow train wreck.”

Under Cristina Kirchner, press freedom has been trampled; newspapers, journalists, researchers and opposition governors have been targeted for political reasons; and judicial independence has effectively been eradicated. The Kirchner government has weakened unfriendly media outlets with its controversial 2009 “anti-monopoly” law, and also with other, more authoritarian maneuvers. In early 2013, for example, Argentine supermarkets and electronic retailers told the Wall Street Journal that the government had “ordered them to stop advertising in the country’s top newspapers.” More recently, Argentina’s Supreme Court upheld the 2009 law, thereby forcing the nation’s biggest media company (Grupo Clarín) to be dismantled.

Meanwhile, the Kirchner government has repeatedly seized private businesses and other private property — including private pension accounts, the country’s largest airline (Aerolíneas Argentinas) and 51 percent of the interest of the Spanish oil company Repsol in YPF — and it has been censured by the International Monetary Fund for deliberately publishing false economic data.

Moreover, the government has harassed economists and journalists for reporting the correct data. Back in September 2011, an Argentine judge went so far as to subpoena several newspapers for the contact information of writers and editors who had worked on stories related to the economy. (The same judge also subpoenaed the IMF’s Argentina office for consultant and client records.) This prompted foreign affairs commentator Walter Russell Mead to declare: “Stockholders should be able to sue the management of any company which puts money into Argentina. It is hard to think of measures that send a more unmistakable warning of dishonesty and impending crisis. Nothing and no one can be safe in a country where such things are done.”

Taken together, Kirchner’s economic policies — nationalizing private pensions and private companies without offering just compensation to the owners; handing out lavish government subsidies; imposing draconian import, exchange and capital controls; using central-bank reserves to repay defaulted debt — amount to authoritarian socialism. (According to Latinvex, an online business journal, “Argentina ranks second worldwide in recent protectionist measures likely to affect foreign trade.”) Not surprisingly, her policies have led to massive inflation, massive capital flight and a massive black market in U.S. dollars. “In the heart of downtown Buenos Aires,” the Financial Times reported last September, “it is hard to walk more than 20 paces without being accosted by hawkers buying and selling dollars.”

At the January 15 Hudson Institute event, Diego Ferro of Greylock Capital Management predicted that the country was headed for a “self-inflicted crisis” driven by bad policy decisions rather than by external economic conditions. Unless Kirchner changes course, said Ferro, “I doubt that Argentina can reach 2015 in one piece.”

Shortly after the Hudson conference, Argentina experienced its largest currency devaluation in more than a decade, despite Kirchner’s 2013 pledge that she would oppose devaluation. (“As long as I’m president,” she said last May, “those who want to make money through devaluations, which working class people have to pay for, will have to wait for another government.”) On January 27, Moody’s Investors Service estimated that the Argentine peso would decline by another 50 percent this year, and that the country’s 2014 inflation rate would surpass 30 percent. Its total foreign-exchange reserves have plunged below $28 billion, down from $34.8 billion in late September and $52.6 billion in 2011.

Ever since its historic 2001-02 sovereign default — which led to a prolonged exile from global credit markets — Argentina’s main source of foreign currency has been its trade surplus. But that surplus dropped from $12.4 billion in 2012 to just $9 billion in 2013. Meanwhile, the government continues to battle with former creditors — including private hedge funds and the Paris Club of nations — over repayment of defaulted bonds.

Kirchner maintained her popularity during the so-called global commodity supercycle, but her approval rating has plummeted since her reelection in 2011, and her ruling coalition suffered big losses in the nation’s October 2013 legislative elections. Over the past year, Argentina has been rocked by large-scale anti-government protests, lengthy power outages, serious labor unrest and deadly riots. To quote Moody’s: “Although the devaluation may temporarily stem the pressure on foreign currency reserves, it remains unclear what policies the government plans to pursue to address the underlying causes of capital flight, curb inflation and restore investor confidence.”

Some nations are plunged into crisis because of outside economic forces — Argentina’s wounds are self-inflicted. In that sense, it’s important to distinguish the financial turmoil in Argentina from the turmoil in other emerging markets. “Argentina’s problems are considerably more serious than those of emerging countries such as Turkey, Brazil and South Africa,” notes the Washington Post, “and have little to do with international markets.” Indeed, they have almost everything to do with Kirchnerism. Many of the voters who cast ballots for the leftist president back in 2011 are surely regretting their decision today. They may regret it even more in six months

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