The Crisis of Argentine Capitalism

The military's "Process of National Reorganization" quickly fell apart after Videla and Martínez de Hoz left office. Their successors, Gen. Roberto Viola and Lorenzo Sigaut, ended the partial opening of Argentina's economy, restored the familiar controls that protected the country's "hothouse capitalism," and borrowed heavily abroad to keep tottering banks and industries from collapsing altogether. Rather than restoring order, this reversal of policy undermined the financial community's confidence and led to an enormous outflow of capital. In 1981 alone, domestic investment dropped by an estimated 27 percent and foreign investment by 13 percent. It is difficult, if not impossible, to know the exact amount of capital flight, but the World Bank estimated that nearly $20 billion left the country between 1979 and 1982--while others put the figure at more than $30 billion. Since an ECLA study of American investment in Argentina pinpointed 1981 as the year in which the largest capital withdrawals, by far, took place, we may assume this was the peak for other investors as well.¹

Whatever shortcomings the Videla-Martínez de Hoz economic policies may have had, they at least had the virtue of being consistent and of giving people a stable set of conditions upon which to base their planning. Even before General Viola took office at the end of March 1981, the prospect of a change in the economic team provoked a panic buying of dollars in the exchange houses along the Calle San Martín. In anticipation of a return to instability, interest rate controls, and peso devaluations, depositors went rushing to the banks to withdraw their money to convert it into dollars while other frantic speculators were buying dollars with money borrowed at usurious rates in the expectation of a sharp devaluation of the peso. Their gamble paid off. Within a week after taking office, Sigaut announced a 30 percent devaluation along with a 12 percent

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