Newspaper article The Christian Science Monitor

Bad Shocks Teach Argentina Economics

Newspaper article The Christian Science Monitor

Bad Shocks Teach Argentina Economics

Article excerpt

NATIONS, like individuals, can learn from hard knocks.

That, says Argentina's Finance Minister Domingo Cavallo, is the story behind his country's amazing economic bounceback. Over the past three years, the real growth in Argentina's output of goods and services has been 25.5 percent, or more than 8 percent a year. Only China and Malaysia have a better record. Last year's inflation of 7.4 percent was the first time in 25 years that Argentina's consumer price index has registered a single-digit increase.

In the past, many foreign economists and executives have cited Argentina as a leading example of a mismanaged economy.

What has happened to change the situation?

"It was a set of experiences," Mr. Cavallo explained in an interview while in Boston to talk to institutional investors.

From 1870 to 1930, Argentina enjoyed a rapid-growing economy, along with such nations as Canada, Australia, and Brazil. It had a constitutional, stable political environment. Its economy was linked to the world. Argentina had strong ties with Britain, then the dominant commercial power.

Argentina's government "made a lot of room for the private sector," Cavallo notes. The government provided a legal and physical infrastructure for private enterprise, but did not produce many goods and services itself through state-owned companies.

That all changed after 1930. "We did not find a way to participate in and benefit from world affairs," Cavallo says. Argentina adapted a closed-economy approach with high trade barriers. The government became more and more involved in regulating and managing the economy and producing goods and services. Government deficits got bigger.

Also, the first military coup took place. The nation suffered from political instability; its leaders did not respect the Constitution. (Argentina did not have normal succession of two constitutional governments until 1989, when President Raul Alfonsin resigned from a six-year term six months early to permit President-elect Carlos Saul Menem to assume office.)

Then came two "extreme shocks" that, Cavallo says, have changed the nation "for good."

r Argentina's military regime lost the "Malvinas War" - the war with Britain over the Falkland Islands. …

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