Why is Argentina so poor?

I’m just back from a trip to Antarctica that, incidentally, required staying a few days in Argentina. Considering that the country was the fourth richest in the world it is shocking how far it has fallen in the last 100 years. The CIA Factbook puts per-capita purchasing-power adjusted GDP somewhere in the middle of the world’s nations, but the statistic doesn’t square up to the realities of life in a country where people have to stare at the ground whenever walking down the sidewalk (to avoid tripping over broken pavement, stepping in dog poop, or tripping over discarded bags of trash). Also, now that the government is a little over a year into its money-printing campaign it is hard to know what things cost. Do you use the official required-by-law exchange rate of 5 pesos to the dollar or the real one of 8? The CIA says that Chile has about the same per-capita income but in fact material life in Chile seems much richer, with newer cars, functional systems, etc.

I last visited Argentina about 10 years ago, shortly after the “peso crisis”, and the country does not seem to be in better shape now than then.

Things that don’t work in Argentina:

  • Internet: incredibly slow in most hotels; a hotel owner in Buenos Aires told me that he has connections from both the cable company and the phone company so as to have a good chance of being able to use one. “It will go out for a few days at a time and I’ll call and they say they’re working on it.”
  • Post Office: Hotel clerks didn’t know how to send a postcard.  There are no mailboxes on street corners. I asked an Argentine friend how this could be and he replied “you should know the mail system doesn’t work! people don’t use mail there, they walk to banks to pay bills and use couriers for the rest. I haven’t seen a letter come or go in decades. If you mail something (from there or to there) it goes to /dev/null”
  • Domestic airline flights: The roughly 180 people on our Antarctica cruise suffered a variety of sudden schedule changes, delayed checked luggage (for which there were no explanations and the fancy bar coded tags were never scanned in at the origin airport so they couldn’t be tracked), unexplained late departures, etc.
  • Getting out: On a Monday night it took almost two hours of standing in line to check in at United Airlines (1 hour; the airline was operating a total of two flights that night), get through security (30 minutes; four metal detectors working and one idle), and be photographed and fingerprinted at passport control (20 minutes).

It is not hard to see why people would be unenthusiastic about doing business here.

I’d be interested to know readers’ thoughts on how Argentines have managed to accomplish this economic nosedive.

One theory would be to blame the political system. Argentina has a democracy, a system for handing out the fruits of economic growth to political cronies, in an economy with minimal growth. In order to get elected or remain in power, politicians are forced to hand out massive amounts of public wealth to various interest groups. This results in a huge drag on folks who are trying to earn money without political connections.

Another theory would be to blame a nationwide attempt to get something for nothing. It seems that Argentina has tried virtually every possible method of getting wealthier except working harder. The current government has currency controls, an official exchange rate, laws against changing money at the real rate, a variety of export and import controls, etc. Graffiti demands “Bread. Work. Justice.” This theme has been echoed in demonstrations since the 19th century and is depicted in a 1934 oil painting by Antonio Berni at the MALBA art museum (see accompanying photo album). It is hard to think of a country where mass demonstrations of people demanding that they be made wealthier has resulted in an actual increase in average wealth (the Greeks are trying this right now!).

Finally one could look at the Argentines themselves. The government didn’t throw trash in the streets. It was in each case an individual who was too lazy to walk a block or so to a dumpster. Nor did the government decide to walk a dog without carrying a pick-up bag. On my 2003 trip to the country I remember a young man telling me that the American government, especially the CIA, was responsible for keeping Argentina down. I pointed out that the U.S. government had been unable to get rid of Fidel Castro, 90 miles off the Florida coast, despite four decades of trying. What made him think that the same government was somehow able to stop him, 5000 miles farther south, from going to college or manufacturing a product and selling it to the Chinese?

I’d be interested to hear from readers who’ve lived in Argentina. Meantime, check my photo album.

[I do recognize that Argentina’s comparative material poverty does not mean that the U.S. is a better place to live. The life of the soul can be richer in Latin American countries, as I note in http://philip.greenspun.com/non-profit/. In a society where it is more difficult to get ahead with hard work people generally spend more time with friends and family. Also, the layout of Latin American towns fosters easier social connections than the U.S. with its bleak lonely suburbs.]

21 thoughts on “Why is Argentina so poor?

  1. It is because their politcians keep concentrating on the ‘Great Malvinas Myth’ when their economy is in the doldrums when they should be using all of their time and energy to provide good economic governance. They have been using the ‘Malvinas card’ since 1941 when they made a sovereignty protest regarding the British presence on the Falklands. The protest before 1941 was made in 1849. (They signed a peace treaty with Britain in 1850). The UK and Argentina even had a hydrocarbons deal whereby it was agreed that any oil and gas found in Falkland waters would be shared but Nestor Kirchner ripped up the agreement. Unfortunately for the Argentine’s the 3,000 Falkland Islanders DO have the right to self determination – Ban Ki-Moon confirmed this on 12th November 2012.

  2. The Malvinas/ The Falklands angle does not explain everything, or, more to the point, anything – at most it’s a perennial fig-leaf “cause” for all bad things happening to the country. Nor do I think there is a short, compact answer to Philip’s questions other than that’s what a century and some of accumulated mismanagement in a country of abundant natural resources and Latin short-fuse mentality looks like. I am convinced there are plenty of economists, whole think-tanks trying to figure it out, and finding themselves unable to sell ANY original thought/ NBP-growth concept to the powers that be – that apparently prefer status-quo and a vague promise of things eventually getting better “by themselves,” to any rocking the boat. The latter presumably in part because modern Argentina hasn’t exactly been blessed with politics that could ever deliver what they promised (not only Peron, it begun much earlier than that).

  3. I work for a US firm and was transfered 2 years ago. I often feel the same way, Argentina is a county with great resources, there is no reson logically why it should be the way it is. I think that it really goes back to Peron, he came in and made the people entirely dependant upon the govenrment. Ther really is no ather party but the Peronist party, although there are parties within the party, therefore no opposition. Secondly almost all the people live in the BA provience, so really no other states have any chance of changing the system. I would not go as far ast saying 100% of the polictiocians, local, stae and nationa are corrupt, but 99.9% would be a good number. I have also noticed that the people are compalcent and lazy, tommorow is alway the phrase when some thing need to be fixed. Unions also have an emazing power, and there are mutliple strikes everyday. I am sad for Argentina, becuse I truly like the country, the people and the culture, but until they wake up and truly change they will always be in the csame situation. As it looks they never will wake up

  4. India, in spite of all the brouhaha by Thomas Friedman (of the NYT), is almost as terrible. Everything is bad. Infrastructure, internet, government offices, etc. Quality of education is bad too. I know people wont believe it but only 0.01% of the population gets a decent education. They drive the industry or emigrate to the USA (including me).

    However, there is something that holds it all together amidst all this chaos. I have been in the US for less than a decade but when I go back, it seems like a wonder how things work, how people drive, the roads barely can be called roads, the bribes at government offices, shortage of electricity, etc. However, something that is inexplicably working and taking the whole country forward. Complex Systems at work. You cannot explain the whole as the sum of its parts I guess.

  5. I live in argentina. I personally blame option A (the political system) and option C (the people) It is not true that argentines want something for nothing. Most of us are hard workers, highly skilled in our jobs and with a responsible and professional attitude. (it worsens down the work pyramid but we are not too different from (i.e.) France or Italy)

    We do have an amount of population expecting the government to give them “gifts” (houses, goods, cash). But the root cause is the degradation of values. People just no longer belives doing the right thing is worth it. Year after year we see corrupt politicians avoiding jail, rich people avoiding taxes, common criminals walking free of charge, police and judges not punished for not doing their jobs, school teachers teaching their subject wrong…. and the list keeps going. It’s sad.

  6. I’m argentinian and i think you have a pretty good insight. I’d say there’s a fatal combination of a big state bureaucracy that sabotages private entrepreneurship constantly, and it has been going on for so long most of the people without connections has given up or just born without any perective o progress. It’s a hopeless culture, where the ordinary citizen doesn’t have a chance to improve it’s wealth through honest work.

  7. Thanks, Bas, for that 2001 article. It did not occur to me that it was the IMF that prevented Aerolineas Argentinas from scanning bag tags or Portenos from picking up after their dogs! As far as Argentina sending money to Wall Street I don’t think that “default” (which Argentina did in 2002) means sending checks to bondholders.

  8. Even though they defaulted in 2002, they had a change of heart and started (restructured) payments again in 2005.

  9. http://www.economist.com/node/3715779 says that Argentina agreed to pay (not sure if they actually ever did pay) 35 cents on the dollar. If you think that is a victory for Wall Street I will very graciously allow you to lend me money and then I will happily repay you 35 percent of what I borrowed and spent.

    The economist article is interesting for saying that Argentina fell into a crisis because it owed 64% of GDP as of 2001. The U.S. federal government has run through its $16.3 trillion debt ceiling, which is about 103% of GDP (see http://seekingalpha.com/article/1081791-the-u-s-debt-crisis-explained-in-layman-s-terms ). This doesn’t account for what U.S. states owe or for obligations such as public employee pensions and retiree health care that aren’t accounted for in bonds. This is why some estimates (e.g., New York Times) are that the U.S. owes more like 500% of GDP.

    Anyway, Americans currently owe a lot more than Argentines ever owed and yet we are somehow able to keep most things running pretty smoothly.

  10. Phillip -don’t forget that South American favorite, “nationalize the Oil companies” – most recently in Argentina.

  11. You can not compare US debt to most other companies debt. US owes US Dollars and can print US dollars. Argentina owed US dollars but could only print pesos.

  12. “Now do the arithmetic. On Argentina’s $128 billion in debt, normal interest plus the 16% surcharge by lenders comes to about $27 billion a year. In other words, Argentina’s people don’t net one penny from the $26 billion loan package. Little of the bail-out money escapes New York where it lingers to pay interest to US creditors holding the debt, big fish like Citibank and little biters like Steve Hanke.”
    is one of the more interesting bits in the very interesting article the well intentioned and charming Bas pointed you to.

    I’m aware that this part does not address the scanning og bag tags or the picjking up of dog poo.

    But it’s still well worth a read. Argentina was mismanaged long before the IMF came along with their stupidity.

    Also, all that austerity and Ayn Rand economics is harmful.

    Learn at the feet of the masters

    Oh and
    “They are all borderline socialist states, with generous welfare benefits and lots of redistribution of wealth. Yet they don’t let that socialism cross the line into autocracy. Civil liberties are abundant (consider decriminalized drugs and prostitution in the Netherlands). There are few restrictions on the flow of capital or of labor. Legatum’s scholars point out that Denmark, for example, has little job protection, but generous unemployment benefits”

    Do not fight glorious semi-socialism and fireproof Keynesian economics with dog poo anecdotes. Embrace semi-socialism and live a better life: http://www.nytimes.com/2012/10/28/magazine/the-island-where-people-forget-to-die.html?pagewanted=all&_r=1&

  13. Truecrypt: Ayn Rand is to blame for Argentina’s comparative poverty? It hadn’t occurred to me that Juan and Evita Peron were using Atlas Shrugged for guidance. Nor have I heard anyone describe Argentina as a free market society like the U.S. was in the 19th century or Hong Kong has been for most of its existence. http://www.heritage.org/index/country/argentina says that government spending is 40 percent of GDP, pretty similar to the U.S., and that “The labor market remains rigidly controlled. The government regulates prices of electricity, water, and retail-level gas distribution, pressuring companies to fix prices and wages.”

    You’re using Denmark as an example? A “country” that has a population about the same as greater Boston, i.e., 1/6th the population of the larger cities in China. How do you know that the lesson from Denmark isn’t that a tiny little population of Danes, located right next to some of the world’s richest and most productive countries, can prosper pretty well (albeit earning only about half as much per capita as folks in the similar-sized Singapore; even the U.S., a country stuffed full of people sitting home for their 99 weeks of Xbox, manages a per-capita GDP that is nearly 50 percent higher than Denmark’s (figures from CIA FActbook)).

    [For a regional comparison, the very obviously functional Chile has government spending of 23 percent of GDP and virtually no public debt. See http://www.heritage.org/index/country/chile . Chile has a lot less going for it in terms of land and natural resources, so the fact that Chile is statistically comparable in wealth and, from a personal experience basis, much better off materially in practice, is a testament to the fact that they are doing something much better than Argentina.]

  14. Remember the ARA Libertad!

    Actually all the Chicago School boys who like Rand didn’t go to Argentina; they ended up next door in Chile. (Odd that ‘True’ missed that, since the socialist sympathizers I know always condemn Chile for that fact.) I don’t think you can blame any one particular factor; nations are complex systems with contingent, path-dependent histories. Rome wasn’t burned in a day. But as the Chilean example shows, nations can be fixed slowly, if their leaders want that.

  15. ” In order to get elected or remain in power, politicians are forced to hand out massive amounts of public wealth to various interest groups. ”
    mmm… the US political system differs from this how?

  16. One of the factors is that every 15 years or so they make a revolution and must start from scratch, again and again.
    Brazilians seem dumb and way more forgiving that Argentinians, but with their “Ordem e Progresso” (Order and Progress, as written on their flag) they slowly but surely got way ahead of Argentina.

  17. I too am just back from Argentina, having spent a few days in the South Patagonia – El Calafate, and El Chalten – A small (tourist) town and very small (tourist/adventure/climber) village respectively. Then I spent 5 days in Buenos Aires. In the south people were friendly and helpful above and beyond, without fail, everything worked, sidewalks were whole with no doog poop… Most of them moved from other parts, and they complained about the cities, BsAs, rising crime, etc… The previous government of Nestor Kirchner seems to have been pretty competent and raised the standard, but Christina Kirchner is much more of Peronist, nationalist mode who thinks its a good idea to imprison and fine statisticians, intimidate economists and media who don’t get in line, manipulate numbers and shortchange unions to boot. (She publishes fake inflation numbers, they get fake salary increases and go on strike) She blames outsiders and agitators, nobody is fooled, and when people think they are being hoodwinked they don’t support law and order.
    So even though dog poop and strikes hurt themselves too, powerless people who think the system doesn’t work for them, act out in antisocial behaviour and it’s self reinforcing. As I said – nothing I saw in smaller towns with more directly service/tourist dependent economies suggested that Argentinians are lazy or somehow disinclined from productive work – very much the opposite.

    ..Oh and I still have postcards from 2 weeks ago that I didn’t manage to mail from Argentina but brought to NY, despite buying $3 worth of stamps for each one

  18. On a recent visit to BA, my father’s hometown, I discovered that the money-printing campaign has caused rampant inflation; no surprise there with the current rate at 30%! But the consequence at the individual family level, is that with such staggering loss of value on an annual basis, there is no incentive for individuals to invest in, or even save, ANYTHING, because its monetary value is likely to decline. So it seemed to me, in my short visit, that as a culture, the Argentinians have grown into the habit of simply not working too hard, and spending what they earn immediately in 3-5hrs a day at meals and wine, to at least enjoy the life they can before inflation fritters it away.

    A few companies that sell services like mobile telephony seem to survive, but growth is slow, with a consumer base of moribund spending power.

  19. Philip, if you want to know why Argentina is not as wealthy as it could be, you could ask Mr Domingo Cavallo (Minister of Economy of Argentina 1989-1996 and during the default of 2001). He haves a PhD in Economy from the Harvard University, and also he taught in Harvard several years.

    I think the problem of Argentina comes from the lack of “good political rules” to prevent corruption. We have (and had) a lot of politicians with PhD from USA as other world renowned universities, still it seems easier for them to use all of their time and energy to steal than use their knowledge and education to give a good economic administration.

    And all the trash you saw on the streets is because probably of a union strike

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