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Economic Stabilisation in Argentina: the Austral Plan*

Published online by Cambridge University Press:  05 February 2009

Luigi Manzetti  and
Marco Dell'aquila
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Extract

The relative prosperity which Argentina enjoyed at the beginning of the century made it a candidate to be a major economic power. Despite its abundant natural resources and skilled manpower, Argentina has consistently failed to live up to its potential. Periods of growth have either been too sporadic or political upheavals too frequent for coherent economic policies to be effective. In recent decades the Argentine economy has been characterised by a deterioration in current account,1 exchange rate,2 gross domestic product (GDP) growth,3 investment,4 and has seen inflation become an endemic phenomenon.5 These factors have exacerbated the economy's inability to tackle its mounting foreign debt.

Type
Research Article
Information
Journal of Latin American Studies , Volume 20 , Issue 1 , May 1988 , pp. 1 - 26
Copyright
Copyright © Cambridge University Press 1988

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References

1 World Bank, Argentina: Economic Memorandum, vol. 2 (Washington, D.C.: World Bank, 1985), p. 299.Google Scholar

2 Ibid., p. 295.

3 Ibid., p. 285.

4 Ibid., p. 290.

5 Ibid., p. 390.

6 Wynia, Gary, Argentina in the Post-War Era (Albuquerque: University of New Mexico Press, 1978).Google Scholar

7 Díaz-Alejandro, Carlos, ‘Southern Cone Stabilization Plans’, in Cline, William and Weintraub, Sidney (eds.), Economic Stabilization in Developing Countries (Washington, D.C.: Brookings Institution, 1981).Google Scholar

8 For a very recent discussion of the economic problems faced by Latin American countries see Thorp, Rosemary and Whitehead, Laurence (eds.), Latin American Debt and the Adjustment Crisis (London: Macmillan, 1987).CrossRefGoogle Scholar

9 For a description of how bottlenecked economies operate see Diamand, Marcelo, ‘Towards a Change in the Economic Paradigm through the Experience of Developing Countries’, Journal of Development Economics, vol. 5 (1978), pp. 19–53.CrossRefGoogle Scholar

10 Ministerio de Economía/Central Bank of Argentina, Argentine Economic Memorandum 1986: Second Quarter (Buenos Aires: Ministerio de Economía de la República Argentina and Central Bank of Argentina), table 30.

11 Wynia, Gary, ‘Democracy in Argentina’, Current History (02 1985), p. 54.Google Scholar

12 Carvounis, Chris, The Foreign Debt/National Development Conflict (New York: Quorum Books, 1986), p. 39.Google Scholar

13 Ibid.

14 Ibid.

15 Ibid. p. 143.

16 Ibid., p. 40.

17 Ministerio del la Economía, Plan de Reforma Económica (Buenos Aires, Ministerio de Economía de la República Argentina, 15 06 1985).Google Scholar

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19 Ministerio de Economía, Plan de Reforma Económica.

20 Ministerio de la Economiía/Central Bank of Argentina, Memorandum of Understanding on Economic Policy (Buenos Aires: Ministerio de la Economía de la República Argentina and Central Bank of Argentina, 12 01 1987).Google Scholar

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23 Ibid., p. 40.

24 There have been some speculations that Paul Volker lobbied strongly in favour of the plan.

25 Ministerio de la Economía/Central Bank of Argentina, Argentine Economic Memorandum: Second Quarter (Buenos Aires: Ministerio de la Economía de la República Argentina and Central Bank of Argentina, 1986), table 1.Google Scholar

26 Ibid., table 16.

27 Ibid., table 16.

28 Pastore, José María Dagnino, ‘The Austral Plan 15 Months Later’ (unpublished paper, 1987), p. 15.Google Scholar

29 Argentine Economic Memorandum 1986: Second Quarter, table 15.2.

30 Ibid., table 8.

31 Memorandum of Understanding, table 1.

32 Argentine Economic Memorandum 1987: I/II Quarters (Buenos Aires: Central Bank of Argentina, 1987), table 23.Google Scholar

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34 Ibid., table 9.2.

35 Ibid, table 16.

36 Ibid., table 12.

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40 Ibid., table 6.3.

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42 Ibid., p. 15.

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48 Ibid., table 2.2.

49 Ibid., table 3.1.

50 Memorandum of Understanding, table 1.

51 Latin America Regional Report Southern Cone (LARRSC), 11 Sept. 1986.

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53 Ibid., p. 163.

54 LARRSC, 11 Sept. 1986.

55 Euromoney, p. 163.

56 LARRSC, 11 Sept. 1986.

57 Argentine Economic Memorandum 1987, table 4.2.

58 Memorandum of Understanding, table 1.

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61 Argentine Economic Memorandum 1987, table 1.

62 Ibid., table 4.2.

63 Ibid., table 3.1.

64 Ibid., table 1.

65 Memorandum of Understanding, p. 2.

66 Losing a radical majority would have made the radical proposal of constitutional reform more difficult to pass in Congress. Alfonsín intended to amend the constitution in order to create a parliamentary democracy in the European fashion. In this way he could remain in power when his mandate expired in 1989 (the Argentine constitution forbids a second presidential term). Moreover, losing the governorship of Buenos Aires to the Peronist candidate would have meant giving the main opposition party's leader an excellent springboard for the presidential elections of 1989 had the project of constitutional reform failed.

67 Ministerio de Economía, Un nuevo impulso al plan de reforma económica (Buenos Aires: Ministerio de Economía, 25 02 1987).Google Scholar

68 Argentina's integration into the world economy. Fostering Argentina's economic development, for the economic authorities, meant opening up and integrating the nation into the world economy. This goal had to be achieved first through the modernisation of the industrial infrastructure (as well as incentives for industrial and agricultural exports), and secondly the signing of co-operation agreements with other countries. The means to accomplish the first set of goals were: (1) progressive elimination or reduction of export taxes and customs duties which had impeded foreign trade; (2) reduction of import tariffs on capital goods; (3) tax exemption for exporters of capital equipment not domestically available; (4) opening of credit lines for the high-tech sector in order to upgrade machinery and equipment of the national industry. As to the second goal, a protocol of economic integration had already been signed with Brazil (possibly later to include Uruguay), and further bilateral accords were signed with Uruguay and Chile. This economic opening was conceived to steadily increase trade and foster economic growth. In so doing, it was hoped to improve the productivity and efficiency of the national enterprise both domestically and internationally.

Restructuring of the state sector. According to the economic team's analysis, the previous development model which had centred around the role of the state as the driving force of economic growth, had created a number of monopolies, sectoral interests, and distortions which prevented economic efficiency. It was necessary to eliminate the inefficiencies by implementing a reform of the state sector allowing the private sector to take the initiative. An aspect of this vast reform was the restructuring of employment and salary criteria for public employees. This meant, among other things, modifying the organisation of the bureaucracy in order to eliminate sectoral privileges, modifying wage scales, and laying off 20% of public employees within three years. A Directorate of Public Enterprises was created to co-ordinate the reform of the National Administration and its independent agencies according to efficiency and rationality criteria. Another aspect of great importance was the privatisation of some state enterprises and the participation of private capital in joint ventures to expand the petrochemical industry.

Capital market reform. One of the main problems inhibiting Argentina's economic development rests in the inefficiency and size of its capital market. The short-term nature of the domestic capital market was considered by Sourrouille and his team to be closely related to the inflationary process and to speculation typical of a closed economy. To solve this problem the government moved to create the investment opportunities required by the private sector in the form of long-term capital markets. This meant a reduction in rediscounting and obligatory reserves to improve the lending capacity of the banking system, a steady deregulation of interest rates for deposits and loans, and the expansion of the stock market to create a substantial source of capital as an alternative to commercial bank financing.

69 Ministerio de Economía, Un nuevo impulso…

70 Buenos Aires Herald (BAH), 8 July 1987.

71 Ibid., 18 July 1987.

72 Ibid., 15 July 1987.

73 Workers received a 6.0% pay increase in July. In August the government issued a decree taking pay increases from 4.78% to 7%, while July wages were to receive a 1.9% adjustment to make up for higher inflation in June (BAH, 15 August).

74 Ibid., 31 July.

75 Ibid., 1 September.

76 Ibid., 8 September.

77 Argentine Economic Memorandum 1987, table 4.2.

78 Pastore, Dagnino, ‘The Austral Plan’, p. 15.Google Scholar

79 Canavese and Di Telia, ‘Inflation,…’.

80 Figures of expenditure by provincial governments were not available.

81 Heymann, , ‘Inflation … Comments to Canavese …’, p. 10.Google Scholar