Argentina’s Problems

May 11, 1964

BUENOS AIRES—My chief impression after a three-week lecture tour in Latin America (one week in Guatemala, two in the Argentine) is that the two countries I visited would be immensely better off if their respective governments, as well as a flock of international agencies, would only let them alone for a while, and stop trying to “aid” them, to “stabilize” them, or to speed up their “economic growth.” But then, I suspect, this conclusion would apply to many other countries as well.

The Argentine is still suffering from the consequences of Perónism. Before Perón came into full power in 1946, the country was prosperous and progressive. The economy was comparatively free, the currency stable. The peso was 4 to the dollar. As I write, the peso is 136 to the dollar—one thirty-fourth of its former value. Since 1940 the money supply has been increased 50 times, the cost of living 65 times.

Not all of this happened under Perón. The inflation still goes on. Perón was forced out in 1955. Yet the cost of living in the Argentine is nearly six times as high today as it was in 1958. And no one seems to know how the inflation can be brought to an end. The deficit is out of control. In the first five months of the current fiscal year, revenues covered only 37 percent of expenditures. The cash deficit is running at an annual rate of 169 billion pesos. Yet the government shows no disposition either to cut expenditures or to raise taxes. A large part of the budget deficit consists of deficits in government-owned and government-managed industries, particularly the railroads. It is estimated that on railways alone (loaded with excess employees) the deficit for the current year will reach 60 billion pesos.

DOLLAR RESTRICTIONS

The government blames the depreciation of the peso on “speculation.” On the very weekend of my arrival (April 12), it promulgated a set of currency restrictions forbidding the transfer of gold, currency, and securities out of the country, severely limiting travel allowances, restricting dollar and other foreign-exchange purchases, and ordering the exchange of dollar export earnings into pesos within five days after receipt.

Of course the effect of these measures can only be the opposite of that intended. When dollars are not free to go out they will not come in. When Argentine businessmen and others are restricted in the amount of dollars they can buy or send out each month they will use this permission to the limit—and look for other ways to send out more. On the first business day following the new controls an international black peso-dollar market started up with its center in Montevideo, in which the peso went to a further discount in dollars.

HERITAGE FROM PERÓN

One reason for the alarm was that too many people remembered the graft and disruption that followed the imposition of exchange controls under Perón. Practically the whole press, with the exception of the extreme left and the Perónistas, opposed the new measures—for the most part with remarkably well-reasoned arguments. A particularly brilliant analysis of their probable effect was published by Rodolpho Katz in his Economic Survey.

I had an interview with President Arturo Illia, who has been in office since last July. I was impressed by his ease and informality, his courtesy, modesty, and openmindedness, and his sincerity. He believes that the new exchange restrictions are temporary, and that there will be no need to broaden them. But many Argentines wonder about his understanding of economic affairs and deeply distrust some of the economic advisers around him.

As for Guatemala, I have left myself room only to remark upon the complex system of price controls and production quotas that the United States has forced upon Guatemala through the International Coffee Agreement which we sponsored. Our government has promoted nationwide union monopolies, nationwide crop-price supports and acreage controls, and compulsory world price-fixing and quotas in coffee and other commodities. But when American businessmen attempt the same thing on a comparatively tiny scale, it puts them in jail for it.