Next to Paul Krugman my favorite target for ridicule is Argentina, specifically the government headed by Mrs. Cristina de Kirchner. Like Krugman they are easy targets because they pursue worn out ideas that have never, ever worked in history. One must admire their persistence at some level but for the fact that their policies usually achieve the opposite of what they intended.
Argentina always seems to take the route of other Latino populist-socialists. As I said in a previous post:
… they vote in some socialist-populist, he/she spends too much money, they increase taxes, they print money, inflation takes off, they impose price and wage controls, shortages develop, they seize assets in order to grab cash, the currency plummets, their bonds sink, they default on their debt, the banks get all upset, the IMF comes in with a bailout-austerity package, riots in the street, a new more financially responsible government, the banks cry but take a big hit, people are left dirt poor.
At this point, Mrs. Kirchner is running the country into la tierra because she and her fellow looters have spent most of the wealth that they have confiscated or have inflated into nothing. With the economy heading south her administration is desperate to get the economy going again. So she and her brilliant finance minister, Yale graduate Mercedes Marco del Pont, have come up with a plan to force banks to lend.
It may ring a bell to you when you hear the phrase “credit crunch” because we have been experiencing one here. A bit different here in that banks have a hard time finding borrowers whereas Argentine banks are afraid to lend and lose their investment. They haven’t released the details yet, but the idea is to require banks to lend a certain percentage of their deposits. The interest rate on these loans would be about 15% based on current deposit rates. Here’s the problem: the real rate of inflation is >25%, yet the “official” rate is about 9.7%. Of course if economists actually say what the real rate is, the government threatens them. The bottom line, with these interest rate controls (a price control by another name) banks will either go broke or lend only to cronies who won’t lose the money. If they can’t get around it, banks will face large losses and credit will dry up.
Maybe they should replace del Pont with Paul Krugman who believes that wealth can be generated by government borrowing and spending and if the central bank monetizes the debt because no one else will lend to the government, well, Argentina will be just fine.
The above article is sad and true. The temptation to get their fingers into the economy is too great. They are “dirigistas” that do not believe in markets. Part of the reason for this is that Argentina has a history of cronyisms both from the right and the left leaning politicians. Not only politicians but the state empoloyees that by definition tend to support leftist politicians, except when their patrons are from the right.
Sadly the absence of free markets make the masses also not trust the cronyism of the right. Now the irony and paradox is that those poor that do have a small business (and there are many) do believe in the freedom of markets, but see the advantage of some state intervention.
Like in many other parts of the world, getting the right “mix” is crucial. Finding and “maintaining” the right proportion or level of state, is like finding the right amount of salt or sugar for your cooking. Too little is not good as too much is not good either.
Ideally the state should be the formers and enforcers of Law and of minimum amount of “rules”, especially in markets. The “rule of law” is absolutely essential to the correct functioning of markets and countries as a whole! Sadly that is not the case in Argentina.
Nicely stated, RR! I love, Gentina, as it’s rich history of nearly 100 years of socialism, is an excellent model for discourse with the left…
When will they abandon their trial and error method, never as there is always another proposal for a fix…
Gentina’s Constitution:
http://www.senado.gov.ar/web/interes/constitucion/english.php/
Judge Ruth, also advised them not to adopt the American Constitution…
Argentina operates as a cash economy, as do most SA countries. Want an apartment? Cash. Farm? Cash. There is some credit, but the avge Jose has little to no access to it unless it is some government backed or mandated Plan.
Then of course. no sane argentine with real money keeps it in an argentine bank or in pesos, it all goes to Uruguay to sit there in US dollars in their banks.
In the end, all the programs for the little people do nothing but punish same people. Unfortunately they never learn. Perhaps the nights of the casaroles are coming back again.