Back in 2015, Mauricio Macri became president of Argentina. He inherited an economy in ruins and a society teetering on the edge of despair after 12 years rule by Peronist populists: first President Nestor Kirchner followed by his wife, Cristina.
Visiting Argentina just after Macri’s election, I was struck by how many Argentines believed that Macri represented a chance for real change. One Buenos Aires politician told me that she believed that Argentina now had a proper opportunity—perhaps, she said, its last—to break out of the cycle of economic dysfunctionality that has dominated the country since the 1930s.
Almost four years later, I suspect that few Argentines still think that way. On September 2, for example, President Macri reinstated capital controls. This was a reversal of one of the very first policy measures which he implemented to help open up the country to market disciplines and move beyond yet another period of Peronist failure.
A recent Wall Street Journal article provided a good summary of Macri’s policy in this area:
The capital controls require the central bank to limit dollar sales, forcing companies and banks to have obtain authorization to purchase hard currency. The country’s Exporters now have to repatriate all hard currency from sales abroad. Individuals seeking to buy dollars will have a limit of $10,000 a month. Bank transfers abroad by individuals will also face a monthly limit of $10,000. Dollar purchases by nonresidents will be restricted to $1,000 a month, and they won’t be allowed to make bank transfers abroad.
The ostensive purpose of these capital controls is try and obstruct the Argentine peso from experiencing an out-of-control depreciation. The controls are being presented as a short-term measure that will be dispensed with once the Argentine economy stabilizes.
The cost, however, will be very high in terms of basic economic freedoms. Capital controls will also act as a major deterrent to foreign investment and push many Argentines into an already thriving black market for currency exchange.
Another problem is that the new capital controls go hand-in-hand with a return to many of the failed interventionist policies of the past that Macri came to office with a view to abandoning. More recently, Macri froze prices on basic food and gasoline to help the country address its annual inflation rate of 55 percent. Given, however, the crucial role played by free prices in conveying essential information concerning the real price of goods and services, the negative impact upon consumers and producers will be considerable.
Argentina’s Minister of Finance, Hernán Lacunza, isn’t especially enthusiastic about his nation’s reembrace of interventionist policies. He thinks, however, they are needed to prevent even greater problems. Nonetheless, Lacunza admits, “These aren’t measures for a normal country.”
Lacunza’s words reminded me of a conversation which I had with an Argentine priest from Buenos Aires during my last visit to that beautiful but tortured nation. “All we want,” the priest said, “is to live in a normal country.”
Argentina is the premier example of a once wealthy country which has managed to become a universal synonym for perpetual economic decline, corruption, and persistent failure. And despite many Latin Americans’ bad habit of blaming the rest of the world—especially the big, bad United States—for the region’s seemingly endless problems, Argentina’s wounds are for the most part self-inflicted. Choices by Argentine legislators and Argentine governments voted into power by Argentine citizens are a major reason, if not the primary reason, why Argentina seems unable to attain normalcy.
Until that basic political fact is acknowledged and addressed, I fear that Argentina will remain locked into the self-destructive habits and patterns of the past from which the country seems unable to emerge. The rich and powerful will be able to look after themselves. Argentina’s poor, however, will not.