Almost two decades after a massive popular uprising triggered Argentina’s record $100bn default of 2001-2002, the country finds itself back in a major economic crisis. With the peso losing over half of its value this year, inflation running at over 30 percent and the central bank raising the interest rate to 60 percent. To understand Argentina’s susceptibility to recurring economic crises, we have to consider the peculiar nature of its integration into the capitalist world economy. Ever since gaining independence a little over two centuries ago, has occupied a subordinate, semi-peripheral position that it has historically shared with other crisis-prone countries like Mexico, Turkey and Greece.
As South America’s second-largest economy and an important trading partner of the developed countries in the Global North, Argentina has always been acutely dependent on commodity exports, international loans and foreign direct investments to fuel domestic economic growth, leaving it particularly vulnerable to a change in international conditions. This already became clear soon after the country won its independence from Spain in 1816.
Attracted by its immense natural wealth and its relatively educated workforce, and hoping to reinvest their surplus capital in more profitable emerging markets abroad, British investors began to lend large sums of money to Argentina as early as the 1820s. This investor euphoria soon ended in tears, however, as a market panic on the London Stock Exchange in 1825 caused international credit to dry up. Like many of its Latin American neighbours, Argentina responded by suspending payments on its external debt.
It was not until the 1870s and 1880s that capital began to flow back towards the semi-peripheral countries again. As before, Argentina was one of the main beneficiaries of this new speculative boom – and as before, its government was eventually forced to suspend payments in the inevitable bust that followed. The Argentine default of 1890 would set off a major international financial crisis that nearly brought down the mighty Barings Bank of London. Several decades later, Argentina was once again hit hard by a decline in the terms of trade, this time due to the Great Depression that began in 1929. The next year, General Jose Felix Uriburu overthrew the democratically elected but economically discredited government of HipolitoYrigoyen and seized power in a military coup – establishing a disconcerting pattern that was to be repeated several times over the twentieth century.
In short, from its very birth as an independent state, the vagaries of domestic politics in Argentina have always remained closely tied to the umbilical cord of global finance – a dependence it has never really managed to sever.This dependence left the country particularly prone to currency and debt crises resulting from excessive lending and speculative over-investment, especially when these were followed by a rapid fall in global commodity prices, a decline in the value of the peso, a rise in international interest rates, and/or a sudden stop of foreign capital inflows.
Published in Melange Intl. Magazine September 2018.