The Argentina Farmers' Strike

COMMENTARY Global Politics

The Argentina Farmers' Strike

Jun 16, 2008 3 min read

Former Research Fellow For Economic Freedom and Growth

James M. Roberts' primary responsibility was to edit the Rule of Law and Monetary Freedom sections of Index of Economic Freedom.

It's quite a comedown for what was one of the world's wealthiest countries 100 years ago. Argentina's economic glory days are long gone, thanks to the dysfunctional economic policies of Gen. Juan Domingo Peron and his political progeny, who have clung to power in Argentina more or less continuously since the 1940s.

To understand what's happened in Argentina, let's recall the old cow-based definitions of political economies:

Socialism: You have two cows. The State takes one and gives it to someone else.

Communism: You have two cows. The State takes both and gives you the milk.

Fascism: You have two cows. The State takes both and sells you the milk.

In Argentina today, the situation looks like this: You have two cows. The Peronists take the milk, export it for record-high world prices, pay off their political cronies, subsidize their urban-poor political base and give the farmers whatever is left. Unfortunately for the farmers, what's left often isn't enough to cover their costs.

For three generations Argentina has labored under the Peronists' simple, but economically destructive, political formula: Increase wasteful welfare-state handouts; build a swollen bureaucracy to redistribute wealth; protect powerful, closed-shop trade unions from foreign competition; and generously lubricate all these components with corruption.

Anyone raising serious objections risks a visit from political thugs. Of course, these policies have exacted a terrible toll: Some families in Argentine barrios have been unemployed and on welfare for three generations.

Since coming to power in 2003, the presidential tag-team couple of Néstor Kirchner and Cristina Fernandez de Kirchner have financed their Peronist policies by exploiting high commodity prices. They've kept the peso artificially low and taxed agricultural exports heavily. It hasn't worked.

During his presidency from 2003 to 2007, Néstor Kirchner tried to stimulate growth by boosting government spending, wages and pensions. Predictably, inflation skyrocketed.

Rather than move to correct the problems, The Economist notes, the Kirchners simply "whitewashed the effects of inflation" by canceling publication of official poverty statistics.

They got a temporary reprieve from reality when Venezuelan President Hugo Chávez, their ideological soul mate, paid off much of a large chunk of Argentina's $5 billion-plus official debt.

Though Néstor Kirchner turned over the reins to his wife last year, his heavy hand remains visible. Most of her ministers are holdovers. The Economist Intelligence Unit observes that Cristina Kirchner has continued her husband's "commitment to a weak currency policy ... and to the heterodox measures, such as price caps, cross-subsidies and export taxes, which have been used to contain the resultant acceleration of inflation."

But Argentina's farmers no longer are willing to serve as the Kirchners' cash cow. When Cristina Kirchner's finance minister raised taxes on agricultural exports to 44 percent earlier this year, they said "basta," meaning "enough." A 21-day strike ensued.

Farmers blocked food shipments and demonstrated peacefully. The Kirchner government responded with occasional police brutality and deployed the Peronists' favorite populist weapon - rent-a-mobs.

Ultimately, both sides agreed to a 30-day truce. It ended May 2, the Kirchners stubbornly refusing to negotiate a lower tax rate. With no settlement in sight, the farmers resumed their strike on May 7.

Talks with the government since then have gone nowhere. With matters at an impasse, Argentine farm groups have suspended grain exports and meat sales.

Thousands of U.S. teachers, farmers and other pension fund investors lost $3 billion when Argentina defaulted. Even though the Kirchners are currently sitting on more than $50 billion in hard currency reserves, they refuse to repay this debt in full.

A solution won't be easy, in large part because the country's problems are so structural. The 2008 Index of Economic Freedom reports low scores for Argentina on property rights, labor freedom, freedom from corruption and, especially, financial freedom, stemming from the still-unresolved 2001-2002 crisis when Argentina defaulted on its foreign debt.

Political interference with an inefficient judiciary makes investors mistrust Argentine courts.

On the other hand, Chile has shown an openness to foreign investment, and officials there have been trying to fight corruption and protect property rights. While the Kirchners try to revive Juan Peron's disastrous 1960s-era protectionist "import substitution" policies, Chileans lead South America in seeking free-trade agreements. They see the value of globalization and aren't afraid of it.

Even leftist Brazilian President Luiz Inacio Lula da Silva is doing a better job of governing than the Kirchners. He calls inflation a "degrading disease," advocates fiscal restraint and supports Brazil's central bank anti-inflation measures. As a result, foreign investors are flocking to Brazil and shunning Argentina.

Instead of perpetuating wasteful welfare state handouts and redistributing income, the Argentine government should look west and emulate the success that Chile has enjoyed from a combination of economic reform, privatization and limited government. Until it does, Argentina's glory days will remain little more than a faded memory.

James M. Roberts is Research Fellow for Economic Freedom and Growth in the Center for International Trade and Economics (CITE) at The Heritage Foundation.

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