This Christmas, I discovered a pair of trousers at the bottom of a drawer. I had bought them ten years ago in a small town marooned on the pampa in the vast province of Buenos Aires, the agricultural plain that serves as the hinterland to Argentina’s overblown capital city. I had worn them once. In a back pocket, I found a one-peso note. On the front, the face of Carlos Pellegrini, president of Argentina at the end of the 19th century, with his walrus moustache, stares out imperiously.
Astonishingly, on the day I found it, my one-peso note was worth the same – one US dollar – as it had been when I had stuffed it in that pocket and forgotten it ten years earlier, a miracle that had earned this crumpled piece of paper a kudos in Latin America equivalent to that enjoyed by the Deutschmark in Europe, and for similar reasons: it had promised stability and prosperity to an economy wracked by inflation.
When I first went to Argentina, 20 years ago, there was a bar that was wallpapered with banknotes – inflation as ironic decor. In that bar one evening, a banker friend picked up a note I had left as a tip and, after a laborious calculation, told me that it represented the sum he had paid, 30 years earlier, for his first apartment. Unlike every previous Argentinian currency, my peso had not turned into junk. But that was more than a week ago. Now, as Argentina’s fifth president in a fortnight takes office and riots continue to rage on the streets, the currency black market that has sprouted again in Buenos Aires would offer me no more than 60 cents.
Argentina has been here before. The military regime of the 1970s ran a strong currency for several years, supported by easy loans. The theory then was that it would allow producers to import new technology. In fact, the country went on a long spending spree. It was the era of the plata dulce, the sweet money time, in which well-dressed Argentinians travelled the world buying Cartier watches and Calvin Klein clothes, loaded up with packages at Harrods and hosted chic parties aboard the smart yachts they kept in the beach resorts of Uruguay.
By the time the military junta went down to defeat in the Falklands war, the legacy of the plata dulce was debt and inflation. Raul AlfonsIn, who presided over the return to civilian government, introduced the austral, the latest in a long line of banknotes. It started in 1985 at 0.80 to the dollar. Just before it was abolished, six years later, it traded at 10,000 to the dollar. Somewhere in a drawer of dead banknotes, I still have a one million austral note.
AlfonsIn’s government drowned in a tsunami of hyperinflation in 1989. His Peronist successor, Carlos Menem, adopted a tough monetarist approach. He abolished the austral and pegged the new peso by law to the dollar, at a rate of one to one; every peso in circulation had to be backed by a dollar in the reserves. Henceforth, he announced, there would be no devaluation. By a simple act of parliament, he appeared to abolish inflation. The black market disappeared; the plata dulce was back.
Argentinian exports became expensive, imports cheap; but at the time, only China grew faster. Latin America’s new civilian governments were swept up in the post-cold war triumph of the west. Old-style protectionism crumbled before the global trend of open economies. Argentina was an enthusiastic participant, and was rewarded with the applause of international lenders and investors, and a decade in which growth averaged 6.2 per cent.
Menem’s Harvard-trained minister of economy and architect of the currency stability policy, Domingo Cavallo, added a privatisation programme that made millionaires out of Menem’s cronies and kept the inward investment flowing to Buenos Aires. He even tried to make Argentinians pay tax, something few had ever contemplated as part of their civic obligations. Menem was rewarded with a second term, and times were too good and the mobile phones too plentiful to encourage much scrutiny. Corruption was not only widespread, it was widely respected. What was the point of politics, after all, if it did not make you rich?
But as competitors devalued, the overvalued peso priced Argentina out of the market. Unemployment rose to 18 per cent, soup kitchens appeared in Buenos Aires, and the decline of the middle class accelerated. A new Radical Party president, Fernando de la Rua, took power in 1999, just as Brazil, Argentina’s neighbour, devalued its currency. By November 2000, Argentina was again in crisis. De la Rua called Cavallo back to his old post as finance minister. If he had worked a miracle for the Peronists, perhaps he could do the same for the Radicals. This time, though, the sorcerer’s spells had lost their magic.
The collapse has been as precipitate as the prosperity was swift, the Argentinian 1990s revealed as just a more extreme version of a widely held belief that globalisation can bring effortless riches and no losers. The promise had particular appeal in a country attached to illusions that have sweetened a century of decline from riches to threadbare uncertainty. Argentina, her citizens would boast, unlike her Latin American neighbours, was a nation defined by its prosperous white middle class, in a country that inspires feelings of violent patriotism without engendering a sense of civic obligation.
The sudden reluctance of politicians to occupy the Casa Rosada is understandable, if not exactly admirable: they know there is little to gain in politics by dispensing unpleasant medicine without even a popular mandate. The peso I discovered in that neglected back pocket is well on its way to the junk currency drawer. On present performance, whatever succeeds it is unlikely to fare any better.
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