October 31st, 2011
05:00 AM ET

Zakaria: Saving Argentina's last dance

By Fareed Zakaria, CNN

If you're the leader of a country these days, chances are you have historically low approval ratings. It's true of Obama, Sarkozy, Merkel, but also the Prime Ministers of Japan and India, and the leaders of the Arab world. We are living in an era of global dissatisfaction.

It has been a year of protests, from the Arab Spring to the Occupy Wall Street movement in New York...to similar ones in London, Madrid, Tokyo, and more.

So I found it surprising that one nation just re-elected its president by a whopping margin. This incumbent won 22 out of 23 provinces, and beat out the nearest contender by 37 percentage points. No, this is not a Russian election...

It's actually the leader of a pretty vibrant democracy: Argentina's Cristina Fernandez de Kirchner. If you gauge the mood from her victory parade, Argentines are happy and prosperous. They've had eight years of strong growth, leading up to a 9% rise in GDP this year. Annual salary increases there are approaching an astounding 30%. Imagine if your boss put 30% more in your paycheck next year. You would be happy, too.

People are partying - nightclubs and restaurants are packed; and rockstars from all over the world are adding Buenos Aires to their list of must-tour cities. Argentina's biggest export soybeans keeps hitting record high prices on the market. And the nation's main trading partners are Brazil and China - both of which have had a surge in domestic consumption, creating a ready market for manufactured goods.

Argentina's economic rise reads like a dramatic turnaround. In December of 2001, it declared the largest debt default in history, sparking a period of all-out chaos - there were five presidents in just two weeks. And it was disastrous for the Argentine people: many in the middle class had their entire bank savings wiped out, leading to deadly riots and widespread poverty.

They have done well to emerge from it, helped especially by the devaluation of their currency. (If only Greece and Italy had that option, there would be no Euro crisis.) And Mrs. Kirchner is right to avoid massive austerity programs at a time when what is needed is growth.

But the success of Argentina's comeback may also be blinding the country to a build up of problems. Loose money, large subsidies and a cheap currency are leading to inflation. While Kirchner's administration puts the figure around 9%, that number is widely regarded to be doctored. Reliable private estimates put it closer to 25%. Kirchner's populist campaign has promised "beef for all," "fish for all," even "TVs for all." Further subsidies on energy, transport and water are said to cost up to 5% of GDP. Meanwhile the surpluses that led to Argentina's decade of fiscal stability are now dwindling - at the rate of two billion dollars a month.

While the remedy to that is structural reform, Kirchner has instead resorted to crude protectionism. And external headwinds are on the way - a global slowdown will mean lower incomes from agriculture and reduced demand from China and Brazil. Simply giving people subsidies doesn't work in the long term: Sooner or later, the money runs out. And so does popularity.

There was a lovely moment from Kirchner's election night celebration last week. As the people roared out victory, the President began dancing. The crowds soaked it in. It was a moment to remember. But it's also an analogy for the Argentine economy. Partying hard is fun, but it is often followed by a painful hangover.

For more of my thoughts throughout the week, I invite you to follow me on Facebook and Twitter and to visit the Global Public Square every day. Also, for more What in the World? pieces, click here.

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soundoff (37 Responses)
  1. Arie Avnur

    Dear Fareed,
    I wanted to comment on your “What In The World” segment from your recent Oct 30 GPS program.
    You brought Argentina as an example of turnaround after default, mainly by devaluating their currency. Greece, you stated can’t do that and that is the problem.
    I disagree. De-valuating a country’s currency has the same effect for foreign investors as the haircut Greece’s debtors had to take. This is exactly the beauty of the Euro system. Sovereign can’t decide on their own to give someone a debt cut. This is not the part that is not working, in my humble opinion.
    What was/is broken is the banking system, and governments that fell asleep on the wheel. The banks should have stopped buying bonds of a country that does not show how it is going to pay back. In fact the only bonds are worth buying are for projects that show clearly how the income will be generated to pay them back. A government that can show how an investment will raise tax revenue can expect investors to buy bonds to finance it. This principle has been forgotten or breached all around the world. We in the US have the same problem. Then the bad debt creeps into retirement general account, and default on it does not punish the sloppy buyer anymore, but a huge group of people whose savings have been compromised with this bad debt would suffer. And the political pressure of this large group, is what makes governments pitch in public money to cover some of the loses.
    So what happened here? Some good piece of wealth was transferred from the Germans, French and others, to Zorba the Greek. And the former have to accept this transfer because their regulators and bankers feel asleep on the wheel. Its not the Euro system that failed, but the people that failed to apply the brakes where and when needed.

    And Italy is next .

    P.S. I love your program.


    October 31, 2011 at 9:58 am | Reply
    • melewar

      i believe the default is syndicated not slept by regulator. so many people in the closed circle involved, everyone is silent on the outlook of greece since 2008. Regulator does nothing is equally committed to crime of breach of trust. Remember the earthquake scientist not giving warning earlier subjected to criminal law punishment in Italy. similar political will should be brought forward to put those regulators behind bar. But the closed circle is too large even president also may be involved or make known prior to meltdown of Greece.
      so everyone again keeps mump since authority dare political risk. Tha tis the irony of the global dissatisfaction , wat Fareed mention in the entire world, excpet Argentina.

      October 31, 2011 at 10:16 pm | Reply
  2. j. von hettlingen

    Cristina Fernandez de Kirchner's landslide victory had her late husband to thank for. who was credited with lifting the country out of its financial meltdown in 2001. As the growth continues the voters let her stay for an another term.

    October 31, 2011 at 11:22 am | Reply
  3. George Ortiz-Mejias

    Oh Zakaria ... how could you? This editorial comment portrays you as someone that can be bought to criticize governments that have concentrated in social policies that are helping the people and not just special interests to success. I am so disappointed.

    October 31, 2011 at 12:18 pm | Reply
    • Medellin

      Hmm, he is not downplaying the services promoted, just the fiscal responsibility. Money does not grow on trees as the saying goes, and the piper always wants to get paid.

      October 31, 2011 at 2:43 pm | Reply
    • Dr Ruth

      The same philosophy was applied by Peron, now we all remember at how good it was free sewing machines, free apartments etc.. But when the money run out then the reality settled in, millions in poverty, millions unemployed, high cost of living etc..

      Apparently Argentineans have not learned their lesson.

      But the same thing happened here in the US, Ronal Regan had an external debt of 600+ billions, by the time he left office the debt was 3.5 trillion dollars (six times up from inauguration) It was a time to party, by the time George Bush Senior came to the Oval office, it was time to pay the piper.. George Bush Senior had no option but to raise taxes..

      October 31, 2011 at 3:07 pm | Reply
      • Keith

        The main reason for Argentina's collapse was the IMF. Granted, it could not have happened without the complicity of a corrupt junta, but the offer of loans that were designed to obligate Argentina to be a corporate colony originated in the United States. This new prosperity, like what is occurring in Brazil, is for real and hopefully will be beyond the control of unprincipled capitalism.

        October 31, 2011 at 5:36 pm |
      • Gordon

        What the hell is unprincipaled Capitalism? Capitalism is an economic system based on reality, not desire.

        Capitalism is not Anarchism. It is an economic system that works with the natural laws that govern the distribution of resources... supply and demand. The brand of Capitalism employed by the US includes government regulation as a means to protect the rights of its citizens. So once again, it is not Anarchism!

        If a resource or service is to be provided to a citizen then someone must do the physical labor. Someone must do the planning of logistics to bring the resource or service to the citizen. Often it is a complex organizational structure that provides these things.

        There is no better model than Capitalism. You need Capitalism to make the system work because the failed text book ideals of scholars, pales in comparision to the realworld experience of Venture Capitalists... (and yes some Venture Capitalists are greedy, but so are many Socialists/Communists who also abuse their power for unethical self-enrichment. The Castros and Kim Jong-Il do not live in equal poverty with their peasants)

        This is the reality!

        October 31, 2011 at 7:57 pm |
      • Criollo-n-Jersey

        ding ding ding ding.... we have a winner. spot on ruth.

        A true shame that la Senora de Kirchner has chosen to use gov't resources for the direct purchase of the lower class and the fomentation of leisured poor. True change could have come to Argentina..... not the boom/bust cycles that litter our history.

        What can be expected from a Peronist, thou?

        November 1, 2011 at 9:42 am |
  4. Ryan

    Cooking and heating gas subsidies benefit those who don't need them. The millionaires pay almost nothing while he or she who cleans their house or cuts their grass pay 2 or 3 or 4 times for their gas, because they have fill their cans as their 'houses' are not connected to the subsidized gas grid. For the millions of poor in Buenos Aires, being disconnected is a problem not being addressed.

    October 31, 2011 at 12:25 pm | Reply
  5. Pablo

    Of course, this newspaper does not mention the rampant corruption, where the president and her late husband enriched themselves at the cost of the middle class, where they impoverished the middle class and then turned around and subsidized the "tv's for all" and "meat for all" , stealing the retirement money of several generations (my parents included). This is the clasical example of s socialized democracy, where Chavez is revered as a genius, where 75 percent of the population, when asked, declares that "the government has the moral duty of providing for every single need", where crime and insecurity is regarded as normal, where much of the government is made up of murderous guerrilla. This is where the USA is headed if we continue in the current path, with the level of corruption, executive orders, social programs, etc

    October 31, 2011 at 1:56 pm | Reply
    • sara

      I agree 100%

      October 31, 2011 at 2:58 pm | Reply
    • Santiago Newbery

      Pablo stated some things that were true about Argentina, such as rising crime and insecurity, and ever present corruption. I also fear that the party will end in economic disaster.

      But then he states:

      " where much of the government is made up of murderous guerrilla. This is where the USA is headed if we continue in the current path, with the level of corruption, executive orders, social programs, etc"

      EXCUSE ME! I lived in Argentina in the 1970's murderous are the Military Dictators that ruled there and in Chile at that time. Yes there might have been communist guerrillas, but the murderers of innocent civilians were the Military and Police. I feel far safer in Buenos Aires these days, compared with the 1970's where I feared police, and I was no terrorist!

      As for where the USA is headed, it will take Obama at least four years to overcome the economic the disasters left by the Bush administration. It took Bill Clinton four years to foster the recovery from what Bush Sr. left us.

      Santiago Newbery

      October 31, 2011 at 3:16 pm | Reply
    • jack


      October 31, 2011 at 8:28 pm | Reply
    • Criollo-n-Jersey

      Bien Dicho, Pablo. 100%

      November 1, 2011 at 9:43 am | Reply
    • Lou

      Pablo, you have said nothing bu the truth of what goes on in Argentina. Unfortunately, there are people who dare write articles about countries, people and things they are not familiary with whatsoever. For those of us who are closely linked to Argentina, we cannot help it but to see the deterioration of a nation that has everyhting to offer, only to be ransacked by a corrupt, greedy and unscrupulous few, which includes Cristina's entire government beginning with El Pinguino's mandate. Sadly, Argentina does not resemble the Argentina of 25 or 30 years ago where the majority of the people were employed, where crime was something you saw in the movies and where drugs were other countries problem.

      November 1, 2011 at 9:50 am | Reply
  6. Truefax

    Not really my type but i'd hit it.

    October 31, 2011 at 2:31 pm | Reply
  7. Haha

    People in Argentina are brainwashed...
    30% raise in salary? what does that mean compared with the inflation they have? it means nothing.
    The cost of most goods is over twice as much as here in the US, even though their avg salaries are 10 or 20 times less than what they are here.

    October 31, 2011 at 2:40 pm | Reply
  8. Vincent Lovece

    This will likely end in yet another crash for Argentina. This is like the fifth or sixth period of growth for that country between long crashes.

    October 31, 2011 at 2:56 pm | Reply
  9. Onesmallvoice

    I recently saw that in Argentina that some people were so poor that they had to go to public garbage dumps to forage for food. This is scandalous and should never be allowed to stand. Has Argentina no welfare system to help these people? If not, they need to establish one!

    October 31, 2011 at 4:02 pm | Reply
    • wilber

      OMG. We have people here in USA digging thru trash for food. Have you BEEN to argentina? I own house there, let me tell you...they might have probs but.... they are WAY more FREE in a lot of ways than in USA.
      Go there...people are happy for the most part.

      November 1, 2011 at 10:09 am | Reply
  10. Jacy

    this is what happened: VOTER FRAUD, several millions over. People there absolutely HATE their female president. Cost of living is very high, and there is a ridiculous amount of crime. I love your show and respect your insights, but this piece is very missleading and just plain wrong. Ask people from there, not the ones paid by the government to talk to you, but the middle class. I'm deeply dissapointed at this. I grew up there and I know how they work. It looks nice from the outside but it is a hard life there. Not at all what you say here in your piece.

    October 31, 2011 at 5:27 pm | Reply
    • Criollo-n-Jersey

      Well Said, Jacy. 100% true.

      November 1, 2011 at 9:44 am | Reply
  11. Marcelo

    I'm From Argentina, 10000% agreed with Jacy. I'm from Cordoba and things here are completely wrong. Many problems with security. Poverty growing up really fast. We have increased the difference between the ones who have most $ and the ones that doesn't have anything to live for... + THE CURRENT ARGENTINIAN PRESIDENT HAD GROWTH of 700% HER PERSONAL $ in THE LAST 5 YEARS. 🙂 How GOOD is that? :). Her $ is up to $70 Million USD right now. They do whatever they want with the public $ and they think the SOYA will be the solution for everything. This will end very very bad. TODAY people is FORBIDDEN TO BUY US DOLLARS in ARGENTINA. you need special permissions to EXCHANGE your money. WHERE IS THE TRUST FOR THIS PRESIDENT THAT HAS 53% of VOTES? You know what this is?? people VOTED HERE THINKING THAT IF IT EXPLODES, LET HER EXPLODE WITH EVERYTHING IN HER HANDS. sorry for the CAPS but I'm COMPLETELY DISAPPOINTED. Thank you.

    October 31, 2011 at 6:04 pm | Reply
    • jack

      HEY Marco,I am from Argentina. I know the poverty rate is way up. you see, Cristina say the rate is poverty only 13% right? but we know its much harder than that. We also know that the infelction rate is much higher than the 9% not everyone is getting a 30% raise as said on the paper.

      October 31, 2011 at 8:34 pm | Reply
    • Lou

      Marcelo, last I heard it was 900% wealth growth and of course when they analyzed the tax returns it was all legit. Smells like corruption to you? Estos se comen todos los caramelos que le dan.

      November 1, 2011 at 10:08 am | Reply
  12. Juan Alejandro Larronde

    Mr. Zakaria: oyu are missing that right now there are some government suported groups training as paramilitary troops. Quebracho is one of them. With government money they are going to Iran to train. D'Elia, a well known government supported leftist extremist, went to Iran to make the deal. He join international terrorists and are pictures of it. He went there with Quebracho's leader, Esteche. http://www.larazon.com.ar/Iran-fernando-esteche-quebracho-rabbani_IECIMA20110407_0011_7.jpg
    Repetedly CFK showed deep ties with Hugo Chavez from Venezuela and keeps repeating that Argentina is a brother nation with Iran.
    Iran denies 9-11, the Holocaust, and has terrorism ties since many years ago. Argentina shows admiration to Iran, Venezuela, and every nation against United States.
    Tri Border area is well known world wide, and Argentina keeps denying things going on there. Sure, its not good for their business to stop them. Money laundering, traffic (guns, people, drugs, organs, you name it)
    Mexican cartels are operating in north of Argentina. Chapo Guzman lived for a while in Cordoba with government protection. Because the deal is not drug smuggling, is asking money to protect that smuggling.
    They perfectly know money is going to run out. And they have their troops ready. Sadly, many people thinks the end of Kirchnerism era in Argentina will be bloody.

    October 31, 2011 at 6:54 pm | Reply
  13. Nellore Venkataraman

    I was working in Brazil in 1979 when we got 30% increase in salary, next year it was 50%. This went on and on till 1982 when the inflation reached 500%. That is what will happen to Argentina in two to three years from now, if this policy continues. But Argentinians are used to this cycles of hyper inflation.

    October 31, 2011 at 9:56 pm | Reply
  14. ChiGuy

    What surprises me is that the same author who critics Argentina measures is seemingly ok with exactly the same populist, devaluation , high inflation policies of current administration and promotes them. I see no difference between 'beef for all' paid with currency devaluation and 'student loans relief for all' , all in the sake of mystical 'growth' bought by robbing anyone on fixed income (retires) or anyone who dares to save. Where is the call for structural reforms here in US and why so much support for current administration that does everything that Argentina does on much larger scale?

    November 1, 2011 at 10:34 am | Reply
  15. Matias

    Now I wonder, where this writer took the information from???
    Argentina is not in good shape, people don't love Cristina de Kirchner and if she was reelected was just because she pays a monthly salary to people who doesn't have a job and is looking forward to get one. Because of that, the country is divided, 50% is working to support the other 50% who doesn't want to work and what do they want is receive money from the goverment for free...by doing NOTHING, except going to Cristina Kirchner's speachs.
    The country is loosing money everyday, the INFLATION is growing at almost 35% every month, and salaries are still the same, so we have prices as the euro rate almost, where milk for example cost like 1 euro. ($6 pesos argentinos) the corruption is leaving the country without an army, without any security, without any borders where people from other country can study, get ID and medical attention for free, when the ARGENTINIAN people is paying for that....so I HATE CRISTINA for all the damage that did to my country, I love Argentina, but sadly I have to leave since I couldn't get a decent job where they pay you more than 400 dollars a MONTH!

    November 1, 2011 at 1:43 pm | Reply
  16. Argenauta

    The majority of people like Cristina in Argentina, even the right wing newspapers like La Nacion had to accept this reality. Many of the comments here, probably are coming form the same person; if you talk with Argentinians in Argentina, they will tell you about their support for the Kirchners. Argentinians got tired of listening pro IMF dogmas; the 90's with the Chicago boys recipe was a disaster. The Kirchners empowered the middle class, the universities, the scientist... go to Argentina and see the future.

    November 2, 2011 at 2:46 am | Reply
  17. Simon Morley

    I have lived in Argentina for past three years and I can tell you that this report is an invented fantasy. Prices for any consumer item are insanely high and still on the rise. Beef, which was always a traditionally affordable staple of the Argentine diet, is unreachable for many Argentines. Even middle class people with decent incomes are buying less meat than before. Even common services, always affordable here are becoming close to or exceeding USA prices

    Salary increases are almost never enough to keep pace with inflation, and are always, lagging behind the almost-monthly upward adjustment in the cost of living. Not to mention the consistent fudging of the inflation figures by Kirchner's government, making their bureau for economic statistics a total laughing stock.

    "TV's for Everyone"!!!! what a joke. Televisions and every other electronic items such as computers cost more than double what they cost in any western country. The people here have to purchase any such item on time, in various payments. Who could afford to pay $1200 USD for a television that's worth $400 anywhere else.

    The president has also been a steady and dangerous opponent of freedom of the press in Argentina, actually blocking the delivery of newspapers when the press has criticized her government's tactics. When protestors were sent to block the newspaper delivery trucks from exiting their plants, government reps actually went to the newspaper offices requesting bribes to release the blockage. THEY WERE VIDEO TAPED, THIS IS ALL PROVEN.

    Since the government is desperately fighting a normal, market-induced devaluation of the peso, prices are rising extremely fast in US dollars. In a short time, Argentina will be (once again) one of the most expensive countries in the world, but as someone has pointed out in a previous comment, with extremely low salaries and little buying power.

    Who wrote your report, Kirchner's press agent?

    November 2, 2011 at 9:18 am | Reply
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