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By Global Public Square staff
We were struck by a strange proposal this week. A top Argentine leader says his country should move the national capital from Buenos Aires in the east, facing the Atlantic, to a new city up in the north, closer to the Pacific. This would be an immense change – akin to Brazil moving the capital to Brasilia. It would be a shame to see Buenos Aires abandoned. But the idea that Argentina needs some shaking up is exactly right.
A few weeks ago, we ran a report titled “How To Ruin Your Economy.” In five easy steps, it showed how a country could turn itself into a basket case by bad decisions. The segment was about Venezuela…but Argentina is a worthy runner-up.
It starts out much stronger than Venezuela. Remember, Argentina is part of the G-20, the group of 20 big economies. The average Argentine earns more than the average Indian and Chinese combined. But all these facts mask a troubling trend.
Let’s see how it fared on our five-point test.
First, attacking big business. The Argentine government began 2014 by forcing the country's supermarkets to fix prices for 200 products. So basically, the price of milk or flour stays the same for the consumer, even if demand goes up, inflation rises, or if the supplier has to pay more for it. It defies basic economics.
Step two – The official statistics bureau says prices rise by about 10 percent annually. But that’s a total fabrication. In reality, inflation in Argentina runs around 25 percent a year. A basket of goods that cost $100 in January would cost $125 in December. Argentina's blatant fudging of official data has gotten so bad that the International Monetary Fund publicly warned Buenos Aires to start telling the truth – or face expulsion.
Now, what does hyperinflation usually do? It hurts your currency. And that's step three. Argentines have been rushing to buy U.S. dollars as a safer currency to park their money. In response, the government announced limits on the number of dollars you can buy. The result? A rampant black market. While one dollar officially buys you 6.6 Argentine pesos, you can actually get almost double that rate on the street: about 10.8 pesos. The effect is a corrupt economy, suffering businesses, and a loss of foreign investment.
Argentina is ticking off a fourth box from the Venezuelan playbook as well: subsidies. According to Merco Press, a regional news agency, Argentina's total bill on subsidies like energy for the first half of 2013 rose by 62 percent from the previous year. This isn't the only form of government support. According to the World Bank, Argentina is the one of the world's most protectionist countries – meaning that it imposes the most restrictions on global trade, shielding its favored sectors.
Now that brings us to our final category: becoming a dictatorship. Argentina, is of course, a democracy. But President Cristina Fernández de Kirchner has displayed worrying symptoms. Between her and her late husband, the Kirchners have now ruled Argentina for a decade. In recent months, Cristina Fernández has clamped down on the media, floated rumors of amending the constitution to run for a third term. She's building a cult of personality, fashioning herself after Evita, the populist widow of the former president Peron – made famous on stage and screen.
Argentina's attempt to mirror a failed state like Venezuela tells a larger story. There is a great map of Latin America from an article in the Wall Street Journal this week. On the left, in green, you have countries that are facing the Pacific. Mexico, Peru, Chile, and Colombia are among the countries opening up their economies to great success. On the right, in red, you see the opposite. Countries that face the Atlantic – Brazil, Argentina, Venezuela – are closing their economies, and resorting to populism. The countries in green are projected to grow nearly twice as fast in 2014 as the countries in red.
Perhaps changing Argentina's capital to be closer to the countries in green, closer to the Pacific, is not such a bad idea after all.