Argentina at a Crossroads: Which Direction?	| Return to Newsletter |

*By Jon E. Huenemann (1)

In my most recent visit to Argentina it was difficult not to once again be impressed: The splendor of Buenos Aires and the other cities I visited as well as the diligence, creativity and intelligence of many of the people from business, government, academia and the research community. The inherent strength of Argentina has been and will be its people and their creations.

Human capital, to put it in economic terms, is the foundation for prosperity. Natural resources can be important as they are in Argentina, but human capital is much more important in an economy. Why else would developing economies with few natural resources have grown 2 to 3 times faster between 1960 and 1990 than countries abundant in natural resources?

Good governance is a function of human capital. In the global marketplace sovereign government decision-making related to economic policy management is far more important now than most realize and at least as important as it has ever been over the last century. Multi-national corporations and international institutions have grown over that time as important policy players too, but that does not change the reality that the most responsibility and tools for the management of the economy and its well-being remain squarely with sovereign governments.

In this vein, sovereign government decisions that may appear sound when seen through the prism of alluring parochial political considerations can come back to haunt generations through reduced economic opportunities. The global marketplace is filled with opportunities and competition that can translate into more sustained prosperity, but that sustained prosperity can best be achieved only if the global market is embraced intelligently and not shunned by narrowly grounded decisions.

Make no mistake, the task of managing economies has in some respects become more difficult as the complexities and pressures have grown. At the same time, there have never been more opportunities to pursue. Even what appear to be the most hopeless of circumstances offer opportunities if the right decisions are made.

Over the last two decades of the twentieth century the two countries with the largest number of extremely poor citizens witnessed a decline of over 320 million in the number of people stuck in the misery of extreme poverty. China and India, two countries with very inward looking and notably unsuccessful economic records for much of the 20th century, are now viewed as up and coming global engines of economic growth and greater prosperity. This was not achieved by more parochially driven economic policy management. Rather, the major component in both instances was the embrace of a more open and competitive economic environment within the global market. Numerous other similar examples exist.

Argentina has its own set of economic challenges. During the 1990s, it successfully opened a number of the aspects of its economy to more competition while it failed seriously to increase competition in others. Furthermore, it failed in other critical aspects of economic management. Accordingly, the seeds of its own demise were sewn and then reaped thereafter sadly.

This recent history, and the history that preceded it, have generated a strong penchant for overt forms of industrial policy making that inhibit necessary flexibilities in the Argentine economy. At the same time, the failures of the relatively recent past in the economic management of the country have given an impetus to re-examine, and in some cases embrace, economic un-orthodoxy in the context of a largely market driven global economic environment. Beware of significant departures from the embrace of market-driven competition, for while they have their parochial political appeal they have no modern history in this global age of bringing sustainable prosperity. The key issue is not whether to embrace competition – Argentina must do so. Both producer and, very importantly, consumer interests must drive economic policy, including international economic and trade policy, management. If not, productivity – the heart and soul income generation – will suffer as will Argentines now and in the future.

Mexico has embraced trade liberalization in a series of bold steps through the NAFTA, the EU free trade agreement (FTA), its Latin American FTAs and its Asian FTA initiatives. Mexico has clearly benefited from this effort and has become a more competitive and productive economy – now one of the top 10 trading economies in the world in value terms and a major exporter. Furthermore, workers in the trade-related manufacturing sector get paid significantly more and are better trained than those in the non-trade manufacturing sector, for example. At the same time, it has failed to succeed with the domestic structural reforms that ensure the necessary economic flexibilities to best build a stronger sustainable prosperity. These include labor market, public infrastructure, energy, education, competition policy, pension and other reforms. These are Mexico’s key “competitiveness” challenges at this point, but a consistent thread runs through them all: how to better support human capital development and/or generate more market competition, not less.

I raise Mexico to point out that trade is not the entire solution. At the same time, it is clearly part of the solution to Mexico’s economic prosperity going forward as is the case in Argentina. Accordingly, Argentina needs to examine its focus and strategy in trade negotiations and policy as part of its effort to build a sustainable and prosperous economic future. Trade is an arena where it is too often difficult to eliminate parochial political “blinders” related to policymaking, including in the U.S. But, those countries that are able to reap significant economic gains. The World Bank in 2002 study examined 73 developing countries over nearly two decades at the end of the 20th century. Those countries - 24 - that raised their trade (exports and imports) to gross domestic product ratio saw their per-capita income rise by 67 percent, while those that did not raise their ratio only saw an increase in the same time period of 10 percent. The Doha Development Agenda in the WTO and the Free Trade Area of the Americas (FTAA) initiative should not be seen as venues to “play defense” in Argentina on the trade front. Frankly, Argentina is not as active as it should be in these arenas in pushing liberalization. MERCOSUR is important for many reasons and it should be consolidated and integration should continue, but Argentina’s trade growth and economic prosperity will be driven more by the larger hemispheric and global marketplace over time and its trade strategy also needs to reflect that eventuality.

 

(1) Huenemann leads the trade, investment and global markets practice at a Washington, D.C., consultancy called Fleishman-Hillard Government Relations. Previously he was an Assistant U.S. Trade Representative in the Executive Office of the President with responsibilities in the Americas and held numerous other positions over nearly 16 years. He also held positions in the U.S. Department of the Treasury, the U.S. Senate, the United Nations Development Program and the Center for Strategic and International Studies. He was a visiting professor of international trade theory and policy at a prestigious university, serves on the international advisory board of the Inter-American Dialogue’s strategic advisory publication The Latin America Advisor and is often interviewed by the press (CNN, Financial Times, Wall Street Journal, etc.).