Mr. Marx of Argentina

Is it helpful or rather a hindrance when your country’s finance minister is named Marx?

June 25, 2001

Is it helpful or rather a hindrance when your country's finance minister is named Marx?

To its own good fortune, Latin America suffered much less from marxism and Marx-inspired “scientific” socialism than did Asia and Africa, not to mention Eastern Europe. Maybe the continent owes its good fortune to President James Monroe, whose 1823 Monroe Doctrine kept outside (read non-U.S.) interference in Latin America to a minimum even in the 20th century.

Only in three countries — Cuba, Nicaragua and Grenada — did communist regimes endure for any appreciable length of time. None of them were outside Central America and the Caribbean.

And yet, Latin America has had its share of problems with marxism. Most countries endured some form of marxist insurgency. At least two guerilla wars — in Colombia and the Mexican state of Chiapas — are still going on. Over the years, marxism also provided a convenient pretext and rhetorical framework for governments wishing to nationalize private companies — or to keep North American imperialists out.

Argentina, for its part, did not escape the regions brushes with marxism. Ernesto Che Guevara, the hero of the Cuban revolution and an icon of leftist insurgents anywhere, was after all an Argentine. Argentina went through a nasty period of leftist violence in the 1970s, which led to a military coup in 1976 and the establishment of one of the bloodiest regimes in Latin America.

Juan Peron, Argentina’s strongman whose immensely popular rule from the 1940s to the early 1970s is the root of many of Argentina’s current economic problems, was espousing a “Third Way” — a middle road between communism and capitalism. But his reliance on trade unions and anti-imperialist, anti-American and anti-clerical rhetoric owed as much to Marx as it did to Mussolini. Incidentally, Italy’s right-wing dictator actually began his career as a socialist.

But Carlos Menem was elected Argentina’s President in 1990. And he dealt with economic problems facing him in a very un-Marxist way, although he was nominally a Peronist. Those problems were overwhelming. The country’s currency, the austral, became worthless the moment it was introduced in 1985. Inflation was rampant and the government of Mr. Menem’s predecessor, Raul Alfonsin, didn’t even wait for its term to expire before bailing out.

Mr. Menem promptly realized that neither populism nor marxism would solve the inflation problem. He and his then-Economy Minister Domingo Cavallo pegged the new peso to the dollar and began privatizing state holdings. Banks, transport, services, industrial companies, wineries and even YPF, the state oil monopoly, were sold off, with many ending up in foreign hands.

In fact, what Argentina needs is more market solutions, not less. Current President Fernando de la Rua’s economic team — which is once more headed by Mr. Cavallo and includes the very skilled, but quite inappropriately named Daniel Marx — is well aware of it.

Argentina’s main problem has been its inability to grow out of the debt burden inherited from the military junta that lasted from 1976 to 1983. For example, its debt-to-GDP ratio already amounted to 58% in 1985, and debt-to-exports totaled 448%. Last year, debt-to-GDP was still at 55%, whereas debt-to-exports improved only to 410%.

The real culprit in Argentina has been excessive government spending, both on an entrenched bureaucracy and on social services. Even under Mr. Cavallo’s strict guidance, the government has so far failed to curb spending enough to meet fiscal deficit targets agreed upon with the IMF.

In the first quarter of this year, for example, the $2.1 billion deficit target was overshot by nearly 50%, or $1 billion! The trend continued in the second quarter, with fiscal deficit in May nearly doubling from the previous year.

Argentina’s provinces, which are stuck in the old bureaucratized rut and act as employers of last resort for the local workforce, have accumulated some $25 billion of debt of their own, without any clear means of servicing it.

Karl Marx may yet get his chance — if Buenos Aires defaults on its debt or devalues the peso. The Argentinian people have been getting more desperate by the day and social protests against austerity measures are intensifying. But, as it turns out, Marx’s legacy already has much to do with Argentina’s current problems.

How so? Historians studying the early years of the Soviet Union have been struck by the proliferation of bureaucrats and state employees following the Bolshevik revolution of 1917. Small wonder: in the absence of the free market, an army of government officials must determine what to produce and how — and how to distribute it to members of society.

Similarly, under capitalism people are paid real money and can basically provide for themselves. Under communism, it is the state that must take care of the social, medical and retirement needs of the population.

Extensive bureaucracy and high levels of public spending, then, are the hallmarks of a marxist regime. Whatever was the meaning of Juan Peron’s “Third Way”, the heavily bureaucratized system which he created and which endures in today’s Argentina owes a heavy debt to marxism.

Which brings us to yet another aspect of marxism that is strangely relevant to Argentina’s current problems. Karl Marx believed that, with the demise of capitalism, national borders would be erased. Well, capitalism is still alive and well — and it is communism that has been tossed to the dust-heap of history.

But the disappearance of national borders is a fact of life in the era of globalization, and Argentina’s economic fortunes reflect this. Argentina’s fiscal deficit is important inasmuch as it makes foreign investors and Argentina’s own citizens nervous. This has prompted them to dump Argentina’s bonds or to take their money out of the country.

Even before it can implement reforms, the government’s economic team that includes Daniel Marx must first convince investors and savers in Buenos Aires, New York, London and Tokyo that a debt default can be avoided.