Background

The discussion of modern Argentinian economics begins with the crisis of 1999.  A fixed exchange rate between the Argentine Peso and and US dollar, the huge foreign debt incurred by former Argentine President Carlos Menem, and a further increase in debt brought on by a decrease in tax revenue led to the collapse of the Argentinian economy.

From 2007 through December of 2015, Cristina Fernandez de Kirchner served as president on a platform of industrialist developmentalism, prosecution of human rights violations during the Dirty War, progressive social attitudes, and strengthening of relations with other Latin American countries.

With Kirchner unable to run for a third term, Macri emerged from three presidential candidate in the first round of elections, securing over 51% of the popular vote, enough to secure the presidency.

The newly formed Macri cabinet faces many issues as Argentina moves into 2016.  Some major issues on the agenda include inflation and business, alliances with foreign powers, infrastructure development in the northern provinces, and improving conditions for the operations of businesses.

Economic History

Military dictatorship coupled with periods of weak democratic governments led to a phenomenon of the government and the private sector alternating the holding of debt in the country on military spending, unfinished projects, and the Falklands War.  In the late 1970s and early 1980s, Jose Alfredo Martinez de Hoz was appointed Economy Minister and went about executing on a neoliberal economic platform that was anti-labor and monetarist.

Through this financial liberalization, the budget deficit jumped to 15% of the GDP–leaving the country in debt with the state takeover of another 15 billion in private debts.  By 1983, the military government had $43 billion USD in debt (up from $8 billion), interest rates that exceeded the trade surpluses, industrial production in the decline, unemployment at 18%, and real wages that lost 36% of their purchasing power.

In 1983, democracy was restored and the new government intended to stabilize the economy by implementing austerity measures and a new currency.  Loans were needed to service interest charges, but when commodity prices collapsed in 1986 the state became unable to service the debt.  Prices for state run utilities increased substantially and inflation increased dramatically, peaking at about 5000%.

President Alfonsin resigned and President elect Carlos Menem took office, appointing Domingo Cavallo to the Minister of Economy and introducing a new “credibility law” that kept the ratio of U.S. Dollars in the exchange reserves at the same level as the cash in circulation.  This reduced inflations and preserved the value of the currency, allowing people to travel outside of the country, purchase imported good, and take out credit.  External debt was also an issue–widespread corruption, tax evasion, and money laundering led to people moving funds to offshore accounts.  In the 1990s, the economy grew by over 50%.

The depression in 1999 immediately followed another depression and two years of rapid economic growth and was brought on by both the Russian and Brazilian financial crises.  The result: unemployment, riots, a government that would collapse, a default  on foreign debt, alternative currencies, and the destruction of the Argentinian peso being fixed to the US dollar on a exchange rate.  Three quarters of the population became poor or indigent, and the economy shrank by over 28%.

By 1995, the boom in foreign portfolio investment ended and Argentine relied on the International Monetary Fund to secure low interest rates and policies on economic reforms to follow.  When external debt rose to 50% of GDP, 15% of the population saw employment, and GDP shrank in 2000,  the IMF recommended austerity measures to save investor confidence.

The economy continued to underperform and by the time of the election in October 2001, the President’s coalition became the minority party as they lost seats in the Argentine National Congress.  By November 2001, citizens began converting their pesos into US Dollars and sending the currency abroad, causing a bank run.  The IMF demanded further budget cuts as they refused to sign a release on a $1.3 Billion USD portion of a loan.  The government responded through corralito, freezing all bank accounts and allowing only for minor sums of money to be withdrawn at any given time.

A freeze of bank accounts in 2001 led to riots by many angered argentines, especially in major cities throughout the country (known as caceralazo).  During the final week in 2001, The Rodriguez Saa administration defaulted on US$132 Billion in public debt, and in response the government developed a third convertibility plan.  Inflation and unemployment increased by the end of 2002, many people became caroneros, and Argentine agricultural products were rejected in many foreign markets.

Almost immediately after taking office, Macri lifted the four year ban on foreign currency and remove almost all currency controls. As a result, the peso lost 30% of its value, but the move largely symbolizes Argentina’s attempt to re-establish itself in the international monetary system.

Questions to Consider

1. Latin American Relations: Should the Macri government distance itself from Venezuela’s populist government? What should be done regarding the Pacific Alliance?
2. Economy: What steps must Argentina take to reduce inflation? What should be done about business development?  How can the cabinet establish a plan for infrastructure development in the northern provinces?
3. Foreign Policy: Should Argentina continue to align with Venezuela and Iran?  How should the Cabinet handle foreign investment and trade?
4. Domestic Policy: Can the government establish Macri’s proposed housing and child care plan?

Committee Positions and Assignments

Committee Instructions

The simulation of Macri’s Cabinet at the 2016 All-American Primer will operate as a non-dedicated crisis committee. Individual portfolios will be distributed the day of the conference. Contained within will be background for the characters and portfolio powers specifically designed for each, but individual actions will be somewhat restricted because there will not be dedicated crisis staff.

The committee will run in a permanent “casual” caucus, a less formal version of a moderated caucus.

To pass cabinet level actions (i.e. national policies, military actions, far-reaching programs, foreign relations), directives must be authored and co-signed by at least 3 other characters. Directives must pass with 2/3 majority, but national policies must theoretically be passed by the legislature.