Judging from dozens of interviews here last week, there is only one reason for Argentinas current decline and its the usual one. Its politics, of course.
Fernández de Kirchners populist government has given away massive subsidies in its quest to win elections, much like Hugo Chávez in Venezuela. While ever-growing subsidies work while commodity exports keep rising, they can leave a country bankrupt once world commodity prices stop growing.
While neighboring Chile under both center-left and center-right governments has saved in good years to maintain its social programs during bad years, Argentina has done exactly the opposite. It has squandered what economists say was its biggest economic bonanza in nearly a century in giving government jobs to loyalists, cash subsidies to millions of people many of whom now find it more convenient to live from government handouts than to find a job and transportation and energy subsidies.
Thanks to government subsidies, public transportation in Buenos Aires may be among the cheapest in the world: a bus ride costs the equivalent of U.S. 22 cents, and a train ride U.S. 26 cents.
Roberto Lavagna the former economy minister under Nestor Kirchner who is credited with resurrecting Argentinas economy after the countrys 2001 default on its foreign debts estimates that government subsidies for transportation and energy soared from U.S. $1.2 billion at the end of 2005 to U.S. $19 billion last year.
While commonsense would suggest that Fernández de Kirchner would start reducing public spending in light of the economic slowdown, she seems to be doubling her bets. Last week, she announced a giant plan to give out 400,000 low-interest mortgages and build 400,000 homes over the next four years.
Where will the money come from? It will be borrowed from the states Social Security System. The government says the plan will create 100,000 jobs in construction work, and help reactivate the economy. Skeptics say the money will disappear in the hands of corrupt officials, like so many times before, and future retirees will not see a penny of their pensions.
They have a very short-term, strictly political vision of the economy, Lavagna said. Thats very unlikely to change.
Whats most worrisome is that a large number or Argentines, while increasingly skeptical about Fernández de Kirchners narrative about the alleged new economic model, are not necessarily opposed to a growing state role in the economy, Lavagna said.
There is a growing statist trend, which is very accepted by society, Lavagna said. The latest polls show that Argentines support statist policies by a margin of two to one.
My opinion: All indications are that Fernández de Kirchner will blame the outside world the media, Greece or Washington for the downturn caused by her own irresponsible economic fiesta. She will print increasingly more money to buy votes to win the October, 2013 legislative elections, if they are not held earlier, and will pray for a new spike of world commodity prices which very few are predicting to rescue the countrys balance sheet.
In the process, she will have squandered Argentinas best opportunity in a century to use its commodity bonanza for improving education standards, attracting investments to create new industries, and lifting millions of people from poverty for good.
I hope Im wrong about this, and that during the 3.5 years remaining in her term, Fernández de Kirchner she will take a more long-term, less ideological, view of whats best for her country. But I didnt hear anything during my stay here to convince me that she will do anything to save Argentina from its self-inflicted crisis.