Argentina and Brazil: Between Exceptional Growth and Raising Social Tensions

Latin America is assisting to a rapid economic growth and hopes for the future have never been as positive as in recent years. All economies have experience rapid growth with GDP over 5%, at least until the 2008 downturn that has inevitably hit economies still over dependent from US import/export. Nevertheless, the rises of Chile, Venezuela, Brazil and Argentina have been hailed as the most positive signals in world economic trends since 2000 and results were obtained with a mix of policies not always made from a strong capitalist background. However, if some countries like Chile continued in their growth, others have started to slow down due not only to world recession but also to internal political problems. Venezuela descending trend was accentuated by Chavez death and a succession that started to show some cracks in the once strong and united Socialist Party’s support, but it is certainly the two main giants of the subcontinent that attracted the attention of the economists: Brazil and Argentina.


Brazil: A Future Superpower with Explosive Social Contradictions

In Brazil presidential elections are expected on 5 October and after the spotlight of the recent football world cup, Brazilians will have now a serious ground to challenge the political establishment. Brazilian President Dilma Rousseff, who is running for re-election under the Workers’ Party, will have to conduct her campaign amid the official news that Brazil had fallen into a recession earlier this year. The economy of South America’s largest country shrank by 0.6% in the second quarter of this year and by 0.2% in the first. Analysts are projecting Brazil’s growth to be less than 1% in 2014 while inflation is on the rise. In 2010, when Ms Rousseff was first voted into office for the Workers’ Party, the economy was growing at 7.5%, attracting positive headlines both at home and abroad. However, support for the government started to fall after millions of Brazilians took to the streets last year amid a wide range of grievances, ranging from the rising costs of public transport to police violence and the expenses associated with this year’s World Cup. If the football competition, for a moment, helped the government in keeping Brazilians distracted it is now clear that the struggle cannot be postponed any longer. The opposition, tired of years of leftist policies, although successful, is now riding the popular discontent for increased prices and unemployment accusing what they called an “excessive state interventionism” in economy and a lack of reforms to help business flourish independently. The government blames a less favorable international environment for the slowdown and claims that a wave of unjustified pessimism has inhibited investments.

The Workers’ Party has been in power since 2003, following the election of Luiz Inacio Lula da Silva, popularly known as Lula, as President in October 2002. Lula, a former shoeshine worker, heads Brazil’s first left-wing government for more than 40 years with the promise to challenge poverty and for the first time to rule for the poorest while assisting to an unprecedented economic growth that put Brazil into the rising economies of the 21st century.

Brazil’s natural resources, particularly iron ore, are highly prized by major manufacturing nations, including China. Thanks to the development of offshore fields, the nation has become self-sufficient in oil, ending decades of dependence on foreign producers. The spectacular growth even led Brazil to launch its first space rocket in October 2004, officially including Brazil within the space élite. Nevertheless, the oil richness has not come without compromises and the rights to explore Brazil’s biggest oilfield are awarded to a consortium led by the state-run energy giant Petrobas backed by French, Anglo-Dutch and Chinese firms. Critics say that allowing foreign companies a stake in the oilfield will damage national interests and within the party’s hardliners this has been seen as a concession to those same capitalist enemies fought for decades. But the new resources helped Lula and the government in launching social programmes, continued by his successor Dilma Rousseff, that allowed millions of Brazilians to be lifted out of poverty. These included a variety of policies such increases in the minimum wage, social programmes such as Bolsa Familia, which encourage school attendance and vaccinations in exchange for income support. Brazil’s Aids programme has become a model for other developing countries: it has stabilized the rate of HIV infection and the number of Aids-related deaths has fallen. Brazil has bypassed the major drugs firms to produce cheaper, generic Aids medicines. The government has also launched Brazil Sem Miseria (Brazil Without Poverty) welfare scheme, aimed at lifting millions out of extreme poverty, and in August 2012 the parliament approved a law for universities that requires them to reserve fifty percent of their places for public school students, and increases the number of spaces allotted to black, mixed-race and indigenous students.

Campaigns to improve the life conditions in the Amazon forest and the most remote areas of the country generated initially wide support to the Workers’ Party. The exploitation of the Amazon rainforest has been a major international worry, as it is also an important reservoir of plant and animal life. Deforestation has been slowed down by extra policing and pressure from environmental and consumer groups. The government has fined illegal cattle ranchers and loggers, while the food industries have banned products from illegally deforested areas, such as soya beans and beef. Officials estimate that deforestation in 2010 fell to 5,000 sq km for the year, down from 7,000 sq km the year before and a peak of 27,000 sq km in 2004. Nevertheless, it has not always been a smooth sailing: pressure from poor peasants for land, struggle against slavery that it is still common in some remote areas and the need to sustain a rapid development have created uneasiness. Ranchers reacted sometimes violently, as in November 2011 when Brazil indigenous Guarani leader Nisio Gomes was shot dead in western Brazil. He was part of a Guarani Kaiowa group that had returned to their ancestral land after being evicted by ranchers. Farms lobby criticized the government’s law in forest protection and forced tree replanting in illegally cleared lands, leading even to resignation within the party from the environment minister Marina Silva, who is today the main rival candidate for President Rousseff.

Brazil’s spectacular growth, combining a strong policy to develop the immense resources and the necessity to tackle the poverty and inequality that weighs down the country, nevertheless opened difficult scenarios for the party. The economic growth did not solve Brazil’s problems and although nobody can deny the huge progresses registered especially for the poorest sector of the population, there is still a wide gap between rich and poor. Two are the main areas of social conflict in the country: in the countryside, where much of the arable land is controlled by a handful of wealthy families, a situation which the Movement of Landless Rural Workers (MST) demand land redistribution, and in the big cities like Rio de Janeiro and Sao Paulo where harsh social conditions are responsible for a third of the population living in favelas or slums.

Unfortunately for the government one of the counter effects of the cities widespread poverty is the rising of violence and drug trafficking which put the political leaders between two major problems: gangs violence on one side and police brutality on the other. In March 2005 a Death squad kills at least 30 people on the outskirts of Rio de Janeiro, the city’s worst massacre in over a decade; in May 2006 scores of people are killed in gang attacks and a police brutal response in Sao Paulo state; in June 2011 Security forces occupy one of the biggest slums in Rio de Janeiro, as part of a major crackdown on organized crime ahead of the 2014 World Cup and the 2016 Olympics.

The discontent generated by rising prices and the excessive spending to host the Fifa World Cup and the Olympic Games In Rio de Janeiro in 2016 have also been fuelled by the accusations that after Lula the party is losing its original soul, with corruption scandals filling the press news. Although the first corruption scandal emerged during Lula presidency in 2005, the fast action from the president announcing a wave of resignation within the party ranks and his televised apology reassured Brazilians of his goodwill leading to the re-election in 2006 and the election of Dilma Rousseff in 2010. But soon it appeared that the old corruption monster of past governments was able to affect the Workers’ Party and scandals continued to emerge: in December 2007 the speaker of the Brazilian Senate and a key ally of President Lula, Renan Calheiros, resign in order to avoid an imminent impeachment hearing; in September 2008 President Lula suspends intelligence chiefs amid allegations their agencies spied on officials, politicians and judges; in June 2011 President Rousseff’s chief of staff resigns amid corruption allegations.

Whether it will be still the Workers’ Party to address this series of issues, with the aim of completing its programme with more attention to the needs of the population or it will be a change with Marina Silva and a sort of step back to a more liberal and capitalist strategy, one fact is clear: Brazil is a superpower in his childhood, and exactly like a child the good discipline imparted cannot be forgotten and must be used to build the next step of development.


Argentina: A Spectacular Recovery Can Survive on Political Nationalism?

Argentina, exactly like Brazil, after the dark age of a brutal dictatorship, the Falkland’s/Malvinas War and the years of uncontrolled corruption, assisted to a long period of exceptional growth. Although there are unresolved social issues and rising discontent within the poorest population, the achievement of Argentina’s economy have been even more remarkable if we take into account the crash of 2001-2002 which left a scar still visible today in the whole infrastructure that appear vulnerable and politically unstable.

However, unlike Brazil, Argentina turn to progressive leftist policies was not an obvious one or piloted by a proper socialist party, instead was the progressive wing of the Peronist party that emerged as victorious. Due to the strong critic against US policy and pursuing soon a policy mixed of nationalism and veiled socialist views, the Kirchners (Nestor and Cristina Fernandez) were able to rebuild the economy, obtaining strong popular support. Especially in recent years the government of Cristina Fernandez resorted even more to a strong and aggressive policy: justice for the criminals of the Dirty War, renewed claims on the Falklands/Malvinas and a new wave of nationalizations, aimed at secure popular support although critics points to the fact that this is just a diversion to mask the economic troubles that led to a new recent financial crisis.

Argentina benefits from rich natural resources, a highly educated population, a globally competitive agricultural sector, and a diversified industrial base. The country is one of South America’s largest economies although it has also fallen prey to a boom and bust cycle. The modern history of Argentina’s economy started In 1999, when Fernando de la Rua, of the centre-left Alianza opposition coalition, won the presidency thus inheriting 114 billion-dollar public debt. In order to restructure the economy de la Rua accepted the IMF policies of austerity and an aid package for nearly 40 billion dollars. The harsh austerity measures provoked a mass unrest and strikes forcing de la Rua to form a government of national unity in July 2001 and appointing three finance ministers in as many weeks as cabinet resignations and protests continued. While the country’s credit rating started to slip, President de la Rua met US President George W Bush in a last-ditch attempt to avoid an economic crash in Argentina. By December 2001 Economy Minister Cavallo announced stronger restrictions to halt an exodus of bank deposits while the IMF stopped $1.3bn in aid. The news sparked violent riots during which 25 people died in street protests forcing on 20 December President Fernando de la Rua to resign. The appointments of Adolfo Rodriguez Saa first and Peronist Senator Eduardo Duhalde as president in January 2002 could not avoid the collapse: within days the government devalued the peso, ending 10 years of parity with the US dollar, banking and foreign exchange activity were suspended. In November 2002 Argentina defaulted on an $800m debt repayment to the World Bank, having failed to re-secure an IMF aid. The new elections called by Duhalde for March 2003, later put back to April, to try in winning public support for the government’s handling of the economic crisis in reality put an end of it opening a new era in Argentina’s history.

In May 2003 Nestor Kirchner is sworn in as president after former President Carlos Menem, who gained most votes in the first round of elections, pulled out before the second round. During Kirchner’s presidency a recovery was well under way, and the International Monetary Fund (IMF) agreed to a vital new loan. Since then, Argentina has restructured its massive debt, offering creditors new bonds for the defaulted ones, and has repaid its debt to the IMF.

Between 2003 and 2012, GDP doubled, with an average annual economic growth rate close to 7.2 percent, which constituted the highest average growth rate achieved in the country’s economic history for such a long period. More importantly, this unparalleled economic growth was socially inclusive, reflected in a clear reduction in poverty, unemployment, and inequality, making Argentina’s GDP per capita one of the highest in Latin America. Since 2003, key components of Argentina’s growth model were the creation of quality jobs, the progressive reduction of inequality, social inclusion and better income distribution. During this period, 500,000 new jobs were created each year, and unemployment thus was reduced from 18 percent in 2002 to 6.9 percent in 2012. The minimum wage grew to be the largest in Latin America. In turn, the average real wage increased by more than 37 percent. The end-result was a historic increase in living standards, which is reflected in the doubling of the middle-class between 2003 and 2009, as found by a report by the World Bank, only 24 percent of the population in 2003 against 46% in 2009.

The economic boost was mainly due to a more flexible exchange rate regime, a sustained global and regional growth, a boost in monetary, fiscal and income distribution policies, and a favorable international commodity prices. The economic recovery enabled the government to accumulate substantial official reserves, over $51 billion as of late August 2010. Poverty dropped to 12% in 2010 from the record high of over 50% in 2001-2002. Foreign trade played an increasingly important role in Argentina’s economic development, and key export markets included Brazil, EU, China, U.S. and Chile. The production of grains, cattle, and other agricultural goods continues to be the backbone of Argentina’s export economy while high-technology goods and services are emerging as significant export sectors.

This was the extraordinary period of growth that coincided with Nestor Kirchner presidency and his wife Cristina Fernandez at least until his death in 2010. The extraordinary economic results gave huge support to the presidents along with some of the internal policies such as the strong commitment to make justice for the Dirty War years crimes by imprisoning those responsible. Tens of thousands of people were killed by the military junta between 1976 and 1983; the bodies of many abductees (known as the desaparecidos “disappeared” ) have never been found, although forensic work continues to recover them. Amnesties which protected former junta members from prosecution (established during Carlos Menem presidency) were repealed in 2003 and the pardons granted to military leaders overturned in 2005. Soon followed the trials and the sentences: in October 2007 former Roman Catholic police chaplain Christian Von Wernich is convicted of collaborating in the murder and torture of prisoners; in August 2008 two former generals are sentenced to life imprisonment for their actions; former military ruler General Jorge Videla is sentenced to life in prison for crimes against humanity; former naval officer Alfredo Astiz and 11 other former members of the security forces are given life sentences for crimes against humanity; in July 2012 two former junta leaders were found guilty of overseeing the systematic theft of babies from political prisoners during 1976-1983 dictatorship: Jorge Videla and Reynaldo Bignone were sentenced to 50 and 15 years in prison respectively.

Although world economic entered a period of crisis in 2008, Argentina managed to stay afloat continuing its economic growth and ensuring to Cristina Fernandez de Kirchner, succeeded to her husband in 2007, a comfortable presidency. The trend is also confirmed when, following the death in October 2010 of the ex-President Nestor Kirchner and seen as likely to come back into power in 2011 elections, President Cristina Fernandez Kirchner wins a second term with a landslide 54% of the vote mainly thanks to the economic successes. But her second term is also the most controversial one and lead to the present new economic crisis, thus for many opening a second phase for Argentina.

After a 9.2 percent growth rate in 2010, and 8.9 percent in 2011, in 2012 the economy only grew by 1.9 percent in a context of a persistent drought that impacted heavily on agricultural output. Strong economic activity recovered in 2013 but the global financial turmoil and rapid declines in world commodity prices started to impact Argentina’s market. While the economic downturn was less severe in Argentina than elsewhere, the deterioration of both domestic and international demand complicated the fiscal situations of both the federal government and the provinces. Nevertheless, was still the financial sphere that causes apprehension, due to Argentine arrears to international creditors and a large number of arbitration claims filed by foreign companies that remain to be resolved. Outstanding external debts included over $6.3 billion owed to official creditors according to Government of Argentina statistics, including about $500 million owed to the United States. By July 2014 Argentina made a final attempt to reach a deal with a group of US creditors to avoid a possible default on its debt, but a US federal judge did not allow the country to make a scheduled payment to bond holders unless it paid the creditors as well. This opened to the current financial crisis although many point at other economic indicators that put Cristina Fernandez under accusations of mismanagement.

By 2014 the government was struggling with high inflation, slow economic growth, falling central bank reserves and weak exports to key markets such Brazil. Argentina’s economy slipped into contraction in the January to March quarter for the first time in nearly two years with consumer prices rising by 12.9 percent, while international reserves shrank by 25 percent. Argentina’s has been accused of masking economic results to avoid international pressure and keep internal support. The inflation rate was estimated by many private-sector economists to be around 30% a year, consumer prices were rising by about 25 percent annually, while the peso currency’s black market rate was 48 percent weaker than the official rate. After several years of publishing non-credible statistics, Argentina’s official statistics agency (INDEC) released substantially revised inflation and GDP growth data that are closer in line with private estimates. The IMF had formally censured Argentina in February 2013 because of manipulation of inflation and GDP data, the first act of this kind in financial history.

Nevertheless, Cristina Fernandez managed to stay in power and keep support mainly due to a policy of political nationalism and economic nationalization, turning more to the left to appease popular demands. Argentina remains locked in a territorial dispute with Britain over the Falklands Islands, which are governed as a British overseas territory, but have been claimed by Buenos Aires since the 1830s as Las Malvinas. The issue led to war in 1982, when the islands fell to an invasion launched by Argentina’s military junta, but were re-conquered by Britain in a conflict that caused hundreds of deaths on both sides. Cristina Fernandez supported renewed claims over Las Malvinas by handing documents to UN formally laying claim to a vast expanse of the ocean, as far as the Antarctic and including island chains governed by Britain; imposing new controls on ships passing through its waters to Falklands Islands and even persuaded members of the South American trading bloc Mercosur to close their ports to ships flying the Falkland Islands flag during the 30th anniversary of the war. In March 2013 Falkland Islanders vote overwhelmingly in favour of remaining a British overseas territory but Argentina described the referendum as pointless. Parallel to this political nationalism, Kirchner proceed in a nationalization plan that hit energy company YPF, which was majority owned by Spain’s Repsol. In November 2013, President Fernandez appoints left wingers to run the cabinet of economy, agriculture and central bank in a move to strengthen state intervention.

All the above moves aimed at uniting the traditional nationalism of the peronist party by pursuing Las Malvinas claims and increase economic state interventionism to please the left radicals ensured to Cristina Fernandez a majority in the congress even when she has lost control on some provinces in the last elections. Playing Las Malvinas card is always a sure bet as the majority of Argentineans still consider this a post-colonial issue, and also put Argentina in the forefront of those countries that in South America strongly oppose the arrogance of the main powers such US or UK. Using interventionism in economy, pleased some of the radicals within the party as well as opening to a cooperation with left sectors that will connect the president with the popular strata more inclined to support social policies.

Whether Argentina will be able to achieve resilience in economy and put behind the traumas of the financial crashes it will depend on how effectively the government will be able to play its cards without bluffing: the result could backfire leaving more arguments to the opposition rather than the supporters.


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