Postwar Blues

A turnaround on economics

The news was grim but not surprising. According to Argentina's newly appointed Economics Minister Jose Maria Dagnino Pastore, his country's economy was in a "state of collapse without precedent." Radical therapy was needed. In a televised 18-min. speech, Dagnino Pastore announced last week what amounted to a 180DEG turnaround in economic policies. Argentina will move away from the liberal, free-market approach that has been an aim of the country's military government since it took power in 1976 and back toward the kind of protectionism that has been characteristic since World War II.

Dagnino Pastore's announcement under scored the obvious: for all practical purposes, Argentina is teetering on the edge of bankruptcy, a condition that was be coming apparent well before its defeat in the disastrous Falklands war. In the past three years, the country's foreign debt has doubled, from $10 billion to $20 billion. In addition, private Argentine companies' foreign debt last year was $15.6 billion. Meanwhile Argentina's inflation is estimated at 125% annually, and the country's industries are operating at only 63% of capacity.

Dagnino Pastore's solution to Argentina's woes is complex. He devalued the peso, thus encouraging exports and making imports more expensive, and he proposed a program of low interest rates to help the country's manufacturers, whose businesses were failing last year at a rate six times as great as in 1977. To pacify Argentina's politically powerful public employees, he gave out pay hikes of between 20% and 30%.

The chief problem with Dagnino Pastore's approach is that it is likely to send inflation even higher. "I'm afraid that the new program will cause hyperinflation within 30 to 45 days," says Alejandro Reynal, a Dartmouth-trained economist and former vice president of Argentina's Central Bank. "Usually, the only solution for hyperinflation is total collapse of the economy and then a rebuilding."

Whatever happens, Argentina will undoubtedly need help from abroad. President Reagan sent a congratulatory letter on July 1 to Argentina's freshly inaugurated President, Reynaldo Bignone, saying that he attached "great importance" to restoring friendly relations between the U.S. and Argentina in the wake of the Falklands conflict. Bignone's curt reply was that the chilly relations were the result of U.S. economic sanctions imposed on Argentina during the South Atlantic war.

This file is automatically generated by a robot program, so viewer discretion is required.