BUENOS AIRES, July 30 Argentina was in a race
against time on Wednesday to cut a deal by the end of the day
with holdout investors who are suing it and to avert its second
debt default in a little over a decade.
It was the latest crisis in Latin America's No. 3 economy,
which has suffered a series of economic and political meltdowns
going back to the 1930s.
In the early 20th century, the South American country was
one of the world's richest, thanks to its production of beef,
wheat and other farm goods, plus an educated workforce made up
mostly of European immigrants and their descendants.
But the constant crises, often attributable to government
mismanagement and fluctuating commodities prices, have plunged
millions into poverty and put the country off-limits to all but
the most daring investors today.
Here are some of Argentina's crises through history:
The Great Depression hit Argentina especially hard, as
demand in Europe and United States for its farm exports suddenly
dried up. As customs revenues plunged, the government had
trouble paying public workers, causing unrest to grow.
Fed up with the crisis, the military staged a coup in 1930
against democratically elected President Hipolito Yrigoyen,
setting a precedent for throwing out governments in times of
economic trouble. For the remainder of the 20th century, more
generals (14) than civilians (11) would run the country.
President Juan Peron, a populist who drew his support from
Argentina's poor and working class, oversaw a period of relative
prosperity following World War Two. Factory workers received
paid vacations and unions gained unprecedented power as the
economy grew at an annual pace of nearly 6 percent.
However, by the early 1950s, the good times came to an end
as commodity prices fell once again. Peron's nationalizations of
British-owned railroads and other property antagonized business
leaders and caused investment to dry up.
Inflation soared to 40 percent, and real wages plunged. The
death in 1952 of Peron's wildly popular first lady, Eva, known
as "Evita," weakened him further. Three years later, as labor
strikes paralyzed the country, Argentina's military intervened
again and sent Peron into exile.
Argentina's economy failed to stabilize under a succession
of military and democratic governments that implemented wildly
different policies. Between 1930 and 1983, presidents averaged
only two years in office, while the lead minister for economic
affairs was replaced at a pace of once a year.
By the 1970s, many Argentines with warm memories of postwar
prosperity were clamoring for the military to allow Peron to
return home. The generals relented, and Peron assumed the
presidency once again. But he was unable to heal either the
economy or the increasingly violent fissures in Argentine
society, and Peron died of heart failure just a year later.
Various armed factions struggled for control under Peron's
successor: his third wife, a former nightclub dancer he had met
in Panama. In early 1976, as annual inflation surpassed 600
percent, the generals staged yet another coup.
Ensuing years would see rising inequality and an explosion
in Argentina's foreign debt, as well as the deaths of up to
30,000 suspected leftists as the military tried to snuff out
dissent in the so-called "Dirty War." In 1982, the military
launched an invasion of the Falkland Islands, a British colony
claimed by Argentina and called the Malvinas by the South
American country. Britain retaliated, and Argentina lost the
ensuing brief, but bitter war. Many believed the military was
using the conflict to distract from economic woes fueling
Democracy returned to Argentina in 1983 - this time to stay.
With the armed forces disgraced by widespread human rights
abuses, the loss of the Falklands War and poor economic
management, a vast majority of Argentines deemed the armed
forces unfit for power, an opinion that still prevails today.
However, that did not mean stability.
Under President Raul Alfonsin, public payrolls swelled while
government revenues remained stagnant. In 1989, only 30,000 out
of 30 million Argentines paid any income taxes.
That year, inflation reached an unprecedented 5,000 percent,
rising so fast that some supermarkets read prices out over
intercoms rather than bothering to update price tags.
As strikes swept the country and rioters looted supermarkets
for food, Alfonsin decided to hand over power five months early
to his elected successor, Carlos Menem.
Menem spent the 1990s cultivating foreign investment,
slashing import tariffs, and privatizing money-losing state
enterprises. Inflation fell to single digits, and Argentina was
for a time hailed as a poster child for free-market reforms by
the International Monetary Fund and others.
By the time Menem left office in 1999, however, rampant
corruption was scaring off many investors. Contagion from
financial crises in East Asia and Russia caused capital to rush
out of Argentina almost as quickly as it had come in. The
currency peg that Menem used to tame inflation became untenable
as the government, unable to print money, borrowed it instead.
In 2001, unemployment soared beyond 20 percent, and reports
surfaced of widespread hunger and malnutrition in a country that
had long prided itself as being one of the world's breadbaskets.
When another wave of riots and looting reached the capital,
Menem's successor, Fernando de la Rua, resigned. It was a period
that would see five presidents in just two weeks.
Before the crisis ended, the economy had shrunk by a fifth
and thousands of young, educated Argentines had emigrated to
their grandparents' ancestral homes in Europe. The government
also stopped payment on more than $100 billion in debt, the
world's biggest-ever sovereign default.
Since the default, Argentina has remained cut off from
foreign capital markets and is considered a pariah by most
investors. But the economy has also defied doomsday predictions
by Wall Street analysts and others, and has by some measures
experienced its best run of growth since the 1940s.
Most economists credit high prices for Argentina's soy and
other commodities, due largely to demand from China.
However, the economy is now paying the price for President
Cristina Fernandez's populist and interventionist policies,
economists say, and is set to contract for the first time on an
annual basis since 2002.
High government spending on social welfare programs,
printing of new money and an ailing currency have fueled one of
the world's highest inflation rates. In January, the government
was forced to devalue the peso.
If Argentina defaults once again, economists forecast an
outflow of dollars that will pile more pressure on dwindling
central bank reserves if it cannot extricate itself from the
mess swiftly. So far, no one expects a recession anywhere near
as deep as in 2002.
Other hallmarks of past Argentine crises, such as social
unrest and a fortified political opposition, remain absent.
SOURCES: A Brief History of Argentina, by Jonathan C. Brown;
Argentina, 1516-1987, by David Rock; and Reuters research
(Reporting by Sarah Marsh in Buenos Aires and Brian Winter in
Sao Paulo; Editing by Richard Lough and Jonathan Oatis)