Argentina’s chance to break the cycle of decline

Argentina’s leftist government has taken a beating in midterm congressional elections on Sunday. A centre-right opposition alliance triumphed by a more than 8 percentage-point margin over the ruling Peronists, who lost their senate majority for the first time since 1983. Given the parlous state of the economy, the only surprise was that the voters’ verdict was not harsher still.

Inflation is galloping at a clip of 52 per cent a year, among the world’s highest. The US dollar sells on the black market for more than twice the official exchange rate amid fears of an imminent devaluation. Around 40 per cent of Argentines live in poverty. Business investment has largely evaporated.

The current government’s policies have made a bad situation worse but it would be a mistake to lay all the blame at the Peronists’ door: Argentina’s is a constant story of failed promise. For decades, it has struggled to harness abundant natural wealth to grow and prosper. Its fate instead has been high inflation, frequent devaluations and crippling recessions.

One of the world’s richest nations has become a study in relative economic decline. Given the country’s resources, relatively well-educated workforce and location far from wars and natural disasters, government failure stands out as the main culprit.

While the Peronist party has dominated politics since the return of democracy, it has alternated in power with the liberal or conservative opposition. Changes of administration have often been triggered by economic crises but have failed to solve them.

Today’s opposition alliance of liberals and conservatives, broadly more free-market and pro-business than the Peronists, won a clear victory in Sunday’s election. That will tempt some of them to wage war on the government in congress, while waiting for it to succumb to an economic crisis as the 2023 presidential election approaches.

For more radical Peronists, such as the powerful vice-president Cristina Fernández de Kirchner, the message from the election is that the government has not spent enough money or exerted tight enough control over the economy.

The ideologues are wrong on both sides. The voters have made clear they want a change of course and Sunday’s result opens up a slim chance for Argentina to try to break the country’s endless stop-go economic cycle.

President Alberto Fernández has reacted to the election defeat with an unexpected offer to the opposition of dialogue. The aim would be to agree a new economic strategy and a $44bn debt rescheduling with the IMF.

This may represent a belated recognition that Fernández has for too long allowed policy to be dictated by his powerful vice-president. The new congressional arithmetic offers him few other options to reduce her influence and to win the majority required to approve an IMF deal. It remains to be seen how sincere Fernández’s offer is, and whether he will accept the difficult policy trade-offs required.

Nonetheless the opposition should engage constructively. Among its leaders are figures such as Horacio Larreta, the Buenos Aires mayor, who believe Argentina needs much greater consensus over economic policy if it is to restore its fortunes.

The Peronists and the opposition should both recognise that they have failed over four decades to solve Argentina’s deep-rooted problems, and accept that a different approach is required. Cross-party dialogue over a new economic programme and an IMF deal offers no guarantee of success but represents a better alternative than endlessly repeating the cycle of crisis.

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