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A study of economic and political status of argentina

Argentina and Brazil both have had major shifts between democracy and authoritarianism, but there are political factors that differentiate one from the other.

Brazil is a perfect example of low political unity with its extremely fragmented multi-party system Mainwaring 1997. On the contrary, Argentina is an example of relatively disciplined party system Jones 1997. By looking at the Brazilian case, one can see that political unity is not necessary for successful stabilization. Yet, for both cases, broad political support was raised before and during the implementation of the stabilization plan. This is especially true for Brazil, where politics has been notoriously fragmented, but it was also the case for Argentina, where it seemed like stabilization was performed through an autonomous government in a top-down manner.

In fact, until 1994 Brazil struggled with chronic and even hyperinflation. Many stabilization plans were tried and failed in Brazil prior to 1994. The key to the success of the Real Plan was securing a broad base of support; something which Cardoso managed, but his predecessors had failed to do. Brazil is an extreme case of multipartism and it has the most fragmented and undisciplined party system Mainwaring 1997.

It had a significant and almost continuous increase in legislative fractionalization from 1975 until 1994. This kind of a system made it more difficult, if not impossible, to create political unity or stable government majorities in Brazil. Moreover, parties are personalized in Brazil, and a study of economic and political status of argentina organization and party discipline are weak.

Party switching is also very common, so the presidents cannot even rely on their own parties Mainwaring 1995. Because of the lack of unity in its political system, we would have expected Brazil to fail in stabilization. Yet, although these conditions might have delayed stabilization, they did not prevent stabilization.

In fact, when the Brazilian government initiated the Real Plan in 1994, the political fragmentation was at its peak. Fernando Henrique Cardoso, the architect of the Real Plan, was an internationally known leftist intellectual before becoming the Finance Minister of the Itamar Franco government in May 1993.

He was an unusual suspect for orthodox stabilization and reform, and probably his left wing credentials helped him to gather support from diverse social groups, including both the elites and the masses. Although Real Plan was resisted by some leftwing people, it received broad support from Brazilian public, because Cardoso was an ideal consensus leader Flynn 1996. It combined orthodox and heterodox elements which simultaneously aimed disinflation and sustained growth.

It included de-indexation of the economy, a fixed currency, high interest rates, tight reserve requirements, privatization especially state banksand some wage and price controls through creation of a new unit of account URV4.

Even wages were increased before they were frozen. It was a comprehensive plan which included neoliberal structural reforms, like privatization and trade liberalization, but also social reforms to deal with their effects.

Also Cardoso's more open and democratic approach to economic policy may have increased his political support. Cardoso's Real Plan was preannounced by the executive, debated in Congress, and minutely negotiated with powerful societal interests" Armijo, Faucher and Dembinska 2006774. In February 1994 the first stage of the three-stage Real Plan was announced.

Yet, in April, even before the third stage of the Real Plan was announced, Cardoso resigned from his post to run for presidency. Before the October 1994 elections, he made an electoral alliance between his party PSDB and two other smaller parties: He won the presidential elections in the first round by 54. His rapidly rising popularity was largely due to decreasing rates of inflation from July to October 1994, thanks to the Real Plan da Souza 1999.

The heaviest burden of inflation was on the underprivileged segments of the society, and thus, the immediate effects of decreasing inflation were increased expenditure on food and consumer durables da Silva and Kinzo 1999. As a result, the majority of the Brazilian people voted for Cardoso. Cardoso assumed office with strong electoral endorsement of his Plan. His victory in elections provided continuity to stabilization, allowed him to complete the economic reforms, and prepared the conditions for Real Plan's enduring success.

  • Extensive state intervention in the economy, an extremely inward-oriented development when world demand was in full expansion, a highly controlled financial policy and political instability in particular contributed to a decrease of investment and generated distortions and inefficiencies harmful to growth;
  • Most industrial products were imported, but the substitution began in some light industries, especially in areas such as refrigeration, food, beverages, construction materials, soap, and some textiles;
  • Was ideology involved in such choices?
  • The economy concentrated in export commodities and the country was exposed to the ups and downs of international financial markets that caused periodic crises and devaluations and high inflation;
  • Cardoso also offered credit benefits and emergency funds for state governors in return for their support for structural reforms;
  • Argentina, Brazil, Peru, and Venezuela.

Nonetheless, his economic policies still had to be implemented and sustained politically Panizza 2000. This proved to be a challenging task, especially when it came to handling the legislature.

Despite Cardoso's sweeping victory in the elections, his party PSDB could only control the presidency. Not to mention the lack of party discipline in Brazil that makes legislators unreliable. Therefore, Cardoso's political support among political elites seemed quite fragile. That was almost an impossible mission. Consequently, Cardoso used his position of presidency as a base from which to raise a broad political coalition Panizza 2000.

Notwithstanding the weakness of his party, Cardoso was able to build a large political coalition which helped him carry on stabilization and even increase his popularity.

  1. Above all, this policy clearly explains the growth in Argentine productivity.
  2. On the other hand, the difficulty of establishing such a coalition differs depending on the political context of each country.
  3. In order to compensate domestic industrialists for rising interest rates and appreciating currency, he increased import tariffs on certain durable goods e. The failure of the welfare state why and how?
  4. The expansionary and compensatory policies were instrumental in building a wide political coalition. Due to the economic crisis of 1929 to 1930 the country closed the main exports and sources of foreign exchange.

He constantly worked to guarantee the support of social groups and political elites. That proved to be costly in terms of public finances, because he basically had to pay off to various interest groups. Yet, when Cardoso was using state spending in order to gain support of certain groups, he was also implementing structural reforms to restrict such pork and patronage in the future. Immediately after becoming the president, he initiated the "Solidarity Community" program which involved various social projects to combat poverty and hunger.

He also started the "Wake up Brazil" education program Flynn 1996. Not only during election campaigns but also while governing, he emphasized the urgency of tackling the problems of inequality and poverty and the importance of state intervention in the problems that markets cannot resolve Kingstone 1999. Moreover, he created a study of economic and political status of argentina new system of unemployment insurance which helped millions of unemployed Brazilians Schwartzman 2000.

Later, Cardoso also introduced some social welfare payments conditional cash transfers to alleviate poverty, such as Bolsa Escola. As a result, social assistance spending increased rapidly under Cardoso and reached to 5. Even redistribution of land to landless farmers increased significantly under Cardoso's presidency.

In a way, agrarian reform became another mechanism to raise support for the government's economic policies Pereira 2003. It was clear that he was trying to build social consensus over stabilization and reform by relieving the hardships they posed on the lower classes. Cardoso also proved quite successful in defusing the legislative opposition. In the beginning of 1995, the legislature was still reluctant to pass his reforms.

Therefore, Cardoso began bargaining by using traditional political methods of pork and patronage Flynn 1996 ; de Souza 1999 ; Armijo 2005. For instance, he doubled legislative and executive salaries. He also helped politicians to appease local constituents by providing them with extra funds. In order to make an alliance with conservative PFL, he pleased its electorate by deferring billions of landowner debt payments to state banks Mainwaring 1999.

This was particularly important for passing certain laws, because small states which PFL controlled were overrepresented in the legislature. Cardoso also a study of economic and political status of argentina credit benefits and emergency funds for state governors in return for their support for structural reforms. Where these strategies did not work, he signed agreements with individual governors to force them to fiscal adjustment by partially or fully writing off their debt.

Therefore, Cardoso sacrificed short-term orthodoxy to boost political support. Even support of the business class for stabilization was not warranted. Cardoso's economic team, which was composed of a number of skillful and experienced economists,8 raised business confidence Flynn 1996. His and his ministers' regular meetings with business leaders facilitated business support, but he also used some carrot and stick tactics.

In order to compensate domestic industrialists for rising interest rates and appreciating currency, he increased import tariffs on certain durable goods e. He also reduced export taxes and provided credit help to suffering industries Kingstone 1999. The financial sector was automatically pleased with the new ability to hedge between international and domestic interest rate differences by borrowing abroad to finance government's fiscal deficits Filho 1998.

These tactics neutralized the potential business opposition to structural reforms needed for long term stabilization. Quick stabilization was also instrumental in maintaining support for the Real Plan and for Cardoso's economic policies in general. Because it was an exchange-rate-based stabilization, disinflation was accompanied by an economic boom which helped sustain political support.

Even income distribution got better Neri and Considera 1996 ; Mostajo 2000. Especially the lower income groups benefited from disinflation as minimum salaries and wages used to lag behind inflation Armijo 2005. These definitely helped increase political support for Cardoso and his economic policies and, despite worsened economic conditions, he was reelected in the October 1998 elections at the first round of voting which allowed continuation of economic stabilization and reforms.

Therefore, political skills of Cardoso compensated for the lack of unity in the political system and eventually made stabilization successful. Even the 1999 crisis did not cause Brazil to return to the inflationary spiral.

Finally the 1991 Convertibility Plan succeeded in disinflation. The Plan was successful in part due to the unity of government at that time, but also President Menem's popularity and his ability to raise political support for stabilization was critical. It is argued that, more than its technical traits, Convertibility Plan's success was the social consensus it created Szusterman 2000.

Having a presidential system with a two-party system and adequate party discipline, an executive with strong legislative support seemed to be sufficient to initiate and implement stabilization in Argentina.

The Asan Institute for Policy Studies

However, what was critical for the success of Argentine stabilization was Menem's high popularity which secured political support across different social groups and his skills in using traditional pork-barrel policies to appease the opposition.

While his precedent Alfonsin alienated important stakeholders of stabilization, Menem managed to co-opt them successfully and effectively implemented stabilization.

  • Considering also the strong party discipline, Argentina had a rather "unified government" at that time;
  • Conclusion Since 2003 the policy of promoting Social and Solidarity Economy has been consolidated and expanded in Argentina, which opens possibilities for the development of forms of associative and cooperative labour, but how, and if, they can be further consolidated as well as their overall significance is still an open question;
  • Adjustment Crisis in the Third World.

There were several factors which helped Menem. One factor was that Argentina has been an exceptional case in terms of presidential decree powers, because presidents did not need prior consent of the legislature and they were not exposed to other checks by the Congress or judiciary.

That is why Argentina has been called a "delegative democracy" O'Donnell 1994. President Menem frequently used decrees of "necessity and urgency" during his term, particularly regarding his economic stabilization and liberalization program Rubio and Goretti 1998 ; Bambaci, Saront, and Tommasi 2002.

Both Cardoso and Menem had significant decree powers when they initiated their respective stabilization plans. However, Menem enjoyed the legislative majority and party discipline that Cardoso lacked. In the 1989 elections Menem was elected by the 47. Even the majority of the governors were from his party.

Considering also the strong party discipline, Argentina had a rather "unified government" at that time. That significantly helped Menem to pass the necessary laws and legislation to implement the 1991 stabilization plan, but that was not sufficient. In fact, even some of his party members were against his policies.

Like Cardoso in the Brazilian case, Menem's success depended on his ability to build a broad social and political support and his efforts not to alienate any group.

The Convertibility Plan announced in April 1991 was an orthodox plan. It included fiscal adjustment, a large-scale privatization program, and a "currency board.