Argentina's tango between economic integration and isolation

251 Pages·2013·2.88 MB·English

Scuola di Dottorato in Istituzioni e Politiche
Ciclo XXV
S.S.D: SECS-P/02
Volver: Argentina’s tango between economic integration and isolation
Coordinatore: Ch.mo Prof. Paolo Colombo

Tesi di Dottorato di:
Davide Tentori
Matricola: 3810438
Anno accademico 2012/2013

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Index
INTRODUCTION p.7

PART I – ARGENTINA: PATTERNS OF ECONOMIC p. 11
GROWTH

1.1 South America and Argentina: an overview of the social and p. 12
economic development of the region in the last decade
1.1.1 Introduction and structure of the chapter p. 12
1.1.2 The regional evolution of economic and social development p. 12
throughout the 20th century
1.1.3 South America since the ‘50s: a series of ups and downs p. 16
1.1.4 What’s next? p. 22
1.1.5 Conclusions: challenges ahead p. 23
1.2 An analysis of Argentina economic policies (2003-2013) p. 25
1.2.1 Structure of the chapter p. 25
1.2.2 Setting the scene: Argentina’ s economic history since the 1950s p. 25
1.2.3 Argentina and the Kirchnerismo: an analysis ten years after p. 30
1.2.4 Argentina’s economic structure: high potential and low p. 37
competitiveness
1.2.5 Conclusion: impressive growth, insufficient competitiveness p. 51
1.3 Argentina in front of the challenge of economic development p. 53
1.3.1 Structure of the chapter p. 53
1.3.2 Economic development: a brief review p. 53
1.3.3 New structural economics: original elements and links with ‘old’ p. 55
theories
1.3.4 Back to ‘old’ theories? Factors endowments and comparative p. 60
advantages
1.3.5 Some policy recommendations for Argentina’s development p. 66
1.3.6 Focus: Small and Medium Enterprises (SMEs)’s role in p. 71
Argentina’s economic structure
1.3.7 Conclusion: the need of coherent economic policies to enhance p. 79
competitiveness and attract investments

PART II – ARGENTINA IN THE CONTEXT OF SOUTH p. 81
AMERICAN INTEGRATION: AN APPLICATION OF THE
GRAVITY MODEL
2.1 Regional Trade and Economic Integration in South America: p. 82
an Application of the Gravity Model
2.1.1 Research questions and structure of the chapter p. 82
2.1.2 The Andean Community (CAN) and the Common Market of the p. 84
South (MERCOSUR): history, aims, functioning
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2.1.3 The Gravity Model of International Trade p. 87
2.1.4 The estimation of the Gravity Equation: some econometric issues p. 89
2.1.5 Data and estimation techniques p. 91
2.1.6 Results p. 95
2.1.7 Robustness checks p. 101
2.1.8 Interpretation of the results p. 102
2.1.9 Conclusions and indications for further research p. 104
2.2 Argentina in the context of regional and global trade p. 113
2.2.1 Research questions and structure of the chapter p. 113
2.2.2 The role of exchange rate variability in international trade p. 113
2.2.3 The external trade of Argentina: empirical research 118
2.2.4 Conclusions and implications for further research p. 127

PART III – A VIEW FROM THE OUTSIDE: ARGENTINA IN p. 132
THE GLOBAL CONTEXT
3.1 Argentina and the IMF: a problematic relationship p. 133
3.1.1 Structure of the chapter p. 133
3.1.2 History: from triumph… to tragedy p. 134
3.1.3 The Kirchner era and the ‘divorce’ with the IMF p. 145
3.1.4 Conclusion: from the “routine of dependency” to... a “routine of p. 152
detachment”?
3.2 Argentina and the G20: the risk of isolation and irrelevance p. 154
3.2.1 Structure of the chapter p. 154
3.2.2 The G20: an organization searching for legitimacy and p. 154
effectiveness
3.2.3 Argentina and the G20 p. 163
3.2.4 Conclusion: the risk of becoming an outlier in the global economy p. 177
3.3 Argentina and the MERCOSUR: story of an unfulfilled p. 178
promise
3.3.1 Structure of the chapter p. 178
3.3.2 MERCOSUR: history and achievements p. 179
3.3.3 Argentina: from integration…to isolation p. 184
3.3.4 Conclusion: regional integration at a standstill p. 191
3.4 Argentina in the neo-liberal order: is there any way to play a p. 193
role?
3.4.1 Structure of the chapter p. 193
3.4.2 Economic power in a changing global environment p. 199
3.4.3 Argentina and its role as an emerging actor p. 206
3.4.4 Conclusion: Argentina’s wasted potential to become a regional p. 206
power

APPENDIX: INTERVIEWS TO ARGENTINE EXPERTS p. 208
Interview to Martin Schorr Researcher, FLACSO Argentina (Latin p. 209
American Faculty of Social Sciences)
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Interview to José Maria Fanelli, Senior Researcher at Study Centre of p. 212
State and Society (CEDES), Buenos Aires, and Professor of Economics
at the University of San Andrés, Buenos Aires
Interview to Verónica Moreno, former advisor at the Foreign Relations p. 215
of the Presidency of Argentina

CONCLUSIONS p. 225

REFERENCES p. 231

ACKNOWLEDGEMENTS p. 250

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INTRODUCTION
Tango is the traditional dance of Argentina: emotional and dynamic, it perfectly represents the features
of a country which is a paradox between astonishing beauties and excellencies and disappointing
performances. Volver is one of Carlos Gardel’s most famous and emotional tangos: its melancholic
notes suit the image of a country trapped within this paradox. “Somos number one, como también lo peor, con
la misma facilidad”: we are the best, as well as the worst, with the same readiness. These words, from the
song “La argentinidad al palo” by the Argentine band Bersuit Vergarabat, well convey the idea of a
country that does not know mediocrity, but can just perform either too well or too badly.
These features of the Argentine people involve not only the society but also the economy of the South
American country. This is why this thesis aims at describing a country that has not taken advantage of
its huge economic potential, and has often dissipated it implementing economic policies that prevented
Argentina from becoming one of the most rich and developed countries in the world. This has
happened several times over the course of the last decades (especially after World War II), and also in
the last decade, after the harsh economic crisis suffered in 2002 following Argentina’s default on its
public debt. Since then Argentina has been ruled by the party “Frente para la Victoria” (Front for
Victory), a peronist movement led by Néstor Kirchner (died in 2010) first and then by his widow
Cristina. During this period the country has experienced an unprecedented economic growth and a
remarkable social development, a process which allowed millions of citizens come out of poverty.
However, despite these remarkable economic and social achievements, I argue that inappropriate
economic policies implemented during this period did not help Argentina to grow further and were
detrimental for the country’s role as a relevant regional and global (as a member of the G20) member.
Protectionism, an unfriendly attitude to foreign investors, ineffective industrial policies are leading
Argentina to a position of self-isolation within the international economic community, with
consequences that could be very negative for the country’s future in the medium-long term.
The main research question of this thesis is aimed at exploring the relations between the internal
dimensions of Argentine economic and political development and the external dimensions, in order to
assess the country’s potential in terms of regional (MERCOSUR – South American level) and global
competitiveness. It is divided in three parts that adopt a variety of approaches (exploring economic
institutions and policies, econometric analysis, international political economy and international
relations) that have a clear common thread. Their purpose is to highlight how decisions and economic
policies have affected the country’s domestic growth, its external competitiveness, its role on the global
economic stage, and the reputation it has within multilateral economic fora such as the International
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Monetary Fund (IMF), the Group of 20 (G20) and the Common Market of the South (MERCOSUR).
The first part of this research, entitled “Argentina: patterns of economic growth”, provides a
comprehensive analysis of Argentina’s economic development model that has been implemented over
the course of the last decade. In clear contrast with the neo-liberal policies of the 1990s, the Kirchner
governments adopted policies characterized by a strong intervention of the State in the management of
the economy and by protection of national industries. I will try to highlight the flaws of this model,
which have prevented Argentina from moving towards the status of a fully developed country. I will
argue that the export-led growth model, although it did not lead to a ‘re-primarization’ of the economy,
relied too much on the agricultural exports in order to increase the government revenues and on a weak
exchange rate as the main tool of industrial policy. Argentina would need different policies to achieve
growth that might last even in the long run, which has to be pursued through structural reforms rather
than only by periodical currency devaluations. The last chapter of this part will provide a comparison
between three different development theoretical frameworks: structuralism, a theory elaborated by the
Economic Commission for Latin America and the Caribbean (CEPAL) based on public intervention
fostering the development of a national industry through the adoption of protectionist and inward-
looking policies; neo-liberalism, characterized by privatizations and public disengagement from the
management of the economy, which is entirely left to the rational actions of markets; new structural
economics, a relatively recent paradigm that tries to be halfway between the first two theories, and tries
to corrects the excesses of neo-liberalism acknowledging the importance of the public action in order
to address market failures.
The second part of the thesis is entitled “Argentina in the context of South American integration” and
offers an empirical study of the trading flows in the region and in Argentina. Through the
implementation of the Gravity equation, an econometric model particularly useful to explain the
determinants of trading flows, I will try to assess how regional trade in Latin America is influenced by
variables such as the membership to regional organizations for economic integration, like the Andean
Community of Nations (CAN) and the Common Market of the South (MERCOSUR) and other
macroeconomic determinants such as the bilateral real exchange rate. The following section will focus
on a similar econometric analysis of Argentina’s trade patterns with some key partners (Brazil, Paraguay
and Uruguay, as members of the MERCOSUR, and the European Union, China and the United States).
The third part of this work is dedicated to provide “A view from the outside: Argentina in the global
context”. I will analyze Argentina’s behavior and role in three important international organizations: the
International Monetary Fund (IMF), the Group of 20 (G20) and MERCOSUR. The aim is to assess,
also from an historical perspective, whether the country’s relationship with these organizations has
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been conducive to development within the global economic system or, on the contrary, Argentina has
acted as an ‘outlier’ in international economic relations. This might drive the country towards a position
of isolation which might constrain its potential as a main actor both in South America and in the
current context of a changing multilateral system.
An appendix, containing three interviews, concludes this work. The interviews are the result of a short
period of research conducted in Buenos Aires in August 2012. . The first and second interviews are
mainly focused on Argentina’s domestic economic performance and development with respect to its
international competitiveness. Martín Schorr, researcher at the Latin American Faculty of Social
Sciences (FLACSO), and José Maria Fanelli, Professor of Economics at the University of Buenos Aires,
will provide two alternative views of the economic and industrial policies adopted by the Argentina’s
government during the last decade. The third interview was given by Verónica Moreno, a former
advisor at the Foreign Relations of the Presidency of Argentina and offers a broad perspective of
Argentina’s role and position within the global system
A preliminary digression about the methodology is necessary. The thesis is heterogeneous in terms of
the different research methods and approaches implemented: the potential drawbacks in terms of lack
of consistency among the different parts are avoided by the fact that all the three parts contribute to
provide a complete and detailed analysis of Argentina’s economic performance from different angles
and perspectives. The first part is intended to be a useful and necessary introduction that offers an
analysis of the model of development followed in Argentina during the last decade. It then compares
different theories of economic development in order to highlight strengths and weaknesses of each
approach and to convey the message that economic policies should be designed ex-post, after a careful
consideration of a country’s situation in terms of resource endowments. The second part is empirical
and offers a quantitative analysis of Argentina’s trading flows in the context of South American
integration. The Gravity model of international trade, through the Poisson Pseudo-Maximum
Likelihood Estimation technique, was proved to be the most efficient econometric methodology to
research on these issues. The main objective of this part is to assess the impact of economic
organizations and of key macroeconomic variables (i.e. the bilateral real exchange rate and its
variability) in promoting or depressing regional trade. This will be particularly useful with respect to the
troubled economic relationship between Argentina and Brazil. Finally, the third part adopts a
methodology typical of the International Political Economy (IPE) analysis. The three case studies on
the IMF, G20 and MERCOSUR will be included into a theoretical framework of negotiating behavior
adopted by emerging powers, and analyzed from the perspective of neo-liberal institutionalism which,
in my view, is the approach that suits the current context of international economic relations best.
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To conclude, the three parts are linked by a common thread which is aimed at assessing in which
direction Argentina’s “tango” is moving, from the domestic to the regional and global level. The
country’s economic experience has been characterized by swings between growth and recession,
indebtedness and fiscal soundness, production diversification and technological upgrade and re-
primarization ,further pushes for integration with the rest of South American countries and the world
and progressive isolation. Where is Argentina going, and where should it go? This thesis will try to offer
an answer to these questions.

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