Opinion – Helio Beltrão: Populism and the Argentine Debacle

It is frightening how the passion for populism — identified in particular with the caudillo and General Perón, and more recently with Kirchnerism — has ravaged Argentina’s glorious economic past.

Coined by a brilliant Constitution —enacted in 1853 and inspired by liberals—, a few decades later it emerged in the 20th century as one of the richest countries in the world. Today, a century later, the country has 50% of the population in poverty and inflation that can end the year above 80%. What happens and how does it affect Brazil?

The Argentine people nurture a kind of continuous insanity, from idolatry to saviors of the homeland who push solutions from the top down. In the public policy testing laboratory, Argentina ranks as the world’s biggest failure, with more than a hundred years of decline.

Since at least the 1940s, Argentine politicians have adopted policies that are toxic to entrepreneurs, savings, private property, currency, and the work ethic, the exact opposite of what the most prosperous countries did. Kirchnerism doubled down.

Brazil, surrounded by countries ruled by the carnivorous left, has similar DNA. For long periods we adopted interventionism and socialist policies. We run the risk of taking the same path again, so it is necessary to understand what is happening in the pampas. Little attention is paid to the “Orloff effect”: “I am you tomorrow”.

Argentina’s “today” is dark. The decaying government of Alberto Fernández signed a $44 billion deal with the IMF. Despite the Fund’s seal, the sovereign bond (“bond”) in dollars, which matures in 2030, the AL30, is yielding 50% per year to the investor who faces the risk. The surrealist rate indicates a very high probability of another default, the ninth in its history.

Inflation is out of control: the central bank continues to finance the government with money created out of thin air. Immediately thereafter, it tries to dry up liquidity by issuing its bonds (the Leliq) and launching operations similar to the repo operations we know here. But the dry operation is a ticking time bomb, with little towel and a lot of liquidity. The fragile damming of this enormous liquidity, almost twice the size of the monetary base, continually leaks with the payment of very high interest rates, which increases the money supply and inflation. The top-of-the-line iPhone 13 Pro is already found for more than 1,000,000 (1 million) pesos, for example, and cooking oil is more expensive than the highest bill, 1,000 pesos.

In politics, the opposition already leads in the polls for president. Kirchnerism (“Front of All”) plummeted, scoring below the JxC (“Juntos por el Cambio”) alliance of Macri, Larreta and liberal López Murphy, and tying with the novelty of the third way, the “Avanza Libertad” of the libertarians Javier Milei and José Luis Espert (who seek to rally conservatives in their support).

Argentines are fed up with the sameness of the alternation between Kirchnerist Peronism and the vegetarian socialism of the UCR and allies (which failed under Macri to change the economic agenda and fight privileges).

Javier Milei, who leads in some polls, has merit for didactically demonstrating, for a long time, that inflationary, big state, and anti-business policies are harmful to the poor and prosperity.

The two opposition forces have a unique opportunity to ally themselves in the next elections and put Kirchnerism aside once and for all. It will be excellent for Argentina, and for Brazil.