The Argentine Pendulum
In 1983, engineer Marcelo Diamand published “The Argentine Pendulum: Until When?”, a paper presented in Nashville, United States, which clearly described the economic foundations of the Argentine political conflict of the 20th century. Diamand identified a cyclical behavior between two political-economic currents: the “popular” one, associated with the Keynesian model and representative of the aspirations of the great masses, and the “orthodox-liberal” one, linked to the neoclassical model that represents transnationalized exporting and financial sectors. This pendulum, according to Diamand, explained the recurrent Argentine crises and their political correlate.
However, by 2023, the economic foundations of this conflict began to weaken, dislocating political representatives and hindering their ability to articulate social coalitions. The terms of antagonism changed, ideologically abandoning both sides of "the divide," and reversing the ideology of popular sectors. In the “popular” spectrum, Peronism was left without promises or a clear national ideology, while on the orthodox-liberal side, now called “libertarian,” new economic policies emerged that broke with historical patterns, collectively giving rise to what we can now call the new Argentine pendulum.
The Keynesian current begins with an expansive phase marked by a boom in the industrial sector, a surge in mass consumption, and distributive improvements. However, this model, embodied by Kirchnerism in recent decades, aligns with what economists Rudiger Dornbusch and Sebastian Edwards described as “macroeconomic populism” in their article The Macroeconomics of Populism. According to this theory, populist governments prioritize short-term growth through expansive public spending policies, elevated real wages, and subsidies, ignoring and minimizing the macroeconomic constraints that cause fiscal imbalance (spending more than collected), leading to a dependence on monetary issuance or indebtedness. In Argentina, this translated into structural problems: the ability to generate foreign currency did not keep up with the increase in economic transactions, triggering inflation, currency restrictions (controls), and a disruption of the material progress of broad sectors of the population, leading to economic stagnation.
On the other hand, the orthodox-liberal current, which historically accessed power after crises of legitimacy of the Keynesian model, is characterized by efficient and pro-market rhetoric, focused on generating confidence to mobilize the private sector and attract external capital to alleviate balance of payments problems. These policies often include devaluations to reduce imports through recessions, monetary restrictions, interest rate hikes, real wage falls, and adjustments in public spending. The partial success of this model hinges on attracting external capital, but historically it has led to an unsustainable scheme as fiscal balance was never achieved under this paradigm. Traditionally, orthodox governments have attempted to stabilize the economy through attracting external capital, stabilizing the exchange rate, and financing deficits with external debt, a combo that generally has not ended well: in the convertibility regime, for example, an unsustainable exchange rate was forced that did not reflect foreign currency holdings, combined with a deficit that multiplied the necessary debt. Milei, on the other hand, broke with this pattern by prioritizing internal fiscal sustainability, avoiding monetary issuance and the need for sustained debt to finance a deficit that was accumulating.
Never in recent history has Argentina experienced real orthodoxy with the liberation of currency controls, a decrease in the monetary base, fiscal balance, and a healthy Central Bank without being in default (that is, complying with debt payments). This new approach not only seeks to attract foreign currency but also guarantees the sustainability of the economic plan, allowing for debt payments while encouraging capital inflows, without generating new debt through deficits in the process.
The economic stability of a country depends on a delicate balance between incomes and expenditures, a basic principle that our country ignored for decades. According to a study by the Argentine Institute of Fiscal Analysis (IARAF), in 28 of the last 35 years, public spending exceeded income, generating a structural fiscal deficit that has been the root of countless economic crises. This imbalance has historically been financed with debt, monetary issuance, and emergency measures that later became permanent, like the Check Tax or export tariffs, which ultimately affect the whole economy.
During the Kirchnerist governments, external and internal debt grew driven by the deficit, especially between 2003 and 2015, and then during Alberto Fernández's term (2019-2023). A paradigmatic example is the payment of 9.81 billion dollars to the IMF in 2005, celebrated as an act of sovereignty, but accompanied by a restructuring that did not resolve the underlying issues. Furthermore, the pension reform pushed during the Kirchnerist era, such as the nationalization of the AFJPs, increased the "pie" of fiscal obligations, promising social benefits that, in many cases, turned out to be unsustainable. These promises, like massive disability pensions or social plans without work incentives, generated an unsustainable pension and social system, exacerbating the fiscal deficit and pressure on international reserves.
During the period 2015-2019, there was progress in eliminating currency controls while the deficit persisted (with a decreasing trend), which did not cut the cumulative flow of new debt, nor with a limited monetary base that could choke off a currency run (that is, limit pesos so that there is no demand for dollars). That run happened in the face of the electoral threat from Kirchnerism. It is no coincidence that many of the economic actors from that time work today in the current government, applying a well-oiled recipe that many consider “more of the same,” but with several lessons learned.
Conflicting Diagnoses: Dollar Scarcity vs. Fiscal Deficit
La Libertad Avanza identifies the fiscal deficit as the core of Argentina's economic problems. Excessive public spending, financed by monetary issuance, leads to inflation, currency depreciation, and a constant disincentive to investment. On the other hand, Kirchnerism has historically diagnosed the main problem as a "scarcity of dollars," attributed to external factors such as dependence on international trade or financial speculation. However, this overlooks that, from a logical perspective, the fiscal deficit is a pre-existing and structural variable in the Argentine economy that generates inflation, currency depreciation, and disincentives to investment, all of which contribute to the scarcity of dollars. The causal relationship is clear: the fiscal deficit generates monetary issuance or external indebtedness, which raises inflation and the demand for dollars, reduces confidence in the local currency, disincentivizes exports, and depletes international reserves. In contrast, while the scarcity of dollars may be exacerbated by external factors, it is primarily a consequence of these internal dynamics.
We can summarize the characteristics of the Kirchnerist economic model in fostering consumption, currency and price controls, customs controls, regulation, issuance, fiscal deficit, nationalization of all social benefits (subsidies, energy and transport tariffs, or even the symbolic “Football for Everyone”), as well as nationalization of companies, public debt to finance deficits, and lack of international reserves. These policies reflect excessive state interventionism that has perpetuated stagflation.
Managing inflation is another point of divergence. During Kirchnerism, inflation was systematically underestimated through manipulation of INDEC statistics, a practice that began in 2007 and was rejected even by sectors close to the government. Alberto Fernández, in an attempt to justify this situation, spoke of "self-constructed inflation," suggesting that economic agents' expectations, rather than monetary policies, were responsible for rising prices. This narrative, however, did not manage to conceal the impact of uncontrolled issuance and the fiscal deficit on inflation, which reached levels above 50% annually during various periods of his management.
In contrast, a shock adjustment is currently proposed, closing the "issuance tap" and prioritizing fiscal balance: the more paper money in an economy, with the same amount of goods and services, the more money each one requires. This strategy, implemented since Milei assumed office in December 2023, aims to attack inflation at its root by reducing public spending and eliminating inefficient subsidies. This policy has allowed for an almost floating exchange rate, a healthy Central Bank, and fiscal balance that had not been seen in decades, breaking a cycle of 33 years of the last 96 in which currency limits prevailed.
Kirchnerism was characterized by strong state interventionism, with regulations ranging from price controls to the creation of taxes like the financial income tax, wealth tax, or luxury tax, regulation of air transport with prohibitions on new airlines, routes, and transport companies, or prohibitions on importing ridiculous items like used agricultural machinery. These measures, although presented as progressive, were criticized for their inefficiency and distortion in tax progressivity, and for their political use.
International Trade
International trade is another battleground. Under Kirchnerism, Argentina became the most closed country in Mercosur, and one of the most closed in the world, with tariffs, SIRA-type permits, and customs controls that limited exports. This protectionist policy ruptured key sectors like the energy and mining systems.
The current government, on the other hand, seeks to open the economy to free trade, aiming to expand the exportable products of Mercosur from 100 to 150 and explore options like leaving Mercosur or reformulating its role in the block. This paradigm shift, supported by a competitive exchange rate and the elimination of currency controls, aims to integrate Argentina into global markets, a goal that has historically faced political and business resistance.
The consolidation of center and center-right spaces, believers in fiscal balance, floating dollars, and trade openness, creates an unprecedented scenario in Argentina, laying the foundations for a normalized economy. On the other hand, Kirchnerism, as ideologically and materially opposing matrices, reflects another model of an irreconcilable country: one based on the free market, deregulation, and fiscal balance; the other on interventionism, protectionism, and the unlimited expansion of public spending.
As long as in the new pendulum there exists a party or movement with electoral potential that disbelieves in economic normalization, the country will face difficulties in building a consensus that guarantees sustainability and growth. The challenge, then, is not only to choose a model but to generate new majorities that ensure a reversal of the Pact of May: Foundations and Starting Points for the Argentine Reconstruction.
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