Crisis of Command
America’s Broken Civil-Military Relationship Imperils National Security
A little more than two years ago, Argentine President Mauricio Macri looked like a shoo-in for reelection. Heralded at home and abroad as a skillful pro-market reformer, he led his party to victory in the midterm elections in 2017. But Macri is headed for a resounding defeat in the presidential contest slated for October 27, while his predecessor—the former President Cristina Fernández de Kirchner—is set to return to power. This time, she is running for vice president alongside her former Chief of the Cabinet of Ministers, Alberto Fernández, whom she handpicked for the top job.
Macri’s sudden fall from grace tracked the downward trajectory of the Argentine economy over the same period. At the beginning of his presidency, Macri introduced a gradual program of market-oriented reforms and even expanded some of the social policies he inherited from Fernández de Kirchner. To cover the budget shortfall, he piled on foreign debt. By the spring of 2018, however, financial markets were growing anxious about the sustainability of his reform program and foreign capital began to dry up. The Argentine peso soon collapsed and the economy fell into recession.
Macri was forced to seek a bailout from the International Monetary Fund (IMF), which approved a $57 billion loan—its largest ever—in September 2018. The government accelerated budget cuts, but the economy continued to contract. This year, GDP is projected to shrink three percent while inflation will exceed 55 percent. As markets panic over the prospect of Fernández de Kirchner’s return, Macri has had to reinstate currency controls, despite promising never to do so. He has also defaulted on some of the country’s foreign debt obligations.
Even a casual observer will recognize that Argentina has been in this situation many times before. The country has defaulted on its foreign debt no fewer than nine times since 1838. What is more, the Argentine economy has contracted for 22 of the past 58 years, an abysmal performance matched only by that of the Democratic Republic of the Congo. Throughout that period, inflation has remained stubbornly high, despite having been tamed in nearly every other Latin American country many years ago.
At the root of the problem is Argentina’s unique brand of politics, which has been marked by high polarization and sudden swings between populist and neoliberal governments—neither of which has managed to deliver stability or prosperity. Years of persistent turmoil have bred distrust of the government, which in turn has primed the electorate to favor guaranteed short-term benefits over theoretical long-term ones. No movement has more thoroughly grasped this political reality—or done more to perpetuate it—than the Peronists, whose malleable brand of social welfare–oriented populism has propelled them into government for 24 of the 36 years since democracy was restored in 1983. Today, after a four-year neoliberal interregnum, Peronism is again on the rise.
Many Argentines—especially conservatives—say their country’s problems can be traced to the election of Juan Domingo Perón as president in 1946. A former army colonel who rose to power as a representative of the working class, Perón ruled for almost a decade until 1955 and then again from 1973 to 1974. Together with his wife, Eva Perón—who died in 1952—he expanded the state bureaucracy, granted social rights, strengthened labor unions, and set up an import-substitution regime. Perón’s critics claim that he installed an unsustainable economic model that stripped Argentines of their autonomy, turning them into dependents who expect the state to take care of all their needs.
On the other side of this divide, Peronist supporters—and there are many of them—blame neoliberalism for their country’s woes. On three separate occasions—in the 1970s, in the 1990s, and since 2015, under Macri—the Argentine government adopted pro-market reforms, opened up the economy, and drastically cut public spending. Each time, the IMF supported these plans but demanded more austerity. And each time, the results were disastrous: ballooning foreign debt and financial speculation, higher poverty and unemployment, and a decline in standards of living. The worst of these crises came in 2001, when the economy shrank by more than 15 percent in two years, more than half of the population fell into poverty, and the country defaulted on $95 billion in foreign debt.
The reality, of course, is that both Peronists and neoliberals bear some responsibility for the cyclical pattern of crises. Perón would not have risen to power had Argentine elites not denied working-class people decent salaries and basic rights. And neoliberals would not have had to impose their painful adjustments had Peronists not tried to artificially sustain the economy by spending and money printing.
Widespread cynicism about corruption in government has become a self-fulfilling prophecy.
Regardless of who bears more of the blame, it is clear that years of instability and false promises from politicians of all stripes have shattered Argentines’ faith in the state and incentivized them to pursue their own short-term interests at the expense of the country’s long-term ones—a pattern that has further eroded institutions, encouraged the state to live beyond its means, and allowed corruption to flourish. Union bosses might be corrupt, but many Argentines support them because they protect their workers’ livelihoods and rights. The same goes for shady governors and mayors who rule their territories as fiefdoms but sustain bloated state bureaucracies that keep many families afloat.
Widespread cynicism about corruption in government has become a self-fulfilling prophecy. Take the judiciary, which is both inefficient and highly political. Immediately after Macri won the 2015 elections, federal judges revived dormant corruption cases against several Fernández de Kirchner–era officials, including the former president herself. Some were sent to prison without being convicted. However, as soon as the primary results were announced in August—signaling a likely Kirchnerist win—most of the former officials were quickly released. No judiciary is perfect, but Argentina’s is unusually corrupt and politicized, a fact that both reflects and sustains the country’s perpetual state of crisis.
The same is true of Argentina’s central bank, which has had 23 presidents in the last 36 years. During the 1980s, nearly all Latin American countries suffered hyperinflationary crises. Most instituted policies to make their central banks independent, so that they could resist the pressure to print money in order to plug budget deficits. This separation never took hold in Argentina, not even under Macri. Despite the president’s promises to pursue a more orthodox style of economic management, his first pick to chair the central bank recently blamed the current crisis on government interference in monetary policy.
Not surprisingly, given this history, Argentines distrust their own currency and prefer to spend most of their income rather than save, which makes the economy more vulnerable to external shocks—such as the recent rise in interest rates in more developed economies that sent foreign capital rushing for the exits. What Argentines do save, they exchange into U.S. dollars and keep outside of the banks: everyone remembers the crash of 2001, when the government restricted people’s access to their deposits to keep the banking system from collapsing and then gave them their money back at a discount.
Unfortunately, each subsequent crisis makes it more difficult for the government to reform the economy without provoking a major social disruption. At least since the restoration of democracy in 1983, the Argentine state has steadily expanded to accommodate those who have been pushed out of the formal economy. The government has implemented cash-transfer programs and other social policies, added public-sector jobs, and bailed out private corporations with subsidies and public work contracts.
Each subsequent crisis makes it more difficult for the government to reform the economy without provoking a major social disruption.
But each new emergency measure has become permanent, because no one trusts the government enough to roll back benefits during times of prosperity. Better a small but guaranteed benefit now than a larger theoretical one down the road. As a result, an ever-shrinking productive segment of the economy must subsidize an ever-expanding public sector. In this context, Peronism’s resilience is no mystery. And the current crisis is likely to reinforce the notion that Peronism is the only movement that truly cares about the people, even if it has helped fuel the country’s chronic instability.
Still, there are reasons to be moderately optimistic. Neither Macri nor Fernández is an extreme member of his respective ideological camp, though it remains to be seen how much sway Fernández’ famous running mate would hold over his administration. High debt and deficit levels will impose additional limitations on the next president: with a four percent fiscal deficit and a debt-to-GDP ratio of close to 90 percent, it will be hard for Argentina to add much more external debt. To escape its never-ending cycle of crises, however, the next president will have to do more than reform the economy; he will have to win back the trust of voters who have grown to expect the worst from their leaders.