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Argentina’s Never-Ending Tragic Farce

Argentine voters are no strangers to financial turmoil, but they keep electing politicians who run large fiscal deficits and finance them by printing pesos. Could it be that the only way for politicians to show they want to save the economy is to destroy it first?

SANTIAGO – Karl Marx wrote that all great “world-historical facts” occur twice: “the first time as tragedy, the second as farce.” But what if they happen again and again, every few years, decade after decade? Is that tragic or farcical? Are such facts no longer “world-historical”? Or does the world just stop caring?

Those thoughts come to mind as yet another Argentine financial crisis unfolds. A whiff of farce is in the air: A president called Fernández clashes with a vice president also called Fernández (no relation), causing the economy minister to resign. The incoming minister announces that she will cut the fiscal deficit, even though Vice President Cristina Fernández de Kirchner, who really calls the shots, has made it clear she wants an even larger deficit. Markets go crazy, and the peso tumbles, resulting in a 150% gap between the black-market exchange rate – euphemistically known locally as the blue rate – and the official rate.

Argentina got to this point the same way that it got into economic trouble so many times in the past century. First, politicians promise higher expenditure but are unwilling to raise taxes to pay for it. The government then borrows until markets stop lending. Then the central bank prints pesos to finance both the primary deficit and debt-service payments until citizens refuse to hold the additional pesos. A run on the currency ensues.

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