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The current Argentine administration has contracted the biggest sovereign debt in Argentina’s history, with a heavy package of the IMF. To all serious analysts, this debt, is in the long run, unpayable. To pay the debt, you have the raise taxes, sinking the country into a deep recession. As a result, the country risk, and hence, the interest on the debt rises. In this scenario, no matter how much you raise taxes, you won’t be able to pay the debt. Because you can’t raise taxes in a deep and sustained recession. It’s a vicious cycle.

In the long run, Argentine debt restructuring is unavoidable, with the ensuing lawsuits from the bondholders.

As a result, we are experiencing again Argentina’s tragic history of currency devaluation and hence, high inflation. We have seen this movie so many times, and we never learned.

My question is: How cheap can we get?

This economic model clearly favours exports.

The plan is to get Argentina cheap enough to be able to take the country over for a penny.

Excellent news for Wall Street, extremely tragic for Argentines.

Salaries are falling dramatically. Of course Argentina has good human resources. People, when they have to survive, become intelligent.

But the main reason for Argentina’s collapse is short term thinking, the markets think in the long term, Argentina has always thought short term.

Argentina’s politicians are horrendous chess players.

Of course, with so much poverty, there is going to be a lot of work for the military and the police.

Capital is more mobile than people. If Argentina doesn’t open markets for its exports, if Argentina doesn’t have once and for all a disciplined budget, if Argentina proves to be a serial defaulter on its obligations, investments shall never arrive, and the country shall never reach its full potential.

Of course, switching economic models isn’t easy, it requires a cultural change. One that Argentina has proven not to be able to carry out in its 210 years of independent existence.

In Europe, the unemployment rate has always been directly correlated to the value of the currency.

The Euro came into existence on January 1, 1999 with the aim of harmonizing currency exchange rates across the EU and preventing unfair currency exchange competition across the EU through ‘competitive devaluation’ of the individual EU Member States.

However, ‘total union’ brought, new tensions, as we can see in the Brexit movement in the U.K. and the Greek financial crisis that unfolded from 2008 onwards.

The Euro is administered by the European Central Bank, headquartered in Frankfurt.

The unemployment rate of the individual EU Member States shows a positive correlation between the value of the Deutsche Mark as compared to the rest of the currencies of the other EU Member States pre- the introduction of the EURO. So my thesis is that the unemployment rate in Spain, for instance, post- the introduction of the EURO is going to be directly correlated with the value of the Deutsche Mark pre- the introduction of the EURO as compared to the value of the Spanish Peseta, pre- the introduction of the EURO.

Therefore, the unemployment rate in Spain was in 2019 13,9% as compared to Germany’s 3,1%. (Source: Eurostat). The value of the Deutsche Mark as compared to the Spanish Peseta pre-the introduction of the EURO was 1 to 86,93. (Source: Historical Currency Converter). We can see exactly the same trend in the rest of the EU Member States if we would make the same comparative study.

The question arises: What does unfair currency exchange rate competition mean? Devaluation has always been a tool of sovereign states to weather a recession. What do we prefer: a growing and expansionary Southern Europe, that can export its products successfully, or a Southern Europe tight to the EURO and its monetary mandates?

With the introduction of the EURO, the EU Member States have resigned their monetary policy in favour of the European Central Bank. And as I said before, this has brought ‘new tensions’, with massive unemployment and financial crises in Southern Europe.

Unfortunately, this was the flipside of the coin, when they introduced the EURO.

But in Europe, after WWII, politicians guaranteed a future, in Argentina, politicians were never able to guarantee a future.

Corrupt politicians, lack of political will, a currency that is worth nothing, and hence, high unemployment and extremely low quality labour, if we extrapolate the European experience, make, in Argentina, an excellent recipe for a collective tragedy.

The last serious attempt to stabilize Argentina’s currency was the currency board of 1991, pegging the Argentine peso to the US dollar, but unfortunately, it was wrongly implemented, as a currency board, is, by nature, incompatible with a budgetary deficit. The ‘Cero Deficit Bill’ of 2001 was enacted when the situation was already unsustainable, it should have been enacted at the outset, together with the currency board.

Why is a currency board, in principle, an excellent idea, incompatible with a budgetary deficit? Because, within a currency board system, you cannot depreciate your currency in a recession, you can only finance yourself with state debt, which is incompatible with a budgetary deficit. So the ‘Cero Deficit Bill’ of 2001 should have been adopted at the outset, together with the currency board, and not, in 2001, when the state debt was unpayable.

Currency boards work in many countries (in all tax havens, as it is a colonial instrument), and dollarization, works in Ecuador.

So why can’t Argentina prevent its recurring financial crises?

Many conflicting internal interests that cannot be aligned, like the export sector, which benefits from a cheap currency, and the financial sector, that makes fortunes with speculating against the peso. And the lack of long term state policies to the benefit of the country.

But let’s deepen our analysis of the Argentine currency board implemented in 1991 to put a halt on the hyperinflation reigning in the country.

It worked well from the outset, with investments pouring into the country. It weathered relatively well the ‘tequila effect’, the Mexican depreciation of its currency and financial crisis of 1994, which spilled over the whole region. But it couldn’t weather the Brazilian financial crisis of 1998/1999, which sunk Argentina into a deep and sustained recession that eventually ended up in the Argentine financial crisis and biggest debt default in Argentina’s history of 2001.

My thesis is that Argentina’s default would have been prevented had the abovementioned ‘Cero Deficit Bill’ bean implemented alongside Argentina’s currency board, as with no chronical budgetary deficit, the default would have never happened.

As I said before, a currency board is a colonial instrument. When Kirchner came to power, he decided to recover monetary, and political, sovereignty for Argentina. He paid off the debt with the IMF and restructured the defaulted debt, putting an end to decades of imperial economic colonialism.

An array of Keynesian policies followed, favouring the industrial sector, instead of the agricultural, and creating jobs for the unemployed. With an autonomous Central Bank, we see again how the monetary policy is directly correlated to the unemployment rate. Kirchner managed to tax the rich to redistribute to the poor, making the country to grow at Chinese rates for six years in a row and reducing the unemployment rate from 25% to a one-digit figure, in less than three years.

Here we see, that with the right policies, we can make a country function for everybody. So, policies and the law should frame the economy.

With the new government, a gap aroused (what in Argentina is called “La grieta”) between those who want to follow the school of Keynes, and those who want to follow the school of Adam Smith and David Ricardo.

Why not mix both schools? Opening markets for Argentina’s exports with a competitive currency, but at the same time assuring investments in Argentina, to strengthen the internal market.

This enterprise is possible, but very difficult in a protectionist world (barriers to entry, tariffs).

But let’s get back to the monetary policy. Kirchner chose for Keynes, he knew, that in a recession you had to be able to inject liquidity into the market.

Nestor Kirchner had a vision of a country, he built, he gambled, and he won.

He knew that a central bank packed with debt from the IMF wouldn’t be autonomous. He also knew that not a single country had grown with IMF recipes. So, he cancelled all the outstanding debts with the IMF.

Markets were opened in Asia, and taxes were raised on agricultural exports. Contrary to what the Chicago school advocates, these were not ‘distortive taxes’, as they were easy to levy. In his own words: ‘Redistribution was necessary, as a country without an internal market doesn’t exist’.

Export taxes assured income to pay off debt, while at the same time stimulating the internal market. We were not monitored by the IMF anymore, and the country began to grow.

The war on the working classes was replaced with a war on the rich, the agricultural sector. Kirchner was a Peronist. The countryside didn’t understand that we were in a win-win situation and revolted. Kirchner thought long-term, just like the markets. The countryside was, as always, opportunistic.

The Bill raising taxes for the agricultural sector even further was not approved by the Parliament, unfortunately, because had this law been approved, we would not have had the lawsuit with the holdouts on the restructured state debt.

The new government inherited an exacerbated debt problem, but due to the policies it itself advocated. And like Friedrich Nietzsche’s doctrine of the Eternal Return, we went back to the IMF.

There is a lot of literature legitimizing the policies of the IMF, but that’s not the official story. The official story is that not a single country has grown with IMF policies of indebtedness and structural adjustment. The same recipe for all countries, disregarding the fact that all countries are different. Countries grow opening markets for its products, with bilateral or multilateral trade agreements, not with the stifling packages of the IMF.

A left wing Argentine politician once said: ‘I have seen Argentine officials crying of emotion at the IMF, because their loan was approved’, treating questions of money like a family drama.

This pathetic spectacle, shows us that the system is made out of steel and cement, like the building of the IMF, while we are just made out of flesh and blood, just like the rivers of our countries plundered my multinational corporations.

Economists describe an ideal world, but the real economy is different. Adam Smith described an ideal world, and Karl Marx described an ideal world, but communism didn’t function and we live in a highly protectionist world, full of trade barriers.

In ‘The Rise and Fall of the Great Powers’, Paul Kennedy explains how Argentina is forever indebted while not being able to place their products in the West. So, we are indebted, but we are not invited to their table.

Therefore, Nestor Kirchner disregarded 200 years of economic theory and implemented export taxes. He didn’t believe in the generosity of the IMF but in the dynamics of a vibrant internal market.

Kirchner has proved, that in the taking of debt, Argentina had reached its indifference curve, that is was not profitable to take any more debt any longer.

Now we have a floating exchange rate, but if we depreciate the currency, to boost our exports, we won’t be able to pay the debt, because the debt is in hard currency, and if we lower taxes, we won’t be able to pay the debt, so we have to find a mix where the optimal amount of taxes are raised with an optimal amount of export revenues, in order to meet our international obligations.

So, the optimal tax on exports is a percentage of the price of the good that shouldn’t distort the demand of the good. A floating exchange rate gives Argentine exports a competitive edge they don’t have with fixed exchange rates.

With the new government, capital income taxes were substituted for export taxes, in order to boost Argentina’s exports, and thereby exploiting Argentina’s comparative advantages, to the detriment of the industrial sector, but to the benefit of the IT sector. Argentina is now the number 1 player in IT globally, above countries such as the USA and Germany.

We don’t subsidize the countryside, like Europe does.

But back to the IMF, some people in Argentina claim that we shouldn’t only have had incarcerated the military from Argentina’s dictatorship, but also those members of civil society who colluded with them in their economic model of voluntary colonialism, i.e. ‘I voluntarily decide to be a colony’. If the latter lawsuits didn’t prosper, why did the all the lawsuits against the Kirchner administration prosper?

The word ‘colony’ derives from the Latin word ‘colere’ (to cultivate or farm). So, how do we cultivate flowers (let us not forget the tulip bubble and crash in the Dutch renaissance), in the middle of the rebuilding of a Nation? Certainly not by taking debt.

Because taking debts equals ‘chains’, the chains that were so hard to take off in the battle for independence.

Debt taking makes sense only if the returns to the investment are positive. But in a highly protectionist world, export markets are hard to find, and therefore, nobody explains how we are supposed to pay back the debt if we are required to be liberal while the rest of the world remains highly protectionist. Adam Smith and David Ricard described an ideal world. The real world is more cruel.

The Argentine economy is ‘de facto’ dollarized, so it’s logical that politicians and economists in Argentina are discussing, at the moment, whether to simply take the US dollar as the official legal tender (dollarization). It’s a brilliant idea as it need not necessarily mean losing our comparative advantage. As, with dollarization, we could simply abolish export taxes, and raise income taxes to pay off debt, like most developed countries do.

Argentina is, as I predicted, in default now. The only way out is dollarization, as we saw, already, that with a floating exchange rate there isn’t a tax high enough to pay off debt, without sinking the country in a permanent recession. If you dollarize, you levy taxes in dollars, and you pay off debt in dollars.

Nowadays, the Argentine economy is being compared with Rwanda.

The big problem in Argentina now is inflation. As Javier Milei brilliantly explains: ‘Of course that inflation is a monetary phenomenon, can there be inflation in a swap economy?’.

But is dollarization the solution? It certainly is. It would secure property rights and, with the problem of inflation definitely solved, thereby attract the investments Argentina so badly needs.

But, of course, none of these policies are going to be implemented, because Argentina does everything the other way around. As I already said a long time ago, Macri is going to convert us in Colombia. What is Colombia: 5% of the population has all the money and the power, and the rest dances salsa. And Kirchner is going to convert us in Cuba. What is Cuba: The friends of Fidel live like kings and the rest eats rice 24/7. This is the new normal. Does it hurt? Ah. They don’t care.

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