Explaining the Economic Failure of Argentina's 'Proceso de Reorganización Nacional', 1976-83 (original) (raw)

When Argentina’s armed forces seized power under a triumvirate Junta on March 24, 1976, the coup was broadly approved of throughout the country. Seven years later, a regime that had named itself the Process of National Reorganization, or ‘Proceso,’ was completely reviled, having incompetently lost a war and economically destroyed the country. Why, after initial successes predicated on complete social control and during seven years in power, did the military fail to achieve its long-term economic objectives? How could a period termed the National Reorganization Process result in an economic crisis worse than the one it assumed power to solve? Ultimately, as I will argue, the various elements of the Junta’s failure are the consequences of the contradictory economic objectives of simultaneously stabilizing, stimulating, and restructuring the economy. Individually considered, reform was counterproductive in only benefitting the financial sector, stimulus was wasteful and unproductive, and stabilization wasn’t seriously pursued - in controlling inflation - or poorly effected – in controlling deficit spending. Equally important, the military junta attempted to achieve its economic objectives within the constraints of its security and political priorities. As a result of trying to stabilize the economy without creating recession or unemployment, the passive crawling peg (‘la tablita’) was instituted and alongside an irresponsible financial liberalization, would create conditions of high liquidity that would eventually explode. The specific mechanism of this implosion was the combination of an overvalued exchange rate alongside high interests rates and deposit guarantees that created economic distortions that promoted both financial moral hazard and necessitated later currency devaluations. The government’s response was to assume private sector debt as public sector debt, eventually amassing an insupportable foreign debt. In other words, inconsistent economic objectives applied haphazardly resulted in volatile outcomes. Moreover, the contradictions in the Proceso’s economic policy making were the amplified consequence of the armed forces’ own internal contradictions, namely monetarist policy making restrained by the powerful statist interests of the military. Trying to carry out one without impeding the other would demonstrate that the military, contrary to its claims, was not above politics nor a monolithic entity. The conservative forces that assumed power in 1976 would ultimately represent the interests of the country’s upper bourgeoisie, an alliance between the rural Pampean export oligarchy and domestic and international finance capital. Lewis writes that, “their rivalry, which extended to the ranks of the military officers themselves, prevented any coherent policy from being applied long enough to make an impact. In the end, the dissension and frequent cabinet turnovers it caused rendered the military governments no more effective than the civilians they replaced” (Lewis 178). This is captured by the frequent changes in economic policy throughout the dictatorship and the “wavering between renewed interventionism and more vigorous economic liberalization” (Veigel 9). The decision to go to war over the British Falkland Islands, partly as a way to distract the public from economic deterioration by 1982, made that same deterioration inescapable and irreversible. This paper will begin by recounting the experiences in the year before the coup, with Isabel Perón’ administration and the ‘Rodrigazo’. After briefly introducing the Junta regime, it will go into the economic history of 1976-1983 year by year. After it will examine, the mechanisms of the ‘perverse’ financial and economic restructuring, the internal dynamics of the regime and economic team, and look briefly at how international events throughout this period exacerbated the aforementioned within Argentina.