Argentina gets greedy on commodity boom

Crying for Argentina — The American, A Magazine of Ideas

The South American country could be headed for yet another economic disaster.

The steep fall in global commodity prices over the past several weeks has brought Argentina to the brink of fiscal collapse—alas, not an unfamiliar position for the South American country.

For far too long, the Argentine government behaved as if commodity prices would keep rising forever. It spent like a drunken sailor and made unsustainable commitments to the public sector. Such irresponsible fiscal policies were promoted aggressively by Argentine President Néstor Kirchner, who served from 2003 to 2007, and they have been continued by his wife, Cristina, who in 2007 was elected to succeed her husband as president.

Until recently, the Argentine government was awash in cash thanks to soaring commodity prices. This encouraged its fiscal profligacy. But in recent months, the price of soya—a key Argentine export—has declined significantly. To make matters worse, Argentina’s soya growers have been staging strikes to protest against high export taxes. Between the plummeting soya price and the economically damaging strikes, billion of dollars in projected tax revenues have been lost.