The Faltering Economy of Argentina | Economics Explained

this is argentina a south american nation which has been home to an unprecedented period of sustained growth quintupling in size in the last decade this nation has seen remarkable resilience through financial crises and even though it cycled through five presidents in two weeks its continued reinvestment in itself has paid off many times over as average incomes have doubled in the same time period to create fantastic increases in quality of life for all the citizens of the nation or at least that would have been the video that we were making a few years ago unfortunately today the economy of argentina tells a very different story just as quickly as the economy soared to these lofty heights it has crashed back down bringing about a period of heavy inflation and widespread poverty but perhaps this shouldn't be a huge surprise in the last 100 years the economy of argentina has been categorised by periods of massive growth followed by huge declines making the most recent decades little more than a continuation of that unfortunate trend this is a real shame because argentina obviously has a lot going for it from a healthy population of productive workers strong natural resource reserves and even a land mass that is very conducive to foundational industries like manufacturing and agriculture but despite all of these advantages argentina has time and time again fallen into this unfortunate pattern and is now teetering on the edge of becoming a full-blown failed state nobel prize-winning economist simon kuznets is said to have remarked in the early 1970s that there are four types of economies in the world developed underdeveloped japan and argentina we have already explored what makes japan so weird but to unravel the mystery of argentina we're going to have to understand a few specific issues what has caused the various economic booms over the years what has caused the subsequent economic declines and why is this most recent downturn just a little bit different once we've done all of that we can get to the fun stuff and put argentina on the economics explained national leader board how's that for a 2020 grand final this video is brought to you by acorns the investment platform trusted by over 8 million people not to mention myself as well as the team here at economics explained if your goal in 2021 is to build wealth but say you don't have much to get started or you just don't know where to begin then you should definitely check out acorns acorns makes it ridiculously easy to get started with investing with features like smart deposit you can automatically move a portion of your paycheck into your savings investment and retirement accounts just by snapping a picture of your check or by setting up ach direct deposits and if that wasn't cool enough you can also invest in your future with roundups here's how it works simply link your existing debit or credit card into your acorns app and then just spend as you normally would yep that's all you gotta do next time you swipe your card or buy something online acorns will automatically round up the difference putting aside that spare change right into your diversified portfolio i'd be remiss if i didn't mention that you can also use your heavy metal acorns debit card but more on that at the end of this video feel free to sign up now at acorns.com ee and acorns will deposit five dollars into your investment account to help kickstart your portfolio again that's acorns.com ee the link is on the screen now and in the video description below it may sound unbelievable today but at the turn of the 20th century argentina was one of the 10 wealthiest countries in the world its domestic industries which revolved primarily around high-end agriculture had benefited greatly from an influx of investment from europe and america and the nation was able to adopt modern commercial farming techniques this worked especially well considering that those same countries that invested so heavily were also fantastic export markets who through their own economic growth had developed quite the taste for red meat which before this time was seen as a bit of a luxury this growth was further accelerated by massive european immigration into the nation which brought with it even more money from people looking to set up their new lives overall this was fantastic and by 1905 the average argentinian was about as wealthy as the average citizen of france britain or germany and only slightly poorer than the average american there was a slight asterisk next to this success though which was that the politicians and business leaders who oversaw this growth were extremely corrupt and the wealth the nation was growing was being distributed very unevenly and went primarily to the aforementioned european immigrants this wouldn't necessarily have been a problem in the long run because the nation was still getting wealthier and even people at the bottom were enjoying an increased standard of living but of course it didn't go on forever world war one was let's say an interesting time for argentina the country remained totally neutral but that does not mean that they were not heavily influenced by the fallout of the war for starters due to a massive influx of european immigrants many of whom were from nations that were now at war with each other it found its population was rather hostile a much more tangible effect was that all of the nations that have been pumping investment capital into argentina and buying up all of their exports were now broke on account of having to fight the largest and bloodiest war in history up until that time this pushed the country into a long period of stagnation that was only worsened by the great depression in 1929 luxuries like red meat on the dinner table and foreign investment quickly fell out of style this was a real problem for the leadership of the nation not only were they no longer able to make themselves incredibly wealthy off the success of argentina but the people of the nation who were enjoying the second-hand wealth were becoming increasingly restless a solution was needed and fast so a series of trade deals were set up with european nations to try and reignite the growth of the previous decades unfortunately these trade deals were very one-sided and they served primarily to solve the issue of corrupt politicians not getting rich rather than the problems of a nation losing its primary industries the most famous example of such a deal gave britain with its asymmetrical flag here exclusive rights to sell coal to argentina and also gave british companies the right to buy up and control the argentinian meat industry sure this gave the country a small boost in exports which was very important but it also gave away argentina's primary industry to a foreign power which was terrible it was such a poorly planned out deal that corruption was really the only reason that leaders from argentina would have been compelled to agree with such onerous terms either way these deals further accelerated the decline of the nation which gave rise to heightened civil unrest and a series of political coups political instability resulting in the forceful removal of a government is never a good look to the international community and foreign investors in the nation quickly dried up this was a real problem because at this time the nation was desperately trying to industrialize other sectors of the economy to make up for the meat industry which was increasingly falling into the hands of international companies this eventually led to the election of juan peron who introduced sweeping economic reforms with a particular interest on building out nationalized heavy industry which sounds an awful lot like someone else you might know around this time period for what it's worth this tactic of nationalized everything that was owned by foreigners and pumping money into building out industry did sort of work for a while but once other nations had recovered from the second world war they were very cranky that all of their foreign assets had been stolen to add insult to injury argentina was more than happy to extend an open invitation to german nazis that the world had just fought so hard to defeat for this reason nobody wanted to invest in argentina or buy any of the stuff that they were making in their fancy new factories and for a nation that was heavily dependent on exports and foreign investment this was a major blow the nation quickly became very poor once again and the radical new leader's popularity fell along with it leading to yet another political coup from a successive lineup of strong figurehead leaders with the secret solution to fix the nation at this point you should start to get an idea of the narrative of argentina in the 20th century sweeping reforms to correct minor issues meant that more harm was done than good and these damages were subsequently fixed by more sweeping reforms that did more harm than good the nation ping-ponged its way through the remainder of the 20th century pinging from total command economics to ponginging off basic laissez-faire capitalism now any regular viewers on this channel will know what i'm going to say next this kind of back and forth decimated the stability of the nation and the confidence that people had in it people don't want to invest or start families careers and businesses in a country that could be flipped on its head in the next election they don't want to save for retirement under a regime that could plunder their piggy bank and international organizations don't throw money into a nation that will give them nothing in return so yeah stability and confidence no huge surprise there but what if we looked a little bit deeper remember argentina was a wealthy and stable nation so what was it that caused their decline while other similar nations like canada and australia sailed on with their prosperity intact to this day well to answer that we have to look at the argentine paradox the actual reason behind argentina's continued economic instability is a point of much debate between a host of economists just like the three-decade log stagnation of japan nobody really knows for sure but there are a few prevailing theories for both economists have primarily looked at the argentinian economy in contrast to australia and canada specifically who were all very similar entities at the turn of the last century they all had modest populations they had a large population of european settlers and they all had a healthy collection of natural resources and farmland so the question was what made the difference the first proposal put forward by guardio d'attila an argentinian economist and businessman was that the main difference between argentina and other settler societies such as australia and canada was its failure to seek adequate alternatives to compensate for the end of geographical expansion with the definitive closing of the frontier 100 years ago these countries were all far less utilized than they are today where almost every square inch of the land is accounted for in some way primarily agriculture back in the day these nations all had policies that if you could go out and find a piece of unused land and make it work as a farm it was all yours the problem was that argentinian farmland is far more arable than farm lands in australia and canada and also by virtue of the country being smaller much less available this over time meant that argentina had fewer farmers with more land and influence rather than more farmers with less influence throw in a healthy dose of anti-competition and corruption and ta-da suddenly the core industry of this nation is built on a fundamentally unstable platform another popular theory is that the nation's political climate and systems were not as well equipped to handle the new political landscape of an increasingly globalized world canada and australia both effectively have political and legal systems passed down from the british westminster style of government now this system is by no means perfect but it does promote stability and balance of power above all else it also promotes systems that are put in place to deal with international entities since you know the british were very into that by contrast argentina had its political systems passed down to them primarily from spain which takes a more run-and-gun approach to international policies and has much less of an institutional emphasis on political stability this is a slightly controversial theory but for what it's worth ex-british colonies have an average gdp per capita almost 50 percent higher than ex-spanish colonies but perhaps the most compelling argument came from a 1992 paper published by a research team at the university of madrid which highlighted that property rights were the big thorn in the site of argentina remember how the nation's assets kept on getting claimed by the state and then privatized and then claimed by the state and then privatized over and over again well it turns out that that makes people really not want to invest in your country which is really bad borrowing for growth is an essential part of managing a healthy industrial economy but that health relies heavily on what terms you get that borrowing on an individual level if you were a skilled worker like a doctor or a dentist or even a tradesman and someone offered you a business loan at two percent interest over a 40-year period to open your own operation you would be silly not to take that deal so long as you provide a good service you should easily be able to make those repayments and be wealthier in the long run as a business owner rather than an employee on the other hand if someone offered that same loan but it had to be paid back with 20 interest over a five-year period well suddenly that's a lot less tempting not only is the interest higher but the entire thing needs to be paid back quicker which means that those month-to-month repayments could easily be much more than the business will ever make the same kind of toss-up exists on a national level historically very stable nations like the usa and yes even australia and canada can borrow money at very low interest rates over a very long time but if investors look at argentina they're going to see all of this nationalising business and be pretty scared to invest if they do put their money into the nation they are going to want higher returns and also going to want to have that money out quickly before some new government gets any idea so in the long term australia and canada got to be happy little business owners and argentina had to forever be the national equivalent of an employee who couldn't catch a break due to their poor credit score of course there were many historical footnotes that accelerated these problems not least of which was starting a war with their longest and most loyal trading partner but some combination of these three factors are the foundation of the nation's economic woes or at least they were because today argentina might be facing a very different problem a currency crisis the most recent crisis was kicked off as many have been before it when it became obvious that argentina would elect a new president that had a political stance that was more left-wing than his incumbent opposition a day after the primary election took place the argentinian stock market plummeted by more than 48 percent as investors fear they could be in for yet another round of nationalization the difference this time is that its currency had been thrown into jeopardy with no real plan to save it in the early 1990s the argentine peso was pegged to the us dollar at a rate of approximately three to one this was enacted in an attempt to ward off inflation and it worked decently well currency pegs involve the home nation in this case argentina keeping massive piles of foreign currency that they want to fix against in this case us dollars by being there to always honor that three to one exchange rate the market more or less falls into line because no buyer will accept less than three pesos per one dollar and no seller will accept less than one dollar per three pesos we have explained how currency pegs work in much more detail in our video on entropia universe of all things so if you are still confused go and watch that but in short so long as people believe that a government can honor the currency exchange they say that's what the currency conversion will be and sometimes this works so well the government doesn't even need to get involved people will just exchange the agreed upon price of their own volition unfortunately this system fell apart during the last economic crisis in 2001 where people rushed to exchange their pesos to us dollars until the exchange board completely ran out of reserves at which point the argentine peso effectively became a free-floating currency despite the government still trying their very best to prop it up those efforts include offering the highest interest rate in the world ever feel shortchanged by banks in your country only offering you half a percent interest rate on your savings if you're lucky well in argentina you can get as much as 25 the only catch is you need your deposits held in argentine pesos the reason this has become such a problem now is that this attempt to control the argentine peso has done very little but introduced lots of american money into circulation given the historical instability of the nation and a rapidly declining value of the peso people are moving to do more and more of their business in american dollars rather than argentinian monopoly money today argentina effectively has a dual currency economy argentine pesos are still used for regular day-to-day activities like buying groceries or paying for a taxi but major transactions like buying a house or a car or even getting paid are done in american dollars if this becomes widespread enough people will eventually not recognize pesos for anything and argentina will become the largest economy in the world to not have control over its own currency now using a foreign currency is fine for small nations that don't have the capacity to truly run their own internal economic policies places like monaco and even montenegro get away with this just fine but if argentina cannot raise taxes or provide fiscal stimulus or borrow in its own currency it will effectively become a dead state walking just one bump away from complete implosion and if history is anything to go off there are plenty of bumps ahead now it's time to put argentina on the economics explain national leader board however we will now be doing that on our second channel that i bet most of you didn't know we had go and subscribe to that one as well because we will be using the channel a lot more in the new year than we have been for fun little economic curiosities that we aren't able to make full videos out of as well as national rankings from here on out plus well whatever else i feel like putting on there now spoiler alert argentina is not going to get a great score but will it be the bottom of the list we'll have to find out fortunately you can do a much better job of setting yourself up for prosperity by automating your savings with acorns using their recurring contributions tool you can make automated investments into your future every day week or month just choose the amount that you want to invest set the frequency and you're all set one thing i love about acorns is that the app not only helps you invest money but earn money too in the found money section you can explore hundreds of brands that want to invest in your future brands that you probably already shop at like apple and nike take the new m1 macbook pro for example when you purchase through the acorns app apple will invest 1.5 of your entire purchase into your portfolio or how about some new air jordans thanks to acorns nike will invest five percent of your entire purchase into your portfolio speaking of purchases acorns is also the only company to offer a heavy metal debit card that saves and invests for you made out of tungsten metal this thing is hefty and honestly it just feels right there are so many features of the card and we don't have nearly enough time to cover all of them in this video so i encourage you to learn more by using the link in the video description below it's time to make 2021 the year that you take your investments in retirement seriously with acorns sign up now at acorns.com ee and they'll deposit five dollars into your investment account to help you get started that's acorns.com ee as always thanks for watching guys and i'll see you in 2021 bye

Channel: Economics Explained

Views: 1,124,778

Keywords: economy of argentina, argentina economy, the economy of argentina, the economics of argentina, argentina economic crisis, argentina economic crisis explained, argentina economic system, argentina economic history, argentina economic collapse, argentina gdp, argentina gdp per capita, argentina inflation, argentina unemployment, argentina taxes, argentina tax rate, argentina documentary, argentina decline, argentine republic, history of argentina, economics explained

Id: brW6-fbvmsQ

Length: 19min 0sec (1140 seconds)

Published: Thu Dec 31 2020