Like most other developing nations, the government of Argentina has tried to guide its destiny with tight controls on its economy, using wage and price controls, subsidies, tariffs, and an ever-growing bureaucracy. The payoff came this summer: an inflation rate of 321 percent and foreign debt that passed the $56 billion mark.
Now, with encouragement from Washington, Argentine President Raul Alfonsin is doing an about-face. He admits that the tightly structured approach is a failure. He is loosening economic controls.Taxes and tariffs are being reduced, price controls lifted, and the bureaucracy leashed, all in hopes of stimulating real economic growth and easing his nation's skyrocketing inflation rate. Such moves certainly reflect a more realistic approach to economic growth and prosperity.
Secretary of State George Schultz, who encouraged the turnaround during a visit to Argentina this summer, said it comes from looking around the world, observing which countries are prospering and which ones are not.
Unfortunately, Argentina's example is not being followed by its sister nations in South America, most notably Peru and Brazil. Peru just announced a new, more restrictive set of economic controls that takes it down the same path Argentina has abandoned.
Brazil was once the pride of South America, with a strong economy and bustling population of entrepreneurs challenging other nations and firms in the world marketplace. But that has dimmed as an autocratic government has slowly imposed trade and market restrictions, shutting out foreign investors and raising trade barriers to protect some of its industries.
The result has not been favorable. Other nations have retaliated with trade barriers and tariffs of their own, forcing government subsidies of industries that used to be competitive in the world market. And, inflation has reappeared, along with the largest foreign debt of all the world's developing nations: $123 billion.
The example is there for those nations that are aware enough to look beyond their own borders, to look at what Argentina has gone through in the last five years and what it learned.