Argentina: The Political Economy of Stabilization and Structural Reform

Abstract

In the 1990s, Argentina became known as a paradigm of neo-liberal policies. President Carlos Menem was lauded for his ideological zeal in implementing radical economic reforms. Yet, how much of his behavior was motivated by ideology? How much of it was spurred by political necessity? We argue that President Menem was a political entrepreneur who used the Convertibility Plan for expedient purposes to mobilize untapped social forces. We argue that the old division of the tradable sector, mainly comprised of agricultural exporters, against the non-tradable sector, mainly consisting of import-substitution industries and organized labor unions, was broken by the negative effects of protracted economic instability and hyperinflation. The rapid stabilization of the Argentine economy through the Convertibility Plan allowed the formation of a new coalition that broke the grip of groups that traditionally dominated Argentine politics. The coalition pushed through important political and economic reforms. Unfortunately, the new political power was not used to consolidate the reforms and allow the Argentine economy to enter into a sustainable path of development and growth. Specifically, the government did not push through the labor reforms needed to ensure the sustainability of the Convertibility Plan. Instead, the government focused its resources into amending the constitution and securing a second presidential term.