Vicious circle

Countries such as Argentina suffer sudden changes between two opposed positions: the expansionist or popular and the orthodox or liberal.

For several decades, Argentina has fluctuated in the implementation of economic policies between two antagonistic paradigms, as was portrayed by Marcelo Diamand in his 1983 article titled “the Argentine pendulum; until when?” It is about sudden and very frequent changes that economic models applied in the country suffer in the hands of two opposing positions: the expansionist or popular and the orthodox or liberal.


Popular tendency reflects political, cultural, and economic aspirations of neglected sectors of society. At the economic level, the main ideas of this collective are related with Keynesianism and economic nationalism. Consequently, their objectives focus on the progressive distribution of income and full employment. Such ends try to be achieved through larger benefits for popular sectors, increase in salaries, and a much more active role of the State regarding market regulations.

Expansionist cycles tend to begin with the increase in real wages, larger social transferences for excluded sectors, and more accessible lines of credit, trying to augment the activity level by increasing consumption and industrial production. Nevertheless, economic bonanza is not able to last over time and thus rapidly deficits in public accounts flourish, trade balance becomes negative, union pressure grows, shortage of some products appears and inflationary rhythm accelerates.

After depleting Central Bank reserves, crisis in the balance of payments appears and socioeconomic situation becomes difficult to sustain. In consequence, liberal flow takes the reins of Executive Power, either through the democratic path or via coups d’état.


Faced with economic stagnation, liberal orthodox is presented as the only serious and possible alternative. From the support of international financial power and main media, this current is characterized as “illustrated opinion.” In this way, representatives of agriculture, livestock, and financial sectors as well as other conglomerates of economic power manage to seize control of economic policy.

New measures focus on fiscal discipline, monetary contraction, market deregulation and attraction of foreign capitals. A drastic devaluation is imposed starting from the liberation of the foreign exchange market, with the consequent increase in the inflationary rhythm that generates a sharp fall in real wages apart from a transference of resources to the primary sector of the economy.

After some time, an ease in price increase, thanks to the fall in the demand, and the reestablishment of external balance, through the inflow of short-term speculative capitals, and a drop in imports, due to recession, leads to an apparent rechanneling of macroeconomic variables. However, the process is neither consistent nor sustainable due to the deterioration of the productive capacity and the increase in external indebtedness. Mistrust does not take long to appear, thus reverting the capital flow direction.

Therefore, a strong pressure on the Central Bank reserves arises, paving the way for a crisis in exchange market and a new devaluation. By these means, before long, recession dominates once again the scene, but this time harsher given the major blow inflicted on productive and popular sectors. Once consolidated the failure of these liberal policies, the pendulum will follow its course and the cycle will start again with the return of a progressive current to power.


According to Diamand, none of the two ideological tendencies applies to adequate economic models to the Argentine reality, as they omit the existence of an unbalanced productive structure. The distinctive trait that defines this structure has two sectors with different price levels and productivity degrees: agriculture and livestock sector that works with intentional prices and the industrial conglomerate that works at cost and price levels considerably superior to the international ones.

The exchange rate is stablished based on the high-productivity stratum at international level, thus resulting inadequate for the development of the manufacturing framework, as industrial prices, expressed in terms of the exchange rate established by the primary sector, result superior to the international ones. This peculiar configuration paves the way to an economy characterized by a chronic bottleneck of the external sector that limits economic growth. Better activity performance requires growing quantities of foreign currency, while the high level of industrial prices that characterizes unbalance productive structure makes it difficult for the industry to export in large enough quantities.

Foreign currency

Unlike what happens in developed countries, in those where the industry self-funds the needs for foreign currency that development requires Argentine industrial conglomerate does not contribute to the obtainment of foreign currency needed for its growth. On the contrary, the provision of foreign currency remains in the hands of an agriculture and livestock segment with large competitive advantages but restricted in the magnitude of their contribution due to the existent limitations regarding the increase in production.

This produces a divergence between the expansion of the industrial sector consumer of foreign currency and its provision by the agriculture and livestock sector, which is of a much slower growth. This disarticulation is, ultimately, the cause for Argentine balance of payment crisis and constitutes the main constraint for development.

In short, Diamand states that both trends the popular and the liberal are inviable due to the inadequacy of the intellectual model on which they are based, Keynesianism in the first case and neoclassical in the second, as none of them contemplates the existence of such unbalanced productive structure.


Even though the image of pendulum proposed by Diamand is very precise in terms of alternation of these two fractions in power, it is not quite pertinent as it places both trends at the same level.

However, one current searches for a path in inclusive and sustainable development through the increase in purchasing power of wages, fall of unemployment and poverty from an industrializing matrix that generates jobs of better quality, building the fundamental bases for development, and promoting the transformation of the productive and social structure.

The alternative current strives for reproducing already prevailing power relations by defending their privilege position through the implementation of liberal economic policies. It collapses salaries, increases unemployment, poverty, and indebtedness, placing the nation in a weak and submissive position in front of foreign interests, thus reproducing backwardness and underdevelopment.

It is imperative that national and popular current incorporates to its theoretical framework the concept of unbalanced productive structure and the external restriction that derives from it. It should aim at the industrial sector reaching the needed productivity levels to increase their exports, thus providing the foreign currency that the own economic development requires.

Increasing domestic demand without and integral planning to attend the external restriction with something more than improvised measures ends up attempting against the long-term interests of the own popular current.

Promoting sustained economic development ultimately requires modifying the national productive matrix towards a diagram less dependable on imports and with larger export capacity. For that, long-term planning is indispensable to generate incentives for the increase of investment and productivity based on the stimuli of science, technology, and education.

Published in Cash, October 17, 2021

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