Last Sunday was the 96th anniversary of the birth of the former radical* president who led to the destruction of Argentina’s currency at the dawn of the 1980s.
The experience of radicalism left a pitiful balance of 59% poverty and 5,000% inflation.
The foremost radical leaders in Juntos por el Cambio commemorated the 96th anniversary of the birth of former President Raúl Alfonsín last Sunday, the reason why the UCR officially celebrates the “day of the radical militancy” on March 12 every year.
Today, Horacio Rodríguez Larreta, PRO’s leading presidential candidate, Gerardo Morales, UCR’s top candidate, and Alberto Fernández vindicate Alfonsín’s administration, including his economic agenda and the Austral Plan he launched.
However, the truth is that the former president went down in posterity for having been responsible for the most violent hyperinflationary episode in Argentina’s history.
The country suffered one of its worst economic crises of the second half of the 20th century, leaving a “core” poverty that could never be dismantled.
His mandate is a manual of everything that should not be done in the face of a crisis.
The failure coincided with the fall of the iron curtain in the socialist economies. Fortunately, for the Argentine economy, after the election of Carlos Menem in 1989, a new stage of liberalization and modernization of the country began.
THE GRINSPUN ADMINISTRATION AND THE FIRST DESTRUCTION OF THE CURRENCY SIGN
As soon as he assumed the presidency, Alfonsín appointed economist Bernardo Grinspun head of the Ministry of Economy.
A heterodox program was carried out, which involved a generalized increase of wages by decree, price and tariff controls, the suspension of financial payments abroad for foreign debt obligations (among them to the IMF), and the tightening of the exchange rate hedge.
Without financing, the Minister systematically resorted to monetizing the Central Bank and implemented a strict system of non-automatic import licenses to contain the drain of foreign currency caused by the exchange rate ceiling.
The exchange rate gap soared above 70%, the economy went into recession in the first quarter of 1985, and inflation soared to 804% year-on-year in February.
With this violent stagflationary episode, Argentina lost its monetary sign, and the Argentine Peso (law 1983) became a paper with no backing or value in goods and services.
The radical president culminated in the first monetary destruction of his administration.
THE FAILURE OF THE AUSTRAL PLAN AND ALFONSÍN’S “CORRALITO”
The new economic team led by economist Juan Vital Sourrouille replaced Grinspun and quickly launched the so-called “Austral Plan” in June 1985, three months after taking office.
The program included the reduction of the fiscal deficit with a drastic increase in internal taxes while at the same time replacing the “Argentine Peso” with the Austral and establishing severe freezes on prices, salaries, tariffs, and exchange rates.
The fiscal deficit was not eliminated despite increased social charges on labor, income tax, withholding taxes, and import tariffs.
By 1987 it grew sharply again, a fact explained mainly by the colossal imbalance of the massive state-owned enterprises and the so-called “quasi-fiscal deficit” of the telephone bills issued by the Central Bank (similar to the current Leliqs).
The controls and freezes were re-launched twice more to save what was left of the economic program, but the efforts were in vain.
The first attempt occurred in October 1987 and was quickly consumed in only 3 months, while the second attempt (the Spring Plan) was launched in August 1988 and met the same fate.
By April 1989, inflation was already over 460% year-on-year, and the banking system was on the verge of collapse.
Due to the bad reputation of the government and its program, inflationary expectations soared, and the demand for the austral plummeted.
This provoked panic among savers, who stopped trusting in the adjustment of interest rates and sought to withdraw their bank funds to quickly transform them into dollars and thus protect themselves from inflation.
The Alfonsín government responded by establishing a strict limit to withdrawing funds from banks, formally known as “Corralito“, to avoid the financial system’s collapse, which was much more challenging and dramatic than the one established sometime later by Fernando De la Rúa November 2001.
“Towards the end of April 1989, faced with the prospect of a hyperinflationary outbreak, the Argentine monetary authorities introduced severe restrictions on cash withdrawals from bank deposits.”
“This temporarily provoked the emergence of a bi-currency monetary system: the austral bill and the austral check”, explained CEMA in October 1990.
President Alfonsín was forced to hand over power to his successor, with an extremely painful inheritance.
The poverty rate measured by today’s standards reached 58.9% in the second half of 1989, real wages accumulated a drop of 18.5%, the minimum retirement pension fell by 65%, and the average retirement pension lost up to 67% of its value during the radical presidency.
Economic activity plummeted by 12.7% between the first quarter of 1988 and the second quarter of 1989.
Industrial production fell by as much as 24% in the same period.
The worst hyperinflation in Argentine history broke out: retail prices soared 17% in March 1989, 33.4% in April, 78% in May, 114% in June, and up to 197% in July, while year-on-year inflation exceeded 5,000% by the end of the year.
* Radicalism (from French radical) was a political movement representing the leftward flank of liberalism during the late 18th and early 19th centuries and a precursor to social liberalism, social democracy, civil libertarianism, and modern progressivism.
This ideology is commonly referred to as “radicalism” but is sometimes referred to as radical liberalism or classical radicalism to distinguish it from revolutionary politics.
Its earliest beginnings are during the English Civil War with the Levellers and later the Radical Whigs.
With information from Derecha Diario