Posted by on September 20, 2019 10:10 am
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Colombia may be the home of magic realism as a literary movement, but Argentina seems to be the home of magical thinking as a governing philosophy. The latest trend in magical wish fulfillment has Argentines looking across the Atlantic Ocean to Portugal, which supposedly enjoyed a “miraculous” economic recovery without the need for tough reforms — holding out hope that Argentina can perform a similar gravity-defying leap. But it just isn’t so, notes Aldo Abram of the Argentine thinktank Libertad y Progreso in Clarín (English translation here): in fact the Portuguese recovery was the result of major overhauls to its economy, which saw some short-term adjustment but ultimately set the stage for long-term growth.

 

 

  • After a disastrous turn under Socialist Prime Minister José Socrates, Portugal’s state spending reached 52% of the country’s GDP, while the tax take couldn’t keep up, forcing fiscal deficits to 11% of GDP. When the financial crisis hit the economy tanked, and a new center-right prime minister, Pedro Passos Coelho, took power in 2011.

 

 

  • There was nothing miraculous about what came next: Coelho had to compromise with the “troika” made up of the IMF, the European Central Bank and the European Union. Under his government, fiscal austerity pushed state spending down to 45% of GDP and the fiscal deficit down to 4.4%. Reduced state spending meant cutting a fifth of of state employees and lowering wages for those who remained by almost a quarter.

 

 

  • In the private sector wages also fell substantially, as did working hours, while the legal retirement age was raised. After unemployment reached 17% in 2013, difficult labor reforms were passed and subsequently unemployment fell to 12% in 2016 (and today it is down to a very respectable 6.7%

 

 

  • In conclusion: “So there was no miracle. Just get down to work and solve the country’s underlying problems; That is the first lesson that we Argentines should take. It is impossible to avoid a crisis if you try to maintain a useless state that is impossible to pay…”