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  Félix Peña

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  Comments on Argentine Trade (American Chamber of Commerce in Argentina) | Junio de 1992

Strategy for argentine integration in the world economy


In a paper presented during a seminar in Oxford, England on "Argentina: The Experience of Economic Adjustment in a Democratic Context" (March 1992), Felix Peña, Assistant Undersecretary for Mercosur and Inter-American Economic Relations of the Foreign Ministry, spoke of the international insertion of a renewed Argentina, the national drive toward world competitiveness, the four main fronts where the country is focusing foreign negotiations and its strategy of multiple alliances.

The current strategy of Argentine insertion into the world, economy stems from the country's choosing democracy, economic modernization through incorporating technological progress in a context of social equality, and competitiveness on a global scale. It is the external expression of an Argentina which in recent years has undertaken a profound process of transformation to overcome the traits of an introverted and little competitive society which characterized it for several decades.

This strategy responds to a national concensus that has developed following the return to democracy, in the sense of a society, which aspires to be open and pluralistic, achieving the consolidation of its own values and institutions and begins to perceive itself as having great potential for competing with greater advantages than before on the world economic scene of the end of this century.

This doubtlessly reflects the optimistic vision of a society which in recent decades had the strong tendency to look upon itself as marginated and marginal to world happenings, especially in relation to the Organization of Economic Cooperation and Development member nations. Beyond the objective data which illustrates that marginality, for instance in terms of the relative participation in OECD imports, perhaps the most serious was the impact which that real data had on the idea that society had of itself regarding its place in the world.

For many years, Argentina was a society marked by the kind of insecurity inherent in the syndrome of loss of status, of decline, of that which at one time was called the phenomenon of athymia (pathological lack of feeling). That also explains the persistent tendency in the past for Argentines to debate among themselves whether belonging to the "Third World" or the "First World," or the importance in the 1970s of the question of "dependence" in relation to "insertion into the world of Western, Christian civilization."

The development of a pessimistic attitude of its relative value and the country's possibilities in the world led to an intensification of a defensive in­ternational behavior, little inclined toward competitivity but on the other hand with a great propensity for magnifying obstacles, such as those that were brought up in the early 1970s related to our farm exports that were affected by the EEC's Common Agricultural Policy.

In losing its competitive reflexes, the society and the economy were extremely weakened in their ability to first understand and then adapt to the great changes that were taking place in the world economy, for example, the economic development phenomena taking place in Japan and Southeast Asia.

And Argentina was not a unique country in this regard. On the contrary, history shows that nations, like individuals, are constantly affirming their identity in the perception —based on a variable mixture, according to each case, of both subjective and objective factors— they have of their relative im­portance in the world which surrounds them.

De Gaulle pointed this out in the case of France in the very introduction of his Memoirs, the case of Europe was recently reflected in "Euro-optimism," and the uncomfortableness which Paul Kennedy's book provoked in the United States indicates that not even North Americans can escape from the insecurity produced when perceived as declining. More recently, the fury which the Japanese leaders sparked in their statements about the inferiority of American workers also illustrates that ceasing to be "Number One" is very difficult for a society to swallow.

The truth is that following spectacular growth from the end of the last century up until the great world economic crisis in the 1930s, Argentina —especially beginning in the late 1940s— did not only begin to grow stagnate, but it also started to have serious objective difficulties in its real insertion into the world economy and, in consequence, its perception of its role in the world.

It lost its special economic relation with Britain, its privileged position in the ranking of Latin American nations declined, and the foreign sector of its economy posed recurring internal economic crises following the first years of the post-war.

This history is well-known and not necessary to review now. But it can be summed up in a reality expressed in almost all the economic indicators taken into account: a growing increase in the "degree of redundancy" in Argentina economy, of the goods and services it could generate for the world economy, especially for the OECD countries.

The current situation is like being at the end of a long road of economic deterioration and political instability, beyond which a horizon of insecurity arises, but one which offers a reasonable spectrum of possibilities. And that accounts for the optimism which is beginning to be observed in the country.

Cautious optimism, because memories are full of fresh recollections of either moments when it was also thought that the country was on the verge of initiating an era of stability and growth. The expectations have changed, but they tend to take shape prudently in economic behavior favorable to productive investment.

There have been many years of instability for the conditioned reflexes of survival against inflation to disappear all of a sudden. Successful financial speculation, excessive protective tariffs and dependency on state favors have been rooted so deep in Argentine economic culture that their definitive eradication will doubtlessly take time. We must not forget that from the point of view of economic operators, those factors were intimately linked to an economic behavior considered as the only rational option bearing in mind the circumstances which surround them.

But yes, the change in Argentina's "mood," in its expectations and attitudes does now seem based on objective conditions more favorable to their consolidation. Let's look at some of them.

The first has to do with the consolidation of democratic institutions and the emergence of a national political culture more inclined to uphold them. The cruel tests of the last two decades have produced social attitudes more akin to negotiation and conciliation.

Among other factors, having lived through dramatic extreme situations produced by the dialectic subversion-repression, by the South Atlantic conflict and by the abysm of social chaos resulting from hyperinflation helped, together with the internal democratization of the Justicialist Movement and the dynamic policy introduced by the phenomenon of federalism, to give rise to those attitudes.

The second condition is related to the social perception of an outdated economic model. State bankruptcy, linked undoubtedly but not solely to the crisis produced by the foreign debt, exhausted the possibilities of living beyond available means in an economy which only alternated between moments of little growth and moments of negative growth.

The heavy foreign indebtedness of the late 1970s was the last resource to escape from the realities of a deteriorating national economy. The two bouts with hyperinflation in 1989 and 1990 complemented beyond any doubt the picture of an economy which could no longer sustain either society's aspirations for well-being or democratic coexistence.

The third condition is tied to the dramatic changes introduced in the international political and economic scenario due to the double phenomenon of the end of the Cold War and the globalization of the world economy.

The collapse of Soviet communism exhausted one of the main external sources of political instability throughout Latin America. This was especially seen in the pronounced differences with the United States on the true nature and the real scope of the change processes which several countries in this hemisphere tried to develop during the decade of the sixties and seventies.- And also in the feet that the East-West confrontation also had Latin America as one of its battlegrounds-. The last manifestation of this phenomenon was the civil war that ravaged Central American during the past decade.

The constant association of "change" and "progress" with "communism," especially in the eyes of America and regional elites, created serious difficulties for democratic processes in the continent- and for many of the efforts undertaken in those years to overcome some of the structural reasons for economic backwardness through fiscal, agrarian and foreign trade reforms.

The East-West ideological conflict introduced in the region halted the march toward more open, competitive and democratic societies .which had begun towards the end of the 1950s, especially in the Southern Cone countries. Internal conflicts became more radicalized, on the one hand due to the belief that all in-depth change meant, explicitly or implicitly, an option for the Marxist model; and on the other, in fact in many cases the Marxist model —in its Soviet version and later Chinese— was considered in the internal political struggle as a viable alternative. All this partly explains the problems that Argentina, among other Latin Ame­rica countries, had in finding an alternative economic model to that which predominated as of the 1930s, which was centered on the dynamic role of the state: in economic development.

The failures in the attempts at democratic rebirth in the early sixties led any economic model different from the dominating paradigm —and based on the predominance of the market, private initiative arid economic competition— to become associated with authoritarianism, the negation of democracy and political repression.

The problem became aggravated because in practice the military-bureaucratic systems put more emphasis on the rhetoric of economic liberalism than on the real transformation of the guidelines which regulated economic activity. Fear of freedom led them to confide more in accumulation, centered or oriented basically on the state's role, than in the effect of competition and initiative in a civilized society.

Therefore, it is possible to maintain that the Cold War had its most negative impact on Latin America, by in practice annulling the possibility for opting for an open society in which contradiction and an attitude of confrontation, in a climate of liberty and a context governed by law, could have been transformed into the most nourishing sources for innovation and creativity and, therefore, social progress.

The lack of political competence annulled, or at least substantially reduced the chances of introducing efficient economic policies in the region, based on the market and economic competition. Combined as of 1982 with the exhaustion of the possibilities of foreign indebtedness, it ended up manifesting itself in accelerated technological obsolescence of the productive apparatus, consequently, in the growing loss of international competitivity.
The globalization of the world economy, in turn, has had a double effect on Argentina and, in general, on the whole of Latin America. On one side, it intensified the pace of displacement of its competitive edge, both in relation to world trade and to capital flow. As a consequence, Argentina's exports and those of other Latin American countries gradually lost competitivity in OECD markets, especially against Southeast Asia and, in the area of farm products, against the EC countries themselves.

On the other side, it stepped up the tendency toward the creation of mega-markets with an enormous potential to be, either huge protectionist fortresses or effective launching pads to compete in world markets. Capital was more attracted to those countries with guaran­teed access to large markets with high consumer levels than to Latin Ame­rican nations which, besides their macroeconomic disorder, offered little prospects of guaranteed access to the EC, US or Japanese markets.

On top of the phenomenon of the "Asia Tigers" —formidable competitors for Latin American countries both in attracting capitals and in their efficiency in penetrating industrialized markets— was added; as of 1989, the eco­nomies of Eastern Europe which, perhaps hurriedly, were at first also looked on as potentially fearsome competitors for Latin America, whether in attracting international public financing, direct investments or in receiving preferential trade treatment, especially from Western Europe.

Both phenomena made it evident in Latin America, and also in Argentina, that in the world of globalization, of mega-markets, of the post-Cold War and the post-foreign debt crisis, there were not many alternatives for organizing themselves to compete as nations in world markets; other than introducing profound domestic economic changes through | applying what has come to be called the "Washington concensus" economic model based on trade liberalization, privatizations, economic deregulation and a great effort to incorporate technological progress in order to reach satisfactory levels of international competition. The recent CEPAL report on "Social Justice and Productive Transformation: An Integral Focus" (LC-L. 668: January 6, 1992) makes it clear that this model can and should be compa­tible with the efforts to overcome profound social deterioration which recent years of stagnation have produced in Latin America.

This study opens a debate in Latin America today for conceptual and ope­rative enlightenment on the "Washington concensus" in the search for policies which truly allow for conciliating structural adjustment, productive transformation, social justice, democracy and international competivity.

National drive toward international competitively

The central focus of Argentina's current strategy for insertion into the world economy revolves around the need to develop a foreign economic context which looks favorably on the country's three-fold drive toward democratic consolidation, productive transformation and international competitivity.

As in the case of most Latin American countries, strategy is directed toward creating an external "habitat" favorable to the internal efforts for political and economic renovation. So the strategy is from the inside out. It projects in external action the values and interests of societies that want to affirm a culture of competitivity in all its dimensions, especially in the political and the economic.

The drive for competitivity is increasingly seen as the result of a mobilized society and not just as an economic phenomenon concentrated on the imperative to export. Therein lies the main concern to affirm national competitivity in a tight-knit fabric of social solidarity and organization which gradually transforms the question of domestic social justice into an essential condition for competitive insertion into the world economy, as put forward in CEPAL's report in its April 1992 conference.

Once internal change is achieved, the strategy is intimately tied to the efforts to control macroeconomic factors and investment, incorporate advanced technology, produce and compete.

Its main goal is to make national economy highly attractive for productive investment coming from its own capitals and international sources. The message to the investor, attracted by the multiple options opening in I the world as a consequence of the impact of globalization on the flow of capitals and technology, is that by also investing in Argentina he can hope to reproduce competitively in order to penetrate world markets, especially the OBCD countries.

Therefore part of the effort geared to creating an internal environment favourable for investment and competitivity presents, in addition to controlling macroeconomic factors, at least three elements which are essential for luring investment:

  • A substantial reduction in the "Argentine cost" through reforms which have been begun on the financial and fiscal fronts, as well as in the fields of energy, transportation and labor costs.

  • The creation of an internal legal framework comparable to world jurisprudence to safeguard the investor, including legislation on intellectual property rights and binding contracts guaranteeing foreign investment.

  • Support for negotiation efforts in a multilateral framework favorable to the liberalization and expansion of world trade, especially in the context of GATT, as well as forging a network of international economic alliances which reduce or eliminate the uncertainties of access from Argentina to world markets.

It is clear that in an open and pluralistic society, a strategy for integration in the world economy cannot be the task of a government alone, nor its exe­cution concentrated solely in it. The idea is that governmental action can only facilitate the proper framework for the external projection of a civilized society, especially of its business class.

So just as on the domestic front where the greatest effort for competitivity lies on the entrepreneurial level —for which it is definitely necessary to create structural conditions for competitivity through macroeconomic policy— on the foreign front the crux of the question also relies on how businesses project toward world markets their ability to produce goods and provide services, or how they develop a global and regional strategy to supply inputs which allow them to lower costs and substantially improve the quality, and thus, the competitivity or their products and services.

Félix Peña es Director del Instituto de Comercio Internacional de la Fundación ICBC; Director de la Maestría en Relaciones Comerciales Internacionales de la Universidad Nacional de Tres de Febrero (UNTREF); Miembro del Comité Ejecutivo del Consejo Argentino para las Relaciones Internacionales (CARI). Miembro del Brains Trust del Evian Group. Ampliar trayectoria. |

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