Argentina: An Economic Chronicle. How One of the Richest Countries in the World Lost Its Wealth [Paperback]

 

 

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This booklet of 150 pages tells Vito Tanzi's story as an economic observer and consultant about the surprising economic development of Argentine, from one of the richest countries four decades ago to bankruptcy in 2001 and a rapid recovery. The most recent period of Argentinian economic history may also provide lessons for heavily indebted countries currently close to bankruptcy, e.g. Ireland, Greece and Portugal. Also some personal stories about meeting Argentine people and the beautiful landscape in Patagonia are included.
Tanzi offers a nice inside view of a three decades long battle between politics, corruption, economic consultancy and the IMF. He stresses that the task of an economist is to understand the complex economic relations and to help avoiding major policy mistakes. Standard macro-economic thinking ("Focusing only on macro-economic numbers ... is like trying to understand what is happening on the ground while looking down from a plane flying at 10,000 metres high", p. 100) and short term legalistic thinking do not suffice for this.
For example, they overlook the Tanzi-effect on tax revenue (high inflation increases the timelag in tax collection and therefore substantially reduces overall tax revenue; vice versa: a subtantial reduction of inflation generates an unexpected bonus in terms of tax revenue), the role of corruption (In Buenos Aires some big avenues are one-way traffic, the side of the buildings facing the drives has great rental value for displaying publicity,the opposite side could be rented at a very low cost and then the military officer would change the direction of traffic!, p. 44) and the evasion of fiscal targets and rules in case they become too tight or do not fit political agenda's. In the latter case, politicians offer all kinds of magical solutions for improving government finance, in particular in the short run, like privatization of public corporations (this revenue can be boosted by granting all kinds of monopoly powers to the private parties), selling land and offices and leasing them back,privatization of tax collection, more sophisticated computers for tax collection and introduction of a single tax on all transactions while abolishing all other taxes. When IMF makes proposals, the Argentinian government usually follows the painless advices (e.g. abolish all kinds of small taxes with high administrative burden), but ignores the painful ones (e.g. introducing a substantial personal income tax or reducing the many holes in the tax base) and still argue that they had complied with most of the Fund's recommendations.
Lack of internal concensus on IMF policy is also clearly demonstrated: Tanzi preferred to stop extra IMF loans in order to force the Argentinian government to reduce government expenditure and restore the health of public finance, while other experts/managers from the IMF preferred extra loans due to other economic arguments (improving economic growth by investing in infrastructure financed by new IMF loans) and political arguments.
A central argument in the book is that the Argentinian government was now and then successful in raising tax rates and improving the structure and collection of taxes. However, public finance did not become sustainable, as about half of the federal tax revenue goes to local government and reduction of government expenditure was also needed but hardly ever attempted. This latter part is interesting but not at all discussed. This bias in the discussion of the successess and failures of Argentinain economic policy is the major drawback of the book. This bias probably reflects the personal expertise of Tanzi as tax expert and former head of the tax department of IMF.

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