This article is from the WeChat official account: 82 degrees (ID: jianxiaojoy), the author: 82 degrees, and the picture is from Visual China
Recently, a news article about Argentina and China has been trending.
On July 31st, Argentina announced that it would use the Chinese yuan to repay $1.7 billion in debt, and expressed special gratitude to China for its assistance. Argentina has set a precedent in the world for repaying foreign debts with the Chinese yuan.
I think people online are generally concerned about two questions: Argentina used to be very rich, how did it become so poor and still owe so much debt, and still need to use RMB to repay debts? During this period, China has been focusing on stabilizing its exchange rate. Is it good or bad for us to give these RMB to Argentina?
Today we will talk about how Argentina, a country with a per capita GDP that once ranked in the top 10 in the world, is now so poor in terms of money? It is the only country in the world that has transformed from a "developed country" to a "developing country". What happened? And why are we helping Argentina?
1、 How did Argentina get rich?
As you all know, Argentina has a name - Spanish speaking Italian country. In this South American country, there are particularly many white people. Currently, at least 60% of the population in Argentina is of Italian descent.
Argentina is described as the "Southern Cone" in the southern part of the American continent, which is shaped like a cone head. South America has a characteristic of abundant resources and abundant products, making it the best land in the Americas.
This place used to be ruled by the Inca Empire without Europeans, and was filled with Native Americans everywhere. But the Native Americans in the Americas are not united, and there are thousands of Indian tribes on the entire American continent that are hostile to each other.
Later, Europeans discovered the American continent and saw its abundant resources. The earliest Spanish colonizers wanted to establish strongholds in the Americas for easy plunder.
The hostile situation of these Indian tribes gave the Spanish an opportunity to form alliances with some tribes to deal with other tribes and break them down individually. At the same time, Europeans also brought diseases to this land, and Native Americans were scattered, gradually conquering this land.
The Spanish spent two hundred years establishing a total of four governor's districts in the Americas. Among them, due to limited resources, the Governor General's District of Laplata was the latest and least valued among the four major Governor General's Districts. It was not directly established as a Governor General's District, but was only distinguished from the Governor General of Peru in 1776. Later, Argentina belonged to it.
How did this area develop?
In 1542, a large silver mine was discovered in Potosi, South America. Potosi's silver had to be shipped out, and the role of Argentina in the Governor General's District of La Plata was highlighted.
The transportation of silver from Potosi is divided into two lines, with the northern line departing from the port of Arica in Peru and passing through Panama to Cadiz in Spain; The southern route starts from Buenos Aires, Argentina today and passes through Rio de Janeiro to Seville, Spain. As you all know, Buenos Aires is now the capital of Argentina, the largest city in the southern hemisphere, and an important port on the Atlantic coast.
As an important hub for transporting Potosi silver, Argentina has slowly developed.
The earliest Spanish immigrants to the Governor General's District of La Plata, centered around Buenos Aires, gradually established schools, hospitals, post offices, theaters, and other industries, as well as some textile, shipbuilding, and food processing industries.
After the French Revolution, Spain was defeated by Napoleon in Europe, and the king was also captured by the French army. The monarchy weakened, and France wanted to manage it again. The centrifugal force on this colony in South America grew stronger. Finally, in 1810, Argentina erupted into a revolution and subsequently became an independent nation.
By the way, Argentina has become a country, mainly white. At that time, the number of Spanish immigrants in the entire La Plata district was only a few hundred thousand. Due to the unsuitable climate for plantations here, there is no need for black people, and the Native Americans have been killed, making it a predominantly white country, with white people accounting for 95% of the total population.
Why has Argentina become a Spanish speaking Italian country again? Because Italy later launched a unification war, a large group of Italians fled to the Americas to avoid disaster. Some of them settled in Argentina, with at least 2 million people surpassing the Spanish. The wave of Italian immigration only ended in 1955, when Italians accounted for 36.7% of the country, Hispanics for 25.7%, and Germans for 20.2%. After government training, everyone spoke Spanish uniformly. Until today, out of Argentina's 44 million people, nearly 30 million are of Italian ancestry, accounting for over 60% of the national population.
In the process of getting rid of colonizers, South America also entered a situation similar to warlord melee.
After independence, Argentina battled with Brazil and Chile while attacking the south. By 1884, the last group of Native Americans in the south surrendered to Argentina, and the Native Americans lost all their territory. With no territory to conquer, Argentina began to enter a period of great construction.
How did Argentina get rich? Simply put, it is based on the three major sources of "substantial investment in Argentina by international capital mainly from the UK, export of agricultural products, and large immigration mainly from Italy".
How to develop the economy after stabilizing? I took a look outside, and at that time, Britain was promoting free trade, the United States was also promoting free markets, and Argentina was also starting to liberalize.
Argentina has high-quality agricultural resources that can produce high-quality beef, mutton, and food. So Argentina began to develop agricultural trade.
Under the liberalization policy, Argentine domestic landlords and oligarchs hold the lifeline of the entire country's resources, such as grasslands, mines, cultivated land, and other resource-based production factors.
How are agricultural products produced, sold to whom, and shipped out? We need to build factories, find buyers, build railways, and so on. Argentina introduced foreign investment and allowed it to invest freely, building railways and factories.
During this process, apart from France, the UK was the main contributor, while most of Argentina's railways and factories were built by the British.
These investors have gained significant wealth in Argentina. The return provided by Argentina is high-quality agricultural products, as well as ownership of 15 kilometers of land along the railway, and a large amount of land is sold to them at a low price.
With the help of the British, Argentina built a developed railway network. At its peak, Argentina's per capita railway exceeded that of the United States, with a density of 173 kilometers per 10000 square kilometers.
At the same time, due to the shortage of manpower in Argentina at that time, it opened up the possibility of absorbing immigrants from all over the world. The movement of goods and people in Argentina has also attracted a large number of immigrants to settle here.
How glorious was Argentina once?
The vertical and horizontal railways have significantly improved efficiency, transporting more cattle and sheep overseas. Countries like the UK supply one-third of their meat to Argentina. Since the mid-19th century, Argentina's exports of meat, minerals, grains, and cotton have been among the top in the world, known as the "meat depot of the Americas" and the "granary of the world". As a result, Argentina has made a lot of money.
By the late 19th century, Argentina had become the 7th largest economy in the world and was also known as the "United States of South America". Subsequently, European immigrants flooded into Argentina.
During the period of World War I, Argentina's per capita income had already caught up with major powers such as the United States and Britain. In 1914, Argentina's per capita income was at the same level as that of the Netherlands, slightly higher than Spain, and it was already the world's second largest wool exporter and third largest livestock producer. Buenos Aires was thriving in the Americas, only lagging behind New York.
In 1945, Argentina's per capita income was three times that of Brazil and twice that of Mexico. In 1950, Argentina was still as wealthy as Canada and Norway, thanks to their high-quality products and railway network.
But note that Argentina's wealthy mainly consist of landlords and oligarchs, and it can be said that each one is wealthy enough to rival the other. And the bottom of Argentina is very poor. Just like now, Argentina's rich and poor neighborhoods are closely adjacent and distinct from each other.
2、 How did Argentina become poor?
How did a country that looked so wealthy and had such a high per capita income become debt ridden and economically stagnant?
As mentioned earlier, with foreign investment mainly from the UK, Argentina has developed a foreign trade in agricultural products, which has earned a lot of money. As a result, World War I and World War II broke out, which had two main consequences. Firstly, Britain was too busy and Argentina's foreign investment decreased.
Secondly, there has been a decrease in the import of Argentine agricultural products by Europeans. This time, Argentina's income has significantly decreased.
Can we export something else? Argentina's main export products are just a few, mainly meat, minerals, grains, and cotton. As mentioned earlier, Buenos Aires in Argentina is an important maritime port, so what happened to logistics after World War II? Unfortunately, after World War II, global cargo ships all passed through the Panama Canal and did not cross the Strait of Magellan, so Argentina's logistics have also deteriorated compared to before.
At the same time, Argentina's internal expenses are not low. As mentioned earlier, Argentina is open to immigration, with an increasing population and high management costs. So, the money became increasingly tight. Moreover, during this process, inflation within Argentina has increased.
Speaking of this, looking at the rise and fall of Argentina's economy, there is a hint of resource curse. Due to the abundant agricultural resources, the development of agriculture is logical. Unlike some places where agricultural resources are scarce, one can only think of alternative livelihoods, such as Massachusetts in the United States. Farming is not feasible, but fishing can be done in the sea, so fishing has to be developed. But fishing requires shipbuilding, and shipbuilding requires smelting iron, brewing wine, and so on. So, without conditions to create conditions, it was possible to achieve it, and as a result, the path of industry was opened. Slowly building canals and laying railways will lead to increasingly prosperous development.
Why is it that relying solely on agriculture for development is not sustainable, while industry can grow stronger and stronger?
A very basic point is that the output of agriculture is too limited by natural conditions, and industry can break free from the constraints of many natural resources, thereby having a stronger function of self reproduction.
Workers with money have purchasing power, and as demand increases, businesses can expand their production and continue to hire more workers. In this way, the economy circulates. Moreover, the development of industry requires continuous updating of knowledge, improvement of technology, and further improvement of production efficiency.
Of course, at the beginning, everyone may not have realized this issue, but because of resource differences, everyone has embarked on different development paths, so Argentina has the meaning of a resource curse. After all, compared to taking advantage of the abundant resources available, the industrial journey was initially difficult. Some countries developed their industries by chance, resulting in sustained development engines. Moreover, to develop industry, there must be buyers who can sell it. At that time, Argentina relied on foreign investment to contribute to its development, and its complementarity in agricultural products with European countries such as the UK was stronger.
Later, did Argentina realize the growth problems brought about by the single development of agriculture, and did it consider other "ways to generate wealth" that could continue to create wealth?
Yes. Argentina has tried to develop industry, but has not been successful. In 2021, the manufacturing industry only accounted for 15% of Argentina's national GDP.
The reasons for the failure of Argentina's industrial transformation and development can be summarized as two: firstly, it only focuses on the total amount and does not care about distribution, resulting in significant internal contradictions; The second is long-term internal friction and political instability. These two points make it easier for Argentina to run out of money and harm long-term interests for short-term needs, forming a vicious cycle.
As mentioned earlier, the polarization in Argentina is very severe, with the rich being very rich and the poor being very poor, making a clear distinction. When the country's finances are good, problems can be covered up. But with poor finances, the contradiction becomes prominent.
After the outbreak of World War I, although Argentina did not participate in the war, it triggered intense inflation and various contradictions were ignited. For example, the strong demand for the government not to continue introducing immigrants has also led to violent conflicts.
The end of World War I was immediately followed by the Great Depression of 1929. After the outbreak of the economic crisis, various countries raised high tariffs and engaged in trade wars. Argentina, which relied on exports, suffered heavy losses, large-scale layoffs, inflation, and people's lives became increasingly difficult. The originally fierce class confrontation intensified.
In 1930, the Argentine army overthrew the President at the call of the people. From this moment on, Argentina entered a cycle of military coups, and the previously adhered liberal economic path was also completed.
During this period, Britain, the United States, and others were all engaged in trade protection, and in order to protect their own farmers, Argentina also implemented trade protection. At the same time, like Germany, it has established a defense industry, producing weapons to drive employment.
After more than a decade of chaos, Colonel Bellon led the military corps to launch another coup, overthrowing the government, and subsequently Bellon was elected as the leader of the Labour Party as President.
Belon claims three principles: political sovereignty, economic independence, and social justice.
Simply put, the approach is to confiscate the investments of European and American companies, reclaim the British French railways, and nationalize these assets; Not standing in line during the Cold War; Developing domestic industry; Provide housing, schools, hospitals, nursing homes, and welfare services to the poor.
The idea is very good, like railways, which are very profitable, but the previous profits were all made by capitalists. After nationalization, workers can be paid more wages.
On the one hand, Argentina's nationalization was not successful. Without experience in nationalization, Argentina's subsequent nationalization resulted in superficial personnel and obvious internal corruption issues.
On the other hand, foreign investors coming to Argentina have left one after another, a large number of banks have closed down, agricultural and animal husbandry production has decreased, and food, oil, and gas prices have started to skyrocket. By 1952, wages had risen by 35%, but prices had risen by 73%, and annual inflation had reached 30%. At the same time, high wages and benefits have caused a large number of private enterprises to be overwhelmed.
In short, if the economy fails to produce results, start rushing to grab a wave of money. As a result, the recession continued and the people continued to stir up trouble. Finally, in 1955, another coup occurred, and the military forced Belon to resign. After his resignation, the military government began to vigorously step on the accelerator in the direction of "de Belongization" and dismantled Belon's system.
But the military government is even less concerned about the economy, coupled with severe internal strife, which has caused the Argentine economy to stagnate throughout the year, with unemployment and inflation becoming increasingly severe.
In short, Argentina has not had a normal government since 1946. In 1982, the Falklands War also broke out. At that time, the Falklands were in the hands of the British. In the 1970s, oil was discovered around Falklands, and in 1982, the Argentine President hoped to reclaim Falklands from the British. As a result, Argentina lost the Falklands War and became a national disgrace.
But through this war, the Argentine military government fell, and the Argentine government frantically weakened the military. At the same time, the chemical, steel, and electrical enterprises that the military had once controlled were also privatized, and aircraft carriers and destroyers were retired one after another.
Looking back, Argentina has basically tried all economic models since World War I, and at the same time, there have been coups every few years. From 1930 to 1983, only three presidents in Argentina completed their terms, and the rest were overthrown. Argentina's economy minister is changed once a year on average, and even occasionally three times a year, indicating the chaotic state of Argentina's economic policies.
In the following years, coups, demonstrations, inflation, and debt defaults became daily routines in Argentina.
In the 1990s, Argentina missed the golden development cycle of 50 years after World War II and missed the opportunity to upgrade from an agricultural country to an industrial country.
In short, Argentina wants to develop industry, so if it doesn't have money, it borrows money and owes a large amount of foreign debt; Trying to replace it with imports harms local industry, leaving the lifeline in the hands of others and often leading to imported inflation.
In recent years, Argentina has also borrowed money from multinational corporations to tap into Argentina's resources, but after the resources were dug up, they ran away and Argentina still had to continue paying back the money.
So, we can only rely on selling some agricultural products and borrowing foreign debt to maintain our household business, but due to continuous borrowing and instability in agricultural product prices caused by international market fluctuations, the Argentine economy has not been able to regain its glory; At the same time, the high welfare social mechanism of spending money still exists, and the debt accumulates, creating a vicious cycle in the economy.
3、 Why are we helping Argentina?
As you all know, at the beginning of last year, as inflation in the United States rose to its highest level in 40 years, the Federal Reserve began its interest rate hike cycle in March 2022, pushing interest rates to their highest level in 22 years.
This makes many countries around the world quite nervous, especially countries like Argentina that are very dangerous.
Because the interest rate hike cycle in the United States is its' harvest season '. Who will harvest it? Mainly those countries and regions with limited US dollar reserves, a large amount of US dollar debt to be repaid, and strong financial market openness.
Such countries face the risk of debt default, and once there is not enough US dollars to repay their debts, their core assets may be acquired by foreign investors at a low price.
This is also the usual way for the United States to harvest the world: the first step is to release water, invest a large amount of dollars overseas, and raise asset prices in emerging countries; The second step is to raise interest rates to drive the return of the US dollar. This has led to a sharp decrease in the US dollar in these countries, an appreciation of the US dollar, a devaluation of other countries' currencies, and a significant decline in assets such as house prices and stock prices; The third step is for the US dollar to make a comeback, taking advantage of cheap and high-quality assets to earn a huge profit margin. During this process, many countries have implemented thorough economic liberalization, even allowing foreign investment to control their core industries.
At this point, these emerging countries not only have fewer dollars in their hands, but may also have to borrow money from the World Bank and the International Monetary Fund (IMF) to repay their debts. This has earned American capitalists a lot of money.
The United States reaps the global harvest by creating such a "dollar tide," also known as the "dollar cycle," which has been tried and tested repeatedly. And countries that have experienced the bursting of asset price foam are easy to fall into depression. Among them, emerging markets, especially in Latin America and Southeast Asia, have been the ones that have suffered the most from the previous Fed rate hikes.
There is not much US dollar reserves in hand and a large amount of US dollar debt needs to be repaid, which is the current situation in Argentina.
As of the end of 2022, Argentina's external debt reached $276.7 billion, but its foreign exchange reserves were only $44.6 billion. At this time, Argentina also encountered difficulties in earning foreign exchange. Due to the dry weather, Argentina's corn and soybean exports suffered a heavy blow this year, leading to a significant decline in its foreign exchange reserves. In the first half of this year, Argentina's foreign exchange reserves decreased by over 10 billion US dollars. In addition, in 2016, the continuous interest rate hikes of the US dollar caused severe capital flight and currency depreciation in Argentina.
The Argentine government has to borrow from the World Bank and the International Monetary Fund (IMF). As a result, Argentina was deeply mired in debt.
Currently, Argentina is facing the most severe economic crisis in nearly 20 years, and it seems to have fallen back into a situation where currency crises, financial crises, and economic crises that have occurred in history are intertwined.
So, in order to reduce its dependence on the US dollar while not defaulting, Argentina made a pioneering move: to repay its foreign debt in Chinese yuan - a $2.7 billion debt repayment to the International Monetary Fund (IMF), of which $1.7 billion was paid using the International Monetary Fund's Special Drawing Rights (SDRs)