Why Brazil Isnít Argentina

by Ted Goertzel

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When youíve seen one wasteful, debt-ridden, poorly managed South American economy youíve seen them all, right? That's what too many Americans think.  And it is hard to blame them when newspapers and television commentators talk about "Latin America" as if all the countries were the same.  There's even talk of "contagion" as if Argentina had some kind of Mad Economist's Disease that could spread to its neighbors.  Unfortunately, while economic mismanagement is not contagious, panic is.  Brazil's economic future will be much smoother if the world's bankers, investors and political leaders don't slip into a herd mentality.  Brazil isnít Argentina, and it isnít likely to follow Argentina into financial collapse. Hereís why.

    Letís start with the bottom line. Brazilís economy has grown remarkably over the last forty years. Argentinaís has not. Brazil experienced only brief periods of stagnation during the debt crisis in the early 1980s and the inflation crisis in the early 1990s. It dealt with both crises responsibly, recovered and went on to resume its growth. For Argentina over the same period, rapid growth has been the exception, stagnation the rule. The only really striking growth Argentina experienced over the last four decades was in the early 1990s, and that led up to the recent collapse. If we categorize countries according to their economic track records, instead of their geography, Brazil belongs with the winners, Argentina with the laggards. Argentinaís other important neighbor, Chile, has also done very well, at least since the mid-1980s.


    Geography is not destiny; countries can do very well on the southern cone of South America, as Brazil and Chile have snown.  But why has Argentina done so much worse than its neighbors? The main reason is probably national culture. Argentines thought of themselves as enlightened Europeans living on the fringes of a primitive continent. Their ideal was to sit back and live off the riches of the pampas. Brazilians are more diverse, racially and culturally, and their complexes are of inferiority, not superiority. Brazil was known as "the land of the future Ė and it always will be." Now the positions are reversed; Brazilian companies are buying up their Argentine counterparts at bargain prices, and Argentines are learning Portuguese in the hope of finding jobs in S„o Paulo.

    In 1991, the Argentines were fed up with hyperinflation and desperately wanted their money to be as good as the American dollar. So they ammended their constitution to make it so. But this meant there wasnít enough money to pay for all the civil servants. Instead of laying people off, they let the states print up their own quasi-money to pay them. They stuck adamantly to this system until the banks collapsed. The Brazilians also ended hyperinflation with a monetary reform. But when the economy couldnít keep up with the new exchange rate, they let the currency float, not as soon as they should have, but soon enough to avoid a collapse.

    For the last eight years, Brazil has been governed by a distinguished sociologist, Fernando Henrique Cardoso, who understands enough economics to know when the economists are out of touch with political realities. Argentinaís politicians left the economy the hands of an economist, Domingo Cavallo, who is a technical whiz but too optimistic about imposing his theories on a recalcitrant society. As a culture, Brazilians are inclined to work problems out so that no one gets hurt too badly. Argentianians are more inclined to stand on principle, even if the principle isnít working. Theyíve become "the place where bad ideas go to die."

    Brazilís parties are fluid, with politicians frequently jumping from one to another. Foreigners often have the misconception that Luis InŠcio "Lula" da Silva, of the Workerís Party, is a radical leftist, challenging the capitalist, free market orthodoxy of Fernando Henrique Cardosoís Social Democratic Party. Actually Lula and Fernando Henrique are old friends, thereís very little difference in their party platforms, and they might easily end up in the same political coalition. Lula and the other candidates in Brazilís presidential election have already met with President Cardoso and agreed to honor the agreements he made with the International Monetary Fund to get a $30 billion loan commitment. Brazil has consistently met its commitments to the IMF and other foreign lenders. Regardless of who wins the election, Brazil will continue to be ruled by a center-left coalition.

    Argentinaí political parties are more polarized than Brazilís, with strong traditional loyalties to the two main centrist parties. They are in a state of flux today, and there is a possibility of a populist outsider winning power. Mariano Grondona, Argentinaís best known political columnist, believes that what Argentina needs most, in addition to a president like Cardoso, is a responsible opposition leader like Lula.

    Of course, Brazil has problems, including a heavy debt burden, energy shortfalls and environmental problems. It has difficulty raising taxes enough to pay for entitlements for its aging population. There is far too much poverty, especially among the people of color. The stock and financial markets are sometimes unstable, and the government occasionally has to step in to bail out a failed bank. But these problems are not so different from those in the United States and other countries, and the Brazilians can manage them with a little help from their friends.

Ted Goertzel, Ph.D., is Professor of Sociology at Rutgers University. He is author of a biography of Fernando Henrique Cardoso.  His research on Brazil is available on the Brazil Page.