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Disparities in Living Standards Examined in Argentina and Uruguay

Paper Type: Free Essay Subject: International Studies
Wordcount: 3097 words Published: 8th Feb 2020

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 In the recent years following 2001, Uruguay had to confront an extreme decline in their monetary development, which was a direct result of Argentina’s Economic Recession in 2001. Argentina’s recession affected bordering countries who also relied upon their fiscal revenue to sustain sturdy economic shape: specifically, Uruguay. Both Uruguay and Argentina were looked with the possibility of both rejuvenating their economies while protecting their huge number of citizens who had also ended up on the wrong side of the poverty line. However, after fifteen years Uruguay ends up being the only nation out of the two to accomplish both. This comparison analyzes the micro and macroeconomic policies that have prompted the differentiating living standards in each country.


 A majority of the twentieth century saw Argentina become widely regarded as the jewel of not only Río de La Plata, but of South America as a whole. Structural modifications, including the expansion and deregulation of the increasingly global market economy and the introduction of low investment taxes (meant to aid the nation in competing for foreign direct investment), were instituted on account of surplus offsets of mineral and agricultural assets (Tuebal 2004). By all accounts, at the turn of the century Argentine foreign debt had accumulated to an insurmountable figure. Defaulting had become the only alternative,  and Argentina had descended into financial ruin, marking what many call the nation’s worst financial crisis in history.

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 The Argentina Crisis of 2001 certainly merits recognition and, as such, thorough examination of the circumstances leading to it are necessary. It is vital to be aware of the effects in standard-of-living, income levels, and employment that resulted from the neoliberalist principles circulating through Latin America in the 20th century. Similarly to the condition of many other nations, the generation of widespread appeal towards economic development and deregulation in this monetary belief system allured many to consider the endeavour of making long-term investments in the growth of the economy; by drastically raising the living standards of citizens in exchange for an open-market the Argentine government of the late twentieth century employed a means of gaining a more immediate increase in foreign investment (Tuebal 2004). As will be demonstrated, this prerogative proved disastrous for average Argentinian citizens; the lingering impacts remaining in the wake of this financial crisis provided meager  amounts of space for inclusive development within the nation. Rather than direct investment of resources into its human capital through social policies, the South American executive selected to completely satisfy its debtors and depended both on an increase in employment and the welfare programs that were set to abolish the enticingly high poverty rates.

 Uruguay, as a result of its economic dependency on Argentina, certainly felt the lingering effects, and as such employed a “growth first, distribution later” recovery strategy. The beneficial values of this strategy include a considerable increase in innovative social welfare programs, as well as a consequential increase in stable and inclusive growth. This growth was so significant that it empowered the nation maintain the lowest rate of poverty in the region of southern South America since 1990 (Hausmann 2004). It was, in fact, the reactionary measures of each respective country, taken to alleviate the ailments of their own economic crises, that make clear the extreme disparity in the rates of poverty modernly present.

In order to demonstrate this, I will make a set of initial observations that consider what provoked, and came as a result, of Argentina’s apparent economic downturn at the turn of the century in an attempt to establish a pattern of deductive reasoning behind each respective nation’s answer to their similar dilemmas. Moreover, I will assess what I have deduced to be an inadequate effort by the Argentine federal government to combat an accelerate rise of poverty rates, both during and after the recovery of the rates in the aforementioned demographic. Finally, I will present an explanation of the contrary positive yield brought about by Uruguay’s social assistance policies. These policies not only contributed significantly to the recovery Uruguay’s economy, but also continued to assist it in economic grow through implementing a system that provided opportunity for a steadily consistent and inclusive growth to each Uruguayan economic entity. It is through the apparent disparities in each respective policy of recovery that I hope to demonstrate a similar divergence in the rates of poverty between two of South America’s most historically significant nations.

Argentine Crisis of 2001

The crisis Argentina was embroiled in at the beginning of the twenty-first century was one brought about as a cumulative result of three intersecting policy failures. The initial being inattentive spending by the federal government that led to heavily increased domestic and foreign interest rates. Through this, the Argentine population had much more difficulty earning credit from banks, forcing many companies to close. The second of these failures was brought about as a result of a federal attempt to end hyperinflation by pegging the peso to the dollar. This resulted in a significantly further loss in business, as neighboring nations took their strong currencies to other countries, who were considered to be more profitable. Consumers of Argentine beef, wheat, and minerals – three of the most abundant resources of the region – could receive a higher yield of these wares for the same price in competing countries, making foreign investment and net exports tumble. The third of these failures came in the form of an immediate result of the apparent new-wave of privatization that is promoted by neoliberalism. In the absence of government ruling, it became effortless for managers to grant lower utility rates to those whom they are acquainted whilst simultaneously overcharging the majority in order to retain a balanced budget sheet. Prices for basic utilities that have become somewhat of a necessity in the modern world, such as electricity and telephones, hit all time highs(Grugel 2007, 7). In order to accomodate the lack of internal revenue produced, due to the closure of hundreds of Argentine businesses, rising inflation, and local friendly capitalist deals, the Argentinian government remained faced with no alternative but to continue borrowing from foreign organizations until it had to default on its $93 billion debt.

The effects were disastrous. After the duration of one fiscal year, 53 percent of the Argentine population was reportedly earning income at levels below the federally defined poverty line, with a quarter of the populations living in conditions that warrant the label of “extreme poverty”.  The next five years saw a steady decline of GDP at a rate of 16 percent annually, while unemployment immediately spiked to 21.5 percent. The peso lost nearly 70 percent of its initial value in the global economy prior to the economic crisis. Yet more concerning, monthly wages declined by 18 percent in the immediate aftermath; the dropout rate amongst students reached a peak of 53.9 percent, and 61.4 percent of the nation no longer had access to healthcare (Fiszbein 2003, 145). Argentina drastically declined in status, from being one of the region’s most profitable asset to transitioning into a country struggling to produce enough money to feed half of their population. What differentiates this collapse from others is that citizens were not simply losing careers or access to healthcare coverage; any income that Argentinians might have still had the utility to obtain also decreased in value a total of 70 percent while almost every other consumer product price increased.

The effects were felt across the expanses of the southern hemisphere, but Uruguay, specifically taking into account its reliance on Argentina’s aggregate demand and relevant prices to the Uruguayan peso, was hit hard. An almost immediate ripple effect was felt across the Río de La Plata, as many Argentines withdrew all they had from the Argentinian banks in Uruguay. However, limits of $1,000 in savings withdrawals would not be sufficient to stop the Uruguayan economy from plunging. With the exception of Venezuela and Argentina, its growth performance was the worst of any Latin American country between 1998 and 2003 (Hausmann 2004, 1).

Decisions were made as a result of each country’s respective crisis, and policies were reanalyzed as both Argentina and Uruguay had the responsibility to its people to recover their economies and bring back the prosperity they once had to its citizens. As I will further explain, Uruguay was the only one to deliver this prosperous lifestyle. Argentina, on the other hand, while making improvements with unemployment and net exports, disregarded to make any major social policy changes that would allow for growth throughout the nation.

Argentina’s Answer

With the perception that any other growth would be restricted by the consistent weight of debt, financial independence from foreign creditors became a primary goal for the Argentinian government. In the following years, it would successfully exploit its devalued currency by doubling its exports in oil, energy, and agro-industrial manufacturing. These improvements, along with two debt swaps in 2005 and 2010 that brought over 90 percent of the country’s debt out of default, would assist in the complete repayment to the International Monetary Fund by the end of the decade (Fiszbein 2003, 33). Furthermore, as another means of limiting trade and sustaining steady economic growth, Buenos Aires, a city once known for its exports of minerals and agricultural goods, was deleted out of all international monetary institutions. This was only one attribute instituted in the country’s overall protectionist trade policy that provided no other possible means of income.

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While I empathize with the point of view accompanying the desire to balance foreign debt, I find it candidly exemplary of negligence that the Argentinian government had not acted upon and enforced dynamic social policies that would have provided assistance to many citizens who struggled greatly to get back on their feet. While the number of people living in poverty did fall by 14 percent within the first two years, this is much more unpretentious than one would expect. The increase in exports as well as the increased production of jobs which saw employment drop from 19 percent in 2002 to 10 percent in 2005; substantially any sort of general economic improvement would reduce a 58 percent poverty rate (Fiszbein 2003, 34). However what defines a country’s overall recovery from a depression is its ability to consistently grow and improve in the wake of said depression. This consistency is directly emulated in the fact that today, 30 percent of Argentinians are still living under the nation’s poverty line in addition to the government still owing $147 billion in external debt (Central Intelligence Agency 2016, 1). This is not a portrayal of poor social policies or inadequate welfare programs; this is a consequence of a careless shift in policy that disregarded the complaints of over half the nation. As much as the initial growth in jobs and exports helped in the nation’s recovery process, without any direct and multi-purposed social welfare programs, any actual improvement in the quality of life of each Argentinian would not occur.

What government officials failed to realize is that you cannot depend on macroeconomic improvements to immediately have effects on and improve the living standards of your citizens. This is clearly illuminated when a country’s protectionist trade policy impedes the foreign direct investment necessary for providing more jobs and intentions of production. Although one could label this as an attempt to improve the worth in Argentinian goods and services, this view only further deprived the country of other ways to obtain job creation and income growth. Instead, the issue of welfare has stayed in the safety net model of those similar neoliberalism policies which can only improve the worst conditions of poverty, not completely cure it. Without any feasible source of state revenue there would be a similar lack of financing for social welfare programs.

Because of this concept of state funding, Uruguay was able to see the success that Argentina couldn’t. Uruguay acknowledged that true expansion comes from long investment in its citizens’ living standards; however,  the latter saw employment growth and repayment of debt as the solution to economic recuperation followed by growth.

The Uruguayan Response

Uruguay witnessed a successful campaign due to innovative social policies that provided very inclusive growth. Public spending increased to the point where it was 20 percent of the country’s entire GDP in 2005, and only continued to expand up to 25 percent by 2012 (Ture 2015, 3). This reflected a well-ordered social policy effort aimed at restoring the standard of living lost due to Uruguay’s swift economic downturn, in contrast to the Argentinian’s passive attempts to redistribute wealth. This wouldn’t come as a surprise though, as Uruguay has maintained the lowest inequality and poverty rates in South America since at least 1990—including the five aforementioned years (‘98-’03) where the country’s growth rate was the third worst in the region (Ture 2015, 3).

 After Uruguay recovered from their 2001 crisis, the government would enact ‘El Plan de Asistencia Nacional a la Emergencia Social’ (PANES) between 2005 and 2007, which was a temporary social plan holding a singular goal of using cash transfers to combat extreme poverty. Later, a more persistent equity plan would be installed in 2007, which brought more coverage and social assistance transfers along with further tax and health care reforms that only increased the economic stability of this country in recovery. Uruguay’s strong economic recovery was a massive assistance in this situation, as increasing employment and labor incomes both provided further freedom for social policy spending that would have a massive impact to the easier access to higher education. Not only were there higher skilled workers competing for jobs, but the demand for the previously occupied lower skilled workers, amidst a period of strong agricultural and construction sector growth, grew at an equal rate (Ture 2015, 3).

For the first time in its history, Uruguay was ranked by the World Bank as a high-income country in July 2013; at this same time, the country’s poverty rate was 11.5 percent. To put this into perspective, in 2013, Argentina’s was 27 percent (World Bank 2016, 1).

Uruguay’s growth can be mainly credited to its long term investment in vastly increasing its citizens’ living standards. A well educated population who is willing to work and has the ability to do so is where real, palpable growth comes from. Social assistance is probably the most important aspect in what has proved to be a very long and onerous recovery process. Commitment to spending money is a requirement in this process. However, Uruguay’s inflation rate has been at least 10% lower than Argentina’s since the turn of the century, and the former currently only has $24.7 billion in external debt compared to Argentina’s $147 billion, so domestic investment has been more practical. Granted, I find it hard to believe that deferring complete debt repayment would have had any lasting effects more severe than the economic collapse the country faced ate the turn of the century (World Bank 2016, 1).

By combining economic development, increased wages and increased opportunities Unlike Argentina, today’s Uruguay has successfully combined economic growth, higher pay and employment with a 10 percent inflation rate that is irrelevant when compared to an Argentinian rate of 33 percent (World Bank 2016, 1).  Instead of a more aggressive approach to tackle the dreadful economic stability for much of the country, Argentina  has maintained an unhealthy reliance on its welfare safety net of the early 21st century. It is impossible for poverty to end on its own. People have to want to see a change. It requires an abundance of work, persistence, and time. Between both countries, Uruguay is the only one that has made a conscious and steady effort to provide its citizens with the growth they need and deserve through pugnacious social assistance policies that benefited nearly instantaneously. This is how they were able to recover, see growth, and will continue to grow in the future.

Works Cited

  • Fiszbein, Ariel, Paula Inés Giovagnoli, and Isidro Adúriz. “The Argentina Crisis and Its Impact on Household Welfare.” Economic Commission for Latin America and the Caribbean.Cepal Review, Apr. 2003. Web. 8 May. 2016.
  • Grugel, Jean. “The Return of the State in Argentina.” SSRN Electronic Journal, 2007, doi:10.2139/ssrn.1026251. Web. April 29 2019
  • Hausmann, Ricardo, Andrés Rodríguez-Clare, and Dani Rodrik. Towards a Strategy for Economic Growth in Uruguay. Econometrics Lab. University of California, Berkeley, 8 Nov. 2004. Web. 18 Apr. 2019.
  • Teubal, M. “Rise and Collapse of Neoliberalism in Argentina: The Role of Economic Groups.” Journal of Developing Societies 20.3-4 (2004): 173-88. SAGE Publishing. Web. 18 Apr. 2019.
  • Ture, Elif. “Uruguay’s Path to Strong, Inclusive Growth.” Diálogo a Fondo (2015): n. pag. International Monetary Fund, 31 Mar. 2015. Web. 4 May. 2019.
  • World Bank. “Inflation, Consumer Prices (annual %).” World Development Indicators, n.d. Web. 24 Apr. 2019.


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