I wouldn’t say it’s Tanzi’s fault, nor the fault of the IMF per se. Argentina’s politics were a mess. Under Juan Peron, the government spent money that it didn’t have. His successors tried to cut spending, but that wasn’t popular, and they tried to increase taxes, which wasn’t popular, either. The results were ongoing civic unrest and extensive tax evasion. On top of that was a level of corruption that made it difficult for anything to happen. The IMF was trying to stabilize Argentina’s economy so that it could improve its foreign trade and pay off its debts.
The International Monetary Fund was founded in 1945, so it was still relatively naive when it began working on issues in Argentina. For example, the staff at the fund looked more at absolute statistics than how the country got there, which encouraged the Argentine government to play games. It sold the land under its embassy in Tokyo and then leased it back, which improved the numbers for one year, but really didn’t address the structural issues. The IMF staff was also taken aback by the amount of corruption in Argentina, which undermined its work. These are the very real, very human factors that create huge gaps between theory and practice.
The IMF also had little experience with hyperinflation, which is rare and destructive. Argentina’s problems with it have informed much of the economic literature. Tanzi’s work uncovered one of the effects of hyperinflation on tax collection, which is that tax revenue will not grow as fast as the inflation rate. That’s because corporate tax obligations are calculated after the money is earned. If you earn money in January and pay taxes on it in April, the difference in value because of hyperinflation will be huge. The effect is reversed when inflation is unwound or in a period of deflation, but it caused problems for the economist and bureaucrats trying to stabilize Argentina’s economy.
Tanzi also includes some chapters of Argentina travelogue. I imagine that Patagonia and the glacier sites have better tourist infrastructure than when he visited. I would love to visit it some day, and given Argentina’s ongoings economic problems, it would be cheap! But we’re not traveling right now.
The biggest takeaway from this book is how easy it is to destroy an economy and how hard it is to rebuild. It seems unfair that people are suffering due to good intentions, bad ideas, and gross corruption that stem from almost a century ago. There’s a lesson for those of us in the United States in 2020. What are we willing to do to shore up our system?
