The Import-substitution Industrialisation (ISI) Failure in Argentina Essay

The Import-substitution Industrialisation (ISI) Failure in Argentina - Essay Example Center of discussion in this paper is import substitution industrialization in Argentina that depended on the exchange rate and trade restrictions. They included several exchange rates, import licenses, quotas, protective tariffs, and export taxes. The main aim was to limit external trade and prepared the domestic market for local manufactures. Further, another aim was to protect the domestic industries from stiff competition arising from external industries. The domestic industries were expected to compete internationally. However, these policies typically led to inefficient firms and high cost industrial substitutes. The consequences were diverse, for instance, the local industries could not pose any competitive challenge internationally. As a result, Latin Americans had to pay high prices for substandard goods that could not satisfy their need for quality. Further, Argentina was not able to have foreign exchange to pay for the much required imports; they had spent much time de-emp hasizing exports. ISI had actually led to some economic gains, however, by 1980s, it had been exhausted. During 1980s and 1990s, Argentina was forced to injstitute a number of policies with the aim of opening its economy, decrease the size of the government as well as improving efficiency. Other countries in the Latin America such as Brazil and Paraguay experience government involvement in infrastructure development and in the production sectors. However, the major difference between these countries and Argentina was the issue of funding. This issue was not well addressed in Argentina. The country began to use inflation taxation as the best solution to their problems. Inflation taxation occurs when the government decides to print money to pay the state bills. From the mid 1940s, Argentina witnessed huge difference in its rising inflation figures from the low inflation figures in other countries of the world (Zanetta, 2004). High inflation rates, high fiscal deficits and huge governm ent debts were the main challenges facing Argentina from 1940s to the end of the century. Several argentine citizens argued that the excessive government interference in the economy and the fiscal laxness were not the only problems that led to economic down turn in Argentina. Another challenge that faced Argentina was the relatively trained administrative personnel. The argentine government was not prepared to put in place policies that could lead to stable economic growth. Corruption also affected this problem as well (Birkbeck, 2011). President Peron’s earlier economic gains in Argentina quickly ran into a number of challenges. In 1949, Peron’s government witnessed inflation of about 31percent. This was due to Peron’s strategy of demand expansion through wage increases. At this time, employment was already high. Further, the controlling of imports and the stronger purchasing power siphoned off exports and led to inflation in Argentina (Birkbeck, 2011). In 1949 , Argentina was affected by its first foreign trade deficit since the First World War. In addition, the drought that affected Argentine’s agricultural export further affected argentine’s economy. Further, the terms of trade had started to work against the country. The terms of trade included the rising prices of imports and the decreasing prices of exports. Peron’s approach to economic growth was making the problems worse. For instance, in giving artificially low prices to farmers, to ensure that urban food