But the Austral Plan languished and died, as the government was unable to sustain budget discipline in the face of the wars of distribution. Alfonsin resigned in 1989, with inflation headed for the ionosphere.
His elected successor, Carlos Menem, was a Peronist, though not a member of the party's ward-heeling inner circle. He announced far-reaching privatization, fiscal reform and tariff reduction, and was subsequently granted authority by Congress to rule by decree. But Menem faced the traditional Peronist problem of needing to promise more to his core constituents than the economy could deliver without rapid growth. Inflation soared again in 1990 and the beginning of 1991.
Menem, too, had an economist up his sleeve -- and a very smart one at that. Domingo Cavallo boldly locked Argentina's currency to the U.S. dollar. And he added credibility to the commitment by putting the central bank on autopilot, legally tying Argentina's money supply to the central bank's reserves of foreign currency. Meanwhile, the government's extensive business holdings, ranging from public utilities to heavy industry to petroleum, were sold, with foreigners welcome to buy in.
Menem and Cavallo also forced through another round of tariff cuts, exposing Argentine industry to greater competition. Levies on exports were eliminated, giving agriculture a level playing field in global markets. Total trade tripled as a percentage of GDP in the 1990s with the end of Argentina's long, disastrous experiment with by-the-bootstraps industrialization that benefitted nobody but industrialists, politicians on the take and their union allies.
The economy came out of its torpor, with high sustained growth rates. Unemployment rose -- it had to in order to make the transition from protectionism to competition. But the fact that Menem was a Peronist and controlled the patronage that fed the party machine, limited labor opposition.
But the dramatic reforms of the 1990s did not fundamentally change the political and economic cultures that stood in the way of flexibility in wages and prices, needed to keep the economy competitive. Cavallo was forced out in 1996, and thereafter the strains on the economy slowly built. Locked into an ultra-tight monetary policy dictated by the currency straitjacket, Argentina entered what amounted to a depression. With unemployment and poverty at record levels, the system finally snapped; the currency lock was broken.
Devaluation worked to turn around the economy -- and better than anybody had a right to expect. Imports declined radically, creating an unprecedented trade surplus. Moreover, local industries got a big boost, as consumer demand was deflected from imports.