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Argentina’s Economy after World War II

The German invasion of Poland on September 1, 1939 was not an isolated event. Instead, it unleashed the biggest conflict in human history whose effects were felt all over the globe (Paz 50). To the European nations directly involved in the conflict, the Second World War brought pain, misery, and death. However, as one moves further away from Europe the effects of the Second World War begin to change. Almost 10,000 miles away, in the southern cone of South America, the impact of World War II upon Argentina is not nearly as clear-cut or as grave. Argentina held on tightly to its statements of neutrality for as long as possible and, even after declaring war on the remaining Axis powers, Germany and Japan, on March 17, 1945, she did not take an active part in the war.

Therefore, since Argentine troops never took part in the conflict, the effects of the Second World War upon Argentina were purely economic in nature (Paz 130). Yet, this fact in and of itself in no way diminishes the amount of historical inquiry or intrigue; a great debate rages over the question of whether the Second World War improved or worsened Argentina’s economy. While it is true that World War II generated a significant amount of currency for Argentina, a careful analysis of the available sources shows that the Second World War worsened Argentina’s economy. In fact, World War II slowed down Argentina’s economy and created a false sense of security that, in the long run, wrecked the country’s economy.

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While there is ample evidence suggesting that World War II increased the opportunities for Argentine industrialization and economic expansion, the overall economy of Argentina suffered a setback during the Second World War. In his collection of Essays on the Economic History of Argentina, Alejandro Diaz argues that the Second World War slowed down the Argentine economy. A member of the Yale Department of Economics, professor Diaz took part in a study concerning the problem of economic growth in certain Latin American countries. Encompassing field observations, quantitative analysis of a national economy, and comparative cross-sectional studies using data from numerous countries, professor Diaz’s work is often cited and used as a starting point by other historians.

Professor Diaz acknowledges the fact that the war opened up new markets for Argentine manufactured goods and expanded the output of the meat producers due to increased demand for Argentine foodstuffs. However, he considers the whole picture by pointing out that the imports of capital goods became hard to obtain, forcing Argentina to manufacture its own capital goods at a very high cost. Furthermore, any increases in agricultural production, such as wheat and corn, were offset by a shortage of ships to transport these goods. Yet, the definitive proof of Argentine stagnation during the war years is found in the following numbers.

During the 1933-39 period manufacturing output rose by 43%; during the 1939-45 period it rose by only 23%. Also, real GDP rose by 27% from 1933-39, but it only rose by 13% from 1939-45 (Diaz 103). Furthermore, the percentage change in capital stock from 1939 to 1945 was only 2%, a sharp contrast with the 1933-39 growth of 11% (Diaz 116, Randall 3). In other words, Argentina barely experienced any economic growth at all during the Second World War.

Professor Diaz’ argument is further supported by the University of London’s R. A. Humphreys. A former Director of Latin American Studies, R. A. Humphreys has consulted over two dozen newspapers, among them Argentine La Prensa and La Nacion, and numerous other documents in the Public Records Office while writing his book Latin America and the Second World War. On the subject of Argentine economic development during the war, this expert has the following to say:

… Argentina had lost almost the whole of her markets in continental Europe and was confronted with huge surpluses of wheat, maize, and linseed. She suffered also from a scarcity of tonnage, rising freight rates, the soaring prices of British manufactures, the uncertainty of deliveries and shortages of coal and other essential imports (Humphreys 151).

With such problems facing the nation’s economy, it is surprising that Argentina experienced any growth during the war. Yet, the Argentine government succeeded in completing several commercial treaties which increased its trade with other Latin American nations, allowed for increased purchases by the British and an export surplus with the United States (Humphreys 152). The basic outcome of the war then came out to this: faced with severe surpluses at the beginning of the war the Argentine government did all it could to sell off its wheat, maize and other overstocked products. Once the Argentines succeeded in doing so, they ended up with a large amount of currency they could not re-invest into industrialization because of the extremely high price of the machinery. It was this surplus of monetary funds that, when coupled with mismanagement and a lack of political stability, wrecked the Argentine economy.

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When Peron’s Group of United Officers took power in 1943 Peron had the advantage of the large profits brought on by the war. Instead of investing this money into a long-term industrialization program, Peron used it to assure his political support. At no time did this become more obvious than in 1944 when Peron decided to institute the aguinaldo. This event is carefully described by H.S. Ferns, who utilized official publications, newspapers, and personal interviews to write his book Argentina. Ferns relates that in Argentina many businesses are family-owned which, in turn, introduces a certain amount of care and kindness.

A shoe and textile factory in Alpargatas was a family-owned business where the owner of the factory gave his employees a bonus of one week’s pay every Christmas, which he called the aguinaldo. When Colonel Peron visited the Alpargatas factory and heard of this act of kindness, he declared a national aguinaldo – that everyone in Argentina would receive an extra month’s pay before Christmas (Ferns 175). The source of this money was, of course, the funds obtained during the war.

It is not difficult to imagine the effect such mismanagements had on the economy. In 1955, after Peron’s fall, noted economist Raul Prebisch surveyed the nation’s economy. His report began by stating that Argentina was undergoing “a crisis of unparalleled gravity” and went further to cite the government’s failure of invest in heavy industry and infrastructure as primary reasons for this occurrence (Lewis, 272). Furthermore, in his analysis of the impact of European recovery on Inter-American trade, Amos E. Taylor, Chief of the Department of Economic and Social Affairs, Pan American Union, states that increased trade with the United States “resulted in a substantial accumulation of dollar balances by the countries to the south of us” (Taylor 12).

Moreover, Taylor discloses that “due to the speeding up of production and transport in the Latin-American economy, there resulted in various degrees of deterioration of plant and equipment as well of transportation facilities” (Taylor 12). In light of these facts, it becomes obvious that the Second World War only worsened the Argentine economy by allowing its earnings to be locked into a currency that could, later on, be mismanaged in the volatile and unstable Argentine political arena. Peron’s regime came to depend on opportunistic earnings during the war and failed to plan ahead for the upcoming peace.

This argument is further supported by Amos E. Taylor who pointed out, in 1949, that “the Latin-American countries are already facing the consequences of a serious contraction in the overseas demand for products urgently needed during the war years in the largest quantity possible…” (Taylor 13). In this manner, World War II gave Argentine leaders a false sense of security that the temporary demand created by the war would last and that the accumulated dollars would assure an expanding, prosperous economy. Both of these premises proved to be false and the Argentine economy, instead of “taking off” into sustained growth and mass consumption, plummeted into recession and foreign debts (Wynia 135).

However, there are those who disagree with this analysis of the effects of the Second World War on the Argentine economy. Historians Marie-Ange Veganzones and Carlos Winograd concluded a study of Argentina in the 20th century, based upon “extensive data and profound historical analysis.” Veganzones and Winograd cite the second period of the war, 1941-5, as reflecting the positive effects of the war upon the Argentine economy. According to these historians, “terms of trade greatly improved [and] there was a large surplus in the balance of trade…” (Veganzones 12, 212). Professor of History at the University of North Carolina at Chapel Hill, Joseph S. Tulchin, whose hobby for the last twenty years has included gathering bits and pieces of historical data on Argentina, agrees with this viewpoint when he states that:

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British dependence on Argentine beef during the war reached 40 percent of their beef supply. It was a general conviction within the British government during the war that without Argentine foodstuffs maintaining the standard of living of the British civilian population would be impossible and the war effort would be seriously compromised (Tulchin 88).

On the other hand, such analysis contains a fallacy in the fact that an increase in trade does not necessarily improve a country’s economy. In his book The Fitful Republic: Economy, Society, and Politics in Argentina, Juan E. Corradi offers exact evidence to counter Veganzones’, Winograd’s, and Tulchin’s analysis. Having travelled all over Latin America and co-chaired the seminar on Argentina at the Center for Inter-American Relations in search of evidence for his book, Corradi explains that:

the wartime rise of meat prices…led many estancieros or ranchers to use the land for grazing instead of leasing it for agricultural purposes. The shift to grazing before and during the Second World War added to the surplus of labour in the countryside since ranching requires fewer hands (Corradi 237).

Consequently, the money brought in by increased trade was offset by an increased amount of free labor. Fired from their farms, these labourers went to large cities in search of jobs, where they could only find employment in the industry. However, since wartime prices made heavy industrialization very cost ineffective, only light industry experienced any significant growth. After the war, this presented a real problem; the majority of Argentina’s labour force was locked into the light industry, but the only competitive products Argentina had to offer came from agricultural sources. In 1944, industrial production came to constitute a larger proportion of total production than the production of raw agricultural materials.

Still, after the war, 93% of Argentine exports were agricultural, and only 2% manufactured (Ferns 164). The majority of the population worked in the factories but the real money was earned on the fields and ranches; a serious disparity hidden by the war. Therefore, it becomes obvious that increased British demand for Argentine beef and increased foodstuffs trade spurred by the war only worsened Argentina’s economy.

Yet, there are still those who believe that the Second World War improved Argentina’s economy by fostering closer economic ties with the United States. On October 14, 1941 Argentina and the United States signed a commercial agreement effective until November 14, 1944. Professors of Argentine foreign policy at Salvador University, Alberto Conil Paz and Gustavo Ferrari elaborate on this commercial agreement in their book Argentina’s Foreign Policy, 1930-1962. Citizens of Argentina themselves and having access to the Archives of the Ministry of Foreign Affairs, Paz and Ferrari give a detailed account of the provisions of this treaty.

By virtue of this treaty, North American tariffs were reduced on 69 percent of the imports from Argentina, and it was guaranteed that existing customs duties would not be increased and that new ones would not be imposed. Argentina reduced tariffs on only 18 percent of her imports from the United States and promised not to increase existing tariffs…(Paz 61).

The impacts of this lucrative treaty, for Argentina at least, are further upheld by Harold F. Peterson of State University College at Buffalo. Having served in the regions of Rio de la Plata during World War II and consulted the vast records of the Department of State, Peterson is considered an expert on the subject. His argument further supports professor Paz’s findings by confirming the sheer profit Argentina made from receiving a chance to unload its surpluses into a new market. Peterson offers the information included in Table 1 below.

(Value of Argentine Trade with the United States in thousands of dollars, Table 1 from: Statistical Abstract of the United States, 1947, p. 915)

Table 1 clearly shows that Argentina earned a sizable amount of money from her trade agreement with the United States (Peterson 412). Paz, Ferrari, and Peterson put forth the idea that Argentina’s pre-1941 surpluses were thereby converted into currency, a real boost for the economy. If the war had not broken out, such great demand for Argentine products on the American markets would have never been created and the Argentine economy would not have improved.

However, all things should be put into their proper context, including the US-Argentine trade agreement. In this case, the proper context includes a United States boycott of the Argentine economy. Carlos Escude, Professor of International Relations, University of Belgrano, Argentina, and Senior Researcher, Instituto Tocuato di Tella, Buenos Aires, offers a more complete picture of the US-Argentine relations during the war. According to professor Escude, Argentina’s neutrality during the Second World War forced the United States to initiate an economic boycott of Argentina. Beginning in February of 1942, the boycott lasted for seven years and concentrated on depriving Argentina of many vital supplies. Professor Escude argues that:

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Licenses were refused for the exportation to Argentina of steel machinery, railway replacement parts and rolling stock, petroleum equipment and chemicals, iron and steel, coal, fuel, oil, caustic soda and ash, tinplate, etc., to a far greater extent than was justified by wartime scarcities (Tella 63).

It is important to note that all of these items are necessary for the development of heavy industry. Furthermore, professor Escude cites a State Department document, entitled “US Export Policy I towards Argentina”, of February 3, 1945, which read: “Export of capital goods should be kept at present minimums; it is essential not to permit the expansion of Argentine heavy industry” (Tella 64). In the light of these facts, the US-Argentine trade agreement loses its initial appeal. While the trade agreement did put some cash into the Argentine piggy-bank, it did not allow Argentina to purchase the goods it needed the most; goods necessary for the further development of its heavy industry. In this manner, World War II worsened the Argentine economy.

It shifted the focus of the Argentine economy towards ranching, thereby increasing the workforce available in the factories. However, the war also cut off Argentina from its primary European markets and forced the country to trade with the United States, who, in turn, through its economic boycott, was not willing to let Argentina develop what it needed the most — its heavy industry. The end result of the US economic boycott of Argentina becomes a great irony; a land with great natural resources suitable for the development of a formidable heavy industry was forced to develop a huge, non-sustainable light industry.

In closing, located on the tip of the southern cone of South America, almost 10,000 miles away from the main stage of World War II, Argentina did not submit any troops to the conflict and even profited handsomely from the sale of foodstuffs to the Allies. However, the Second World War did not improve the Argentine economy. Instead, it slowed it down and created a false sense of security that, in the long run, wrecked the country’s economy. The final analysis, therefore, marks the Second World War as the event which tripped up Argentina’s economy. The war started the process of Argentine under-development that, coupled with mismanagement and an unstable rule, has over the decades caused the country to plummet into the ranks of third-world nations.

WORKS CITED

Corradi, Juan E. The Fitful Republic: Economy, Society, and Politics in Argentina. Boulder, Westview Press, 1985.

Diaz, Carlos F.. Essays on the Economic History of the Argentine Republic. New Haven: Yale University Press, 1970.

Ferns, H. S. Argentina. New York: Frederick A. Praeger Publishers, 1969.

Humphreys, R. A.. Latin America and the Second World War: Volume One 1939-1942. London: Athlone Press, 1981.

Lewis, Paul H.. The Crisis of Argentine Capitalism. Chapel Hill: University of North Carolina Press, 1990.

Paz, Alberto Conil and Gustavo Ferrari. Argentina’s Foreign Policy, 1930-1962. Trans. by John J. Kennedy. Notre Dame, University of Notre Dame Press, 1966.

Peterson, Harold F. Argentina and the United States: 1810-1960. New York: State University of New York University Press, 1964.

Randall, Laura. An Economic History of Argentina in the Twentieth Century. New York: Columbia University Press, 1978.

Tella, Guido di, and Cameron D. Watt, eds. Argentina Between the Great Powers, 1939-46. Pittsburgh: University of Pittsburgh Press, 1990.

Taylor, Amos E.. Political, Economic, and Social Problems of the Latin-American Nations of Southern South America. New York: Greenwood Press, 1949.

Tulchin, Joseph S. Argentina and the United States: A Conflicted Relationship. Boston: Twayne Publishers, 1990.

Veganzones, Marie-Ange, and Carlos Winograd. Argentina in the 20th Century: An Account of Long-Awaited Growth. Development Centre Studies, 1997.

Wynia, Gary W.. Argentina: Illusions and Realities. New York: Holmes & Meier, 1992.

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