By Andres Oppenheimer

For a visitor returning here after a 10-month absence, it is amazing how fast things have changed: the biggest economic bonanza in this country's recent history has suddenly turned into a sharp downturn, and optimism has given way to general anxiety, if not panic.

Argentina's 8-year-long fiesta is over.

Despite President Cristina Fernandez de Kirchner's passionate speeches claiming that her late husband President Nestor Kirchner discovered a new nationalist economic model that brought record growth rates of 8 percent annually during much of the past decade - albeit growth that most economists attribute to outside factors, such as China's massive purchases of this country's grain exports - signs of the end of the boom are everywhere.

Fernandez's popularity rate has fallen from a massive 63 percent after winning reelection in October to 39 percent today, according to a new Management & Fit poll. While her recent nationalization of YPF, the country's biggest oil company, brought her a brief uptick in the polls, pot-banging protests in this capital's wealthiest neighborhoods are increasing.

What's more threatening to the government is that the country's biggest labor union - CGT, until recently a close government ally - has begun escalating its protests and is demanding a 30 percent wage increase. Agricultural producers' organizations also are threatening nationwide strikes against the government's escalating taxes on grain exports.

The talk of the day in Buenos Aires is where to buy U.S. dollars in the black market, and at what exchange rate. Inflation, officially at 9 percent, is almost unanimously estimated at 25 percent. Fearing an economic crack that will result in hyperinflation, people are buying U.S. dollars on the streets from black market foreign exchange vendors standing on the corners, who are appropriately known as arbolitos, or little trees.

After several years during which Fernandez bragged that Argentina was one of the world's most rapidly growing economies while the United States and Europe were crumbling, Argentina's economy is now projected to slow down from nearly 9 percent last year to 2.2 percent this year, according to the latest World Bank estimates. Many independent economists say that even that projection is too optimistic, and that the country may end this year with a recession.

"We think the story ends with a large devaluation sooner or later," said a recent report by UBS bank economist Javier Kulesz, who added that it would come along with a large increase in public utility prices, heightened social tensions, and low if not negative growth. "This is nothing Argentines aren't familiar with. They have seen this movie in its various versions quite a few times over the past few decades," he said.

Why did Argentina's economy take such a sudden turn downwards? China has not stopped buying Argentine commodities, there has been no tsunami or earthquake that has crippled this country's infrastructure, nor any international economic crisis that has hurt Argentina more than others. On the contrary, the international environment continues to be favorable to this country, as commodity prices remain relatively high, and many international investors disillusioned with Europe's recession are increasingly looking at Latin America as an option.

Judging from dozens of interviews here last week, there is only one reason for Argentina's current decline - and it's the usual one. It's politics, of course.

Fernandez de Kirchner's populist government has given away massive subsidies in its quest to win elections, much like Hugo Chavez in Venezuela. While ever-growing subsidies work while commodity exports keep rising, they can leave a country bankrupt once world commodity prices stop growing.

While neighboring Chile under both center-left and center-right governments has saved in good years to maintain its social programs during bad years, Argentina has done exactly the opposite. It has squandered what economists say was its biggest economic bonanza in nearly a century in giving government jobs to loyalists, cash subsidies to millions of people - many of whom now find it more convenient to live from government handouts than to find a job - and transportation and energy subsidies.

Thanks to government subsidies, public transportation in Buenos Aires may be among the cheapest in the world: a bus ride costs the equivalent of U.S. 22 cents, and a train ride U.S. 26 cents.

Roberto Lavagna - the former economy minister under Nestor Kirchner who is credited with resurrecting Argentina's economy after the country's 2001 default on its foreign debts - estimates that government subsidies for transportation and energy soared from U.S. $1.2 billion at the end of 2005 to U.S. $19 billion last year.

While commonsense would suggest that Fernandez de Kirchner would start reducing public spending in light of the economic slowdown, she seems to be doubling her bets. Last week, she announced a giant plan to give out 400,000 low-interest mortgages and build 400,000 homes over the next four years.

Where will the money come from? It will be borrowed from the state's Social Security System. The government says the plan will create 100,000 jobs in construction work, and help reactivate the economy. Skeptics say the money will disappear in the hands of corrupt officials, like so many times before, and future retirees will not see a penny of their pensions.

"They have a very short-term, strictly political vision of the economy," Lavagna said. "That's very unlikely to change."

What's most worrisome is that a large number or Argentines, while increasingly skeptical about Fernandez de Kirchner's narrative about the alleged new economic model, are not necessarily opposed to a growing state role in the economy, Lavagna said.

"There is a growing statist trend, which is very accepted by society," Lavagna said. "The latest polls show that Argentines support statist policies by a margin of two to one."

My opinion: All indications are that Fernandez de Kirchner will blame the outside world - the media, Greece or Washington - for the downturn caused by her own irresponsible economic fiesta. She will print increasingly more money to buy votes to win the October, 2013 legislative elections, if they are not held earlier, and will pray for a new spike of world commodity prices - which very few are predicting - to rescue the country's balance sheet.

In the process, she will have squandered Argentina's best opportunity in a century to use its commodity bonanza for improving education standards, attracting investments to create new industries, and lifting millions of people from poverty for good.

I hope I'm wrong about this, and that during the 3.5 years remaining in her term, Fernandez de Kirchner she will take a more long-term, less ideological, view of what's best for her country. But I didn't hear anything during my stay here to convince me that she will do anything to save Argentina from its self-inflicted crisis.


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