The catastrophe in Argentina has a morbid fascination for the outside world. Many wonder how a financial crisis could unleash such dire consequences. Two governments have fallen since December 20th, the currency has lost half its value and the economy has seized up.

What comes next?
Argentina is not suffering from a simple economic or financial crisis: its troubles are the result of a systematic destruction of public institutions like the judiciary, the civil service and the currency that has taken place over decades. Few countries in Latin America have seen anything like this, so the solutions will have to be different from conventional economic reform packages.

But there are no new ideas, no new leaders and no convincing solutions to today’s crisis. The Argentine people hold politicians in contempt. Power centers like the military, the labor unions and the principal political parties are all discredited.

If he is lucky, President Eduardo Duhalde will muddle through the next 18 months. The economy will not get much worse but it will not recover much either. If he is unlucky, the fury of the unemployed and anger at rising crime and economic dislocation could lead to a coup d’etat of some type.

Whatever happens, Argentina must soon decide where it is heading. It has basically two choices. One, is to follow Chile’s example and reinstate the rule of law, adopt strict fiscal policies and become a truly outward-looking economy. This would require tremendous national consensus and/or strong political leadership. The result would be accelerated growth. But this will take years of hard and initially unrewarding effort. The Chilean outcome is possible but unlikely.

It is more likely that Argentina will go on as it has for years. The principal features of this Argentine Disease are: widespread corruption and the presence of organized crime close to the highest reaches of government, economic stagnation and isolation from the outside world, political instability. Unless the Argentine people halt and reverse this process, their country will become an impoverished backwater similar in many ways to its neighbor to the north: Paraguay.