ANALYSIS AND OPINION | Parallels Between the Country and the Market
The author describes Argentina's economic and political reality over the last 35 years and highlights similarities with the evolution of the local insurance and reinsurance market.
Written by Guillermo J. G. Pastore
guillermo.pastore@specialdivisionre.com
The development of insurance and reinsurance could, in part, be said to define Argentina's economic and political reality over the last 35 years.
In June 1985, the Austral Plan was introduced, a package of measures designed to stabilize the economy and curb chronic inflation. The centerpiece of the policy was a currency reform that removed three zeros from the Argentine peso, creating the austral. Strong price controls were also implemented. Public utility rates, which at the time were state-controlled, were frozen, and maximum prices were established for basic consumer goods. Efforts were also made to limit wage increases in the private sector. Nevertheless, real wages rose significantly, partly due to lower inflation and the impact of tariff adjustments. Fiscal revenues improved considerably, making the scheme sustainable in the short term.
Politically, the period was marked by military uprisings beginning at Easter 1987, carried out by senior military officers in response to the beneficiaries affected by the Full Stop Law (Ley de Punto Final). The law applied to military personnel below the rank of colonel, provided they had not been involved in the appropriation of minors or property belonging to individuals who disappeared during State terrorism, as cases not prosecuted before the end of 1986 had become time-barred.
The insurance market was concentrated in automobile and workers' compensation coverage, largely handled by cooperatives with effective "owners," while more sophisticated lines of business were dominated by two nationally rooted groups that set industry standards. As for reinsurance, there was a state monopoly, INdeR, a source of inefficiency, insolvency, and corruption.
By early 1989, with an economy devastated by hyperinflation, military revolts, insurance policies issued in multiple currencies (australes, Units of Account, Bonex bonds, etc.), and an almost nonexistent reinsurance market, the government called early elections. In July of that year, Carlos Menem assumed the presidency.
Almost immediately, the State Reform Law was enacted in August 1989, authorizing the privatization of numerous state-owned enterprises and the merger or dissolution of various public agencies. These privatizations aimed to generate resources to reduce the fiscal deficit, balance the budget, and make a convertibility regime feasible. Another objective was to improve public-service efficiency and attract significant investment commitments.
INNOVATIVE
In insurance and reinsurance, under the leadership of the current President of the Republic, who at the time served as Superintendent of Insurance, the sector was deregulated. The National Insurance Fund and Provincial Insurance Institutes were dismantled. Reinsurance entered a free-market phase, allowing insurers to reinsure excess exposures internationally, thereby ending the state monopoly.
Beginning in January 1990, reinsurance offered innovative protection structures at highly competitive prices, enabling the development of countless high-quality products backed by reinsurers of proven financial strength.
The 1990s also saw the creation of essential Pension Funds, considered a major source of investment capital. Workers' Compensation Insurance Companies (ARTs) were established and continue to provide protection to workers while significantly improving loss prevention. Undercapitalized insurers gradually disappeared, as companies unable to provide adequate security to policyholders entered liquidation processes.
Politically, military uprisings came to an end through decisive action led by the President. Argentina reintegrated into the world economy and culture. In 1991, a fixed exchange rate was established, setting one U.S. dollar equal to 10,000 australes, later known as the convertible peso.
However, because public spending did not decline, the system generated growing debt and a widening fiscal deficit. This coincided with unfavorable years for commodity exports, the Latin American financial crisis (the Tequila Crisis), and rising global interest rates. Consequently, a system that had successfully contained currency deterioration ultimately failed to meet a fundamental requirement for an emerging economy: not spending more than it collects.
Toward the end of 1999, Fernando de la Rúa took office amid an extremely unfavorable international economic environment, with interest rates nearing 14% annually. His administration, formed through an electoral coalition rather than a governing alliance, quickly revealed strong internal contradictions. These disputes eventually led to the resignation of the Vice President.
A major struggle over income distribution, combined with political confrontation fueled by government factions, opposition groups, and labor unions, deepened the crisis and triggered an institutional breakdown. The result was macroeconomic chaos, the collapse of the financial system, and the infamous corralito (bank withdrawal restrictions).
What followed was the collapse of a government lacking political support, a succession of five presidents in eleven days, a declaration of sovereign default by one of them, and ultimately the abandonment of convertibility. This led to asymmetric peso conversion, a massive devaluation, the creation of quasi-currencies, and higher export taxes, precisely at a time when Argentine exports were regaining strength.
Politically, new elections were called in a highly uncertain environment. Carlos Menem and Néstor Kirchner emerged as candidates. Menem won the first round but lacked sufficient votes to secure the presidency outright. Faced with a runoff election, he withdrew, paving the way for Kirchner to assume office with relatively limited electoral support.
IMPACTED
The period between late 1999 and 2001 severely affected both insurance and reinsurance due to the economic and social collapse. Insurance production shrank significantly, payment chains were disrupted, and companies suffered capitalization problems.
Regarding reinsurance, premium payments abroad were virtually suspended. Numerous contractual clauses had to be renegotiated, along with treaty structures, limits, capacities, and priorities. Despite delayed payments, reinsurers continued supporting the country and maintained coverage in a spirit of solidarity. Only a small number of facultative placements were canceled due to the deterioration of payment guarantees.
From May 2003 through December 2007, Néstor Kirchner presided over a period of strong economic growth, with annual rates averaging around 9% and cumulative expansion approaching 50%. International reserves increased by nearly US$50 billion.
Twin fiscal and trade surpluses emerged thanks to strong tax revenues, record commodity prices, and reduced hard-currency public spending following the large devaluation implemented by his predecessor. In 2004, an agreement was reached with the IMF. Geopolitically, Argentina aligned itself with Venezuela, Bolivia, Brazil, Ecuador, Russia, and other governments that were either populist in orientation or critical of U.S. influence.
Shortly before leaving office, Kirchner approved the merger of Multicanal and Cablevisión, allowing the Clarín Group to control 70% of the cable television market and 20% of internet services.
In December 2007, Cristina Fernández de Kirchner (CFK) became the first Argentine woman elected President and was re-elected in 2011, governing continuously for eight years. Her administration pursued an expansionary economic policy, substantially increasing public spending for redistributive purposes. This strategy relied on funds accumulated during the previous administration and significantly higher taxation.
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The author is CEO of Special Division Reinsurance Brokers.