World Policy Journal is proud to share our revived weekly podcast, World Policy On Air, featuring former Newsweek On Air host David Alpern and Eurasia Group President Ian Bremmer's latest commentary on global "Winners & Losers." Click here to subscribe on iTunes!
By Michael S. Lerner
Early 2008 appeared to be a turning point for transportation in Argentina. In April of that year, Argentina signed a contract with a consortium headed by the French firm Alstom to build a bullet train, which would be the first of its kind in South America. With robust GDP growth, strong exports, and rising international clout, Argentina was on the fast-track to a new age of modernity and prosperity.
Yet four years later, the effects of an irresponsible French bank, Bernie Madoff, and the global financial crisis, have combined to derail these original plans for high-speed rail in Argentina. The country became another victim of the reckless financial blunders made a world away, and its bullet trains will remain far in the future.
In the early 20th century, Argentina had the largest rail network in South America, financed and managed primarily by British investors. The large-scale foreign capital used to build and maintain the railroads greatly enhanced Argentina’s export-dominated economy. Freight trains efficiently brought beef and crops from the vast fertile interior to the port of Buenos Aires and then to the rest of the world. But in 1948, populist Argentine President Juan Perón nationalized the railroads, leading to decades of mismanagement by state officials. By the 1980s, the rail network shrank; quality drastically declined; and the railroads lost nearly $2 million per day. They were re-privatized in the 1990s, following the global economic trend of neoliberalism. While service and profitability have improved somewhat, although unevenly, Argentina’s railroads remain a shadow of what they were in their glory days. The suburban passenger trains servicing Buenos Aires are particularly appalling: Besides frequent breakdowns and accidents, they have broken seats and windows and too few carriages. Some passengers hang out of the doors of trains, and others have even resorted to traveling on the roof. On several occasions in recent years, the frustration and anger of passengers has culminated in vandalism and riots in train stations.
Yet a new chapter opened in late 2006, when outgoing President Néstor Kirchner announced plans for a bullet-train to run on a 440 mile (710km) track linking Argentina’s three largest cities—Buenos Aires, Rosario, and Córdoba. In April 2008, after the government finalized a deal with a consortium led by the French company Alstom to build and operate the high-speed rail, it seemed like a new golden age of modern railroad infrastructure was about to begin. Current President Cristina Fernández de Kirchner joyously announced that the project was not only “a public work with the highest technology,” but that it was “an important leap towards a different Argentina” that would soon be known for “development and modernity.”
The bullet train (known as TAVe, for tren de alta velocidad) was an ambitious project, entailing the construction of new track, expanded stations, and eight new double-decker train cars that would run at speeds up to 200mph (320km/h) and seat over 4,000 passengers in total. The Argentine government calculated that the project would create 5,000 jobs directly, 25,000 jobs indirectly, and would cost about $4 billion in total. The French bank Natixis agreed to supply the entire credit line, with Argentina paying it back with government bonds over a 30-year period.
Argentina had gotten over most of the messy aftermath of its debt default in 2001-2, and its economy was booming. The project was all set to go, with construction work starting as early as fall of 2008, and the government hoped that the first passengers would board within 36 months. Even before the government finalized the deal for this main TAVe, it began seeking out bidders for an additional 250 mile (400km) high-speed rail route to be constructed in a new direction, from Buenos Aires to the popular resort city of Mar del Plata.
Then, the global financial crisis shattered these plans, as it did to so many others around the world. In early November 2008, Alstom announced that their signed contract to build the bullet train was “on hold” indefinitely, because the French bank Natixis had suddenly run into major troubles and could no longer put up the necessary financing. As a result of its irresponsible heavy involvement in the U.S. subprime mortgage bubble, Natixis found itself over $3.6 billion in the red for 2008 and lost another $1.8 billion in 2009. Its own bond insurance had to be bailed out to the tune of $1.5 billion, and Natixis also publicly admitted it had lost some $600 million to Bernie Madoff’s fraudulent Ponzi scheme. Argentina couldn’t afford to finance any such high-tech, high-cost, and unnecessary infrastructure projects as bullet trains on its own, particularly as its GDP shrunk and then recovered slowly in 2009, and around the world banks and firms were pulling back from extending credit anywhere. Through no real fault of its own, Argentina was left with nothing, and there were no suitable replacement options on the table then or in the foreseeable future.
China to the rescue?
As Europe’s economic crisis continued, Argentina looked elsewhere for financial support, and one country above all others was poised to help. In July 2010, the state-owned China Development Bank lent Argentina $10 billion in order to renovate and expand the national rail network, including both the Buenos Aires metro and freight routes crisscrossing the nation. Argentina pledged to match 15 percent of the loans it receives with its own funds, which was a much more realistic option than trying to foot the bill alone. To this day, Argentina remains cut off from funding from international financing organizations and Western nations due to unresolved debts from its default a decade ago. Meanwhile, growing demand for food makes China very interested in Argentina’s huge agricultural exports, and China has plenty of money to spare on loans to other countries that will benefit it in the long-run. Deepening economic ties with China is a mutually beneficial strategy. A country like Argentina no longer has to rely on the U.S. or Europe for an economic boost, nor go hat in hand to the IMF asking for another loan and then be compelled to follow those bothersome conditions that always come along with it. Argentina signed a $320 million contract with China to buy 20 diesel locomotives and 220 rail passenger trains, which came into effect in July 2011. This was the largest export order in the history of China’s railway equipment industry, and the first shipment is due to arrive in Argentina in July 2012.
But these will not be bullet trains. Rather, they are the latest generation of “high performance” trains, with maximum speeds of either 75mph (120km) or 100mph (160km), which are half the speed or less than the original planned bullet trains. The good news is that these “high performance” trains will be operational in more of the national rail network than the TAVe plan, they are far less expensive, and they will be constructed and ready for use comparatively much faster. Plus the project will actually go forward, because the financing is completely secure thanks to the Chinese loan. But the bad news is that this seems to signal the premature death of high-speed rail in Argentina, at least for many years into the future. Any lingering hopes that Alstom’s contract for the TAVe might be taken off indefinite hold and reactivated were dashed when the company decided to withdraw the balance of its quarterly security deposits that had been accumulating in the Argentine government’s coffers.
Only time will tell whether the decision to abandon high-speed rail was the right one, given the circumstances. Critics claimed it would have been an opportunity for corruption, that only the wealthy would have been able to afford tickets, and that money should have been spent improving the deplorable existing train network instead. Granted, any upgrade from the current status quo will be welcome. A poignant symbol of the major flaws of Argentina’s existing railways was the horrific crash of a commuter train in Buenos Aires in February 2012 that killed 49 and injured over 600. That was a national tragedy and a wake-up call to reform and improve the nation’s railroad network. Former lawmaker Héctor Polino recently said that since privatization in the 1990’s, the system has been plagued by negligence, mismanagement, a lack of maintenance, and “connivance” between the companies running the rails and officials in charge of oversight. Even worse, “another catastrophe could happen at any time,” he warned.
Unfortunately, however, bullet trains will not be part of any realistic solution that gets considered. Beyond the legitimate differing views on the economic viability and technological feasibility of the options for railroad upgrading, the cancelation of high-speed rail is a blow to Argentina’s prestige. It is no longer poised to enter the respected club of countries with bullet trains, including Japan, China, the U.S., Germany, Britain, and others. Meanwhile, other countries like Morocco have just recently joined the club, and several more are set to join in the coming years, including India and Indonesia.
Yet nothing permanently precludes the prospects of reviving the idea in the future. Perhaps after a few more years of strong economic growth, and if there is enough domestic demand for high-speed rail after the population tries out the new generation of high performance trains, Argentina might get around to building a few bullet trains. The only other country in Latin America seriously pursuing this is Brazil, which has suffered delay after delay, mainly due to its government refusing to allow business-friendly conditions. In Venezuela, President Chávez has embarked on massively wasteful and unnecessary project to build a fast train (up to 135mph) train through the scorching hot, malaria-ridden, sparsely populated central plains as part of a grand socialist plan to “rebalance” the population away from the packed coastal strip. This “train from nowhere to nowhere,” which incidentally is also financed by a Chinese government loan and is being constructed by a Chinese state-owned company, is a model to be avoided. However, if on the long-shot chance Argentina gets its act together quickly and decides to build high-speed railways, it still may just be able to snag the claim of the first real bullet trains in South America, but that’s only because no other country there is on the right track.
Michael S. Lerner is an Editorial Assistant at World Policy Journal.
[photo courtesy of Brian Simorka]