It used to be called the "Paris of the South" – and there is no doubt that Buenos Aires is a beautiful city with a very European feel. To the outside observer, it does not even appear to be in a developing country, not least because the resident population is almost completely dominated by relatively recent European migrants of the past century and a half. Indeed, Argentina is still much richer and more developed than most countries in the world, and in Buenos Aires the evidence of past splendour still dominates in the wide boulevards and imposing classical architecture that fill the centre of the city.

Yet the grandeur is a little faded – and perhaps is all the more charming for that reason, like a newly impoverished dowager holding on graciously (if a little anxiously) to the signs of previous elegance and prosperity. For all of its tumultuous recent history, especially in the past half century, the city seems to be drawn towards a more distant, stylish past. It is evoked in the spacious central squares, including the famous Plaza de Mayo; in the wonderful 19th century opera house; in the modish cafes dotting the landscape around the imposing Recoleta Cemetery where all the famous people are buried; in the gloriously decadent old tango halls where young and old people still come to watch, learn and perform this most disciplined of erotic dances.

Of course there is much more to it, because at another level the city is another of the huge urban conurbations that are becoming more and more prevalent in the developing world in the 21st century. While the central city has around 3 million residents, another 9 million or so are in greater Buenos Aires, making it a large city even by Latin American standards. (Of course Sao Paulo in Brazil and Mexico City, with well above 20 million inhabitants each, are still far ahead.)

In much of this larger city, nostalgia is actually a thing of the past, as typically 20th century high-rise housing and 21st century malls compete for attention and Portenos (as the local residents are called) face the usual preoccupations of contemporary life such as finding and keeping jobs. Every so often, just to prevent the apparent signs of prosperity from misleading, it is possible to see groups of adults and children on the streets engaged in the what is currently the most dynamic urban informal sector occupation: picking through the garbage bags to find and take away whatever of the contents can be recycled.

All this is the culmination of a very complex set of volatile and extreme political and economic changes over the past half century. In Argentina today, the legacy of Peronism is not much talked about, despite the fact that it is the Peronist Party which currently rules the government. Literature and media have ensured that the world remembers the glamour of Evita and the populist and often perverted machismo of General Juan Peron as the most significant features of that time. But there is also a significant economic legacy, which enabled development in the 1940s and onwards by setting up the industrial base in what was a dominantly agricultural economy. It also recognised workers' rights in a systematic way, creating one of the first welfare states of the developing world.

The army coup of 1976 brought in one of the most vicious dictatorships of the 20th century, brutal and destructive even by Latin American standards. The ruling junta did not simply destroy all the existing democratic opposition: it used the most sadistic forms of physical and psychological torture to drive people out of the country and prevent any new opposition from emerging. The generals and their cohorts also looted the country, driving the economy into deep debt which financed their own luxury expenditures and capital flight. The dramatic debt crisis of Argentina in the 1980s reflected borrowing which had been mostly misused by the military regime, very little of which actually translated into productive expenditure.

As in Chile, the transition to democracy in the 1980s was perforce made on the basis of what has been described by Chilean social theorist Manuel Riesco as "a hideous pact". Effectively, the generals and other perpetrators of the ghastly crimes of the military period were exonerated from any possible punishment, and neoliberal economic strategies were maintained in both countries. The democracies that emerged were therefore necessarily constrained from putting into place policies that would directly benefit the people. It did not help that they came into being at a time of economic crisis, when unsustainable external debt payments combined with domestic hyper inflation to force all these countries into the standard IMF stabilisation-cum-adjustment package.

In Argentina, the neoliberal economic policies pursued in the 1990s made things worse because of the obsession with restricting inflation and impetus to privatise almost all public assets and service delivery. A supposedly permanent link of the Argentine peso to the US dollar caused deflation at the same time that financial liberalisation led to financial fragility despite the stringent monetary policy.

The resulting financial crisis in 2001 was extreme even by Latin American standards, with a collapse of the peso and of the domestic credit system and very deep economic slump, with a 20 per cent fall in GDP in the subsequent year. Income distribution worsened sharply and poverty rates doubled within a few months. All this also led to severe political instability - as the locals put it, history was being doled out by the day. There were six governments within the space of a few months, complete turmoil in civil society and the breakdown of banking institutions and other forces that normally keep capitalism running.

Yet from the wreckage something could and did emerge, and it has created the basis for one of the more successful economies in Latin America at the moment. The Peronist government led by Nestor Kirchner has proved to be both more stable and more quietly progressive than could have been imagined when he first took over the reins of government.

Kirchner's own background should not be ignored – he and his wife, the recently elected Senator, were both Monteneros, part of the Resistance movement against the generals, and many of their friends were among those who "disappeared" to be tortured and killed by the military regime. His government has emphasised social spending, including unemployment benefits, and avoided further cuts in basic government expenditure.

The imposition of export taxes (up to 25 per cent of value of export of primary goods) in early 2002 proved to be a great boon as international commodity prices have been increasing, agricultural export values have gone up and contributed more to the government exchequer. There has also been a revival of the import substituting industries that had collapsed in the 1990s, and new forms of export, such as software, have emerged. As a result, the economy has grown by 9 per cent per annum for the last three years, and the unemployment rate has fallen from 23 per cent in 2002 to less than 14 per cent currently.

A major achievement of the government was the renegotiation – or effective default – of the Argentine external debt in 2004, whereby international creditors had to accept a deal that wiped out around 65 per cent of the face value of the debt. This was managed in the teeth of IMF opposition, and provides a powerful example to other highly indebted developing countries. Argentina has also repaid its loan to the IMF ahead of time, so as to avoid continuous interference in domestic economic policies.

The recent changes in Argentine economy and polity are complex and not easily categorised, but they are indicative of wider changes taking place across the subcontinent, pointing to a wider range of progressive possibilities for people across the developing world.

March 7, 2006.