All too many post-mortems on Argentina’s economic debacle are zeroing in on an interesting culprit. Guess what, it’s the United States. There is just enough circumstantial evidence to make a plausible sounding indictment. After all, the U.S. encouraged the free market reforms and sound money policies now publicly blamed for the mess. And everyone knows that the IMF, whose lending polices required the Argentine government to pursue contractionary austerity policies in the face of a severe recession, is just another branch of the U.S. Treasury.

The truth is much less incendiary, but much more troubling for the evolution of democratic accountability in Latin America. International events like neighbor Brazil’s precipitous currency collapse have indeed contributed to Argentina’s woes, but at its core, the problem is a colossal failure of the Argentine political leadership to solve what is essentially a domestic problem. The country has yet to build a sound fiscal structure that can raise revenues efficiently and fairly so the government can finance its spending without new international borrowing.

The current crisis began last Spring when hints the government might consider defaulting on its international obligations caused a spike in domestic interest rates. To reassure financial markets and the IMF, former President Fernando de la Rúa issued a zero-deficit pledge and called for large cuts in public spending while the nation suffered through its third year of recession.

The deeply unpopular austerity program seems farcical when you look at the numbers. Argentina has a modest budget deficit of less than three percent of national income, and a public debt that would make many European Union finance ministers smile. This supposedly burdensome budget deficit amounts to a whopping two hundred dollars per person, or perhaps $480 per working adult.

Slashing spending concentrates the cost of implementing the zero-deficit pledge, usually on society’s most vulnerable and volatile groups. Yet there is no magic to any particular size budget, no matter what the IMF says. You can achieve a balanced budget with higher revenues as well as with reduced spending. The issue before Argentina is how to raise the revenues needed to fund the desired public services and safety net.

Argentina’s citizens are not overtaxed. At 21% and 35%, the nation’s value added tax rate and personal income tax rate are well within international norms. The problem is who pays, and who doesn’t. Up to forty percent of the value added tax that should be collected is lost to tax evasion. This totals eighteen billion dollars, or over two and a half times the existing budget deficit. Another eight billion is lost to evasion of personal income taxes. Together with evasion of corporate taxes, up to half of Argentina’s potential fiscal revenue is squandered in ways that breed corruption and public disrespect for social institutions. If Argentina had a socially acceptable budget that was roughly in balance, its interest rates would more closely match U.S. levels and the overvalued Peso would be an annoyance instead of a national catastrophe.

At present, small taxpayers keep the existing system going since wealthy citizens have more opportunities to evade the taxman. Higher tax rates aren’t an answer since that would skew the burden further toward taxpayers of lesser means and increase the corrupting influence of tax evasion.

What Argentina needs is the legal structure of an effective state. With clear and simple tax laws and an aggressive, independent judiciary, the nation could fund its existing budget at substantially lower tax rates, with all the efficiency gains lower marginal rates can bring. This is the missed opportunity of the past decade, and the reform needed to make all the other reforms work.

Instead, default and devaluation are the order of the day. The Peso, we are told, must be de-linked from the dollar to restore the competitiveness of Argentina’s goods. Yet Argentina’s exports have risen in 2001, and in every year of the past decade but 1999, when Brazil’s currency collapsed.

As Argentineans know, devaluation is no panacea for a nation whose citizens have little faith in their economic and political institutions. Many in Argentina’s middle class regard the capital controls and the devaluation as outright theft since the convertibility law promised that a Peso could be exchanged for a dollar on demand, and the currency board acquired the assets necessary to do so. In advance of the actual devaluation prices rose substantially. This will offset much of the competitiveness gains devaluation supposedly will bring. And fears that the printing press will substitute for sensible tax policy means that tinkering with the exchange rate will bring no long-term advantages.

Prior governments began the process of connecting Argentina to the global economy and providing a sound currency that enabled citizens to make long-term plans. This was not a mistake. Their error was to ignore the imperative of developing a sound tax system the public would support. For want of a nail the kingdom was lost.