Washington Post correspondent Juan Forero has a piece today (11/4/11) that attempts to compare the Greek economic crisis with other similar debt crises, particularly in Latin America. Unfortunately, he draws some misleading conclusions.
Forero’s point is that there’s a lot about Greece’s problems that are reminiscent of troubles in Argentina and Uruguay just a few years ago. One country chose the right response, and the other is called Argentina:
In a story that may provide a lesson for Europe, one country, Uruguay, that was on the edge of financial oblivion organized a fast, orderly and negotiated response that revived the economy and ended a run on banks. Another, Argentina, spiraled into a chaotic default and remains a pariah in world financial markets.
Forero explains that Uruguay is now “a darling of Wall Street” (he means that in a good way) and boasts a fast-growing economy. And what about Argentina, that pariah state? The news is grim–the government
still owes about $15 billion to hard-core creditors and has lost judgments in U.S. courts to pay up. With the country still blocked from tapping international capital markets, it is mostly because of booming demand for its agricultural products that Argentina has been lifted from economic calamity.
“Nobody recommends the Argentine approach to anything,” said Arturo Porzecanski, a Uruguayan economist and professor of international finance at American University.
The Argentine people seem to think their approach is working–they just re-elected Cristina Kirchner, thanks in no small measure to the booming economy. As economist Mark Weisbrot wrote just before the election in the Guardian (10/22/11):
Since Argentina defaulted on $95bn of international debt nine years ago and blew off the International Monetary Fund, the economy has done remarkably well. For the years 2002-2011, using the IMF’s projections for the end of this year, Argentina has chalked up real GDP growth of about 94 percent. This is the fastest economic growth in the Western Hemisphere–about twice that of Brazil, for example, which has also improved enormously over past performance. Since President Fernandez or her late husband Nestor Kirchner, who preceded her as president, were running the country for eight of these nine years, it shouldn’t be surprising that voters will reward her with another term.
The benefits of growth don’t always trickle down, but in this case, the Argentine government has made sure that many did. Poverty and extreme poverty have been reduced by about two-thirds since their peak in 2002, and employment has increased to record levels. Social spending by the government has nearly tripled in real terms. In 2009, the government implemented a cash transfer program for children that now reaches the households of more than 3.5 million children. It is probably the largest such program, relative to national income, in Latin America.
In short, the Post seems to be saying that it’s better to be loved by Wall Street than to fall into an Argentine trap of growth and a substantial reduction in poverty.