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.
Argentina just keeps looking better.
Argentina and Iceland did it right. It is a successful rehab. for these countries that have kicked the capital loan markets. They have learned the lesson for economic stability: Don’t operate on borrowed money. The capital markets (multinational banks) discourage inividuals as well as countries depending on their own resources–savings for individuals–by near zero interest for savings and attractive initial offers for using credit cards for purchases. They enlist, often with bribery and politican donations, lazy and corrupt gov’t officials in borrowing money rather than the difficult work of protecting local manufacture and collecting taxes.
Can someone explain to me how the American Banks contributed to the Greeks’ near economic collapse? Be specific about the mechanics, please.
Right on!. But even you are missing something: WE PAID OFF the debt to the IMF, and renegotiated with defaulted bondholders with the largest in history:
http://afp.google.com/article/ALeqM5hD5-ws9-qJho6oFICU9NUseL6GhA
“Nestor Kirchner had convinced 76 percent of Argentina’s creditors holding defaulted bonds to settle and be paid back at less than a third of the paper value of the debt.”
“(in 2007) Argentina reimbursed a 9.5-billion-dollar debt to the International Monetary Fund.”
http://en.wikipedia.org/wiki/Argentine_debt_restructuring
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“During the restructuring process, the International Monetary Fund was considered a “privileged creditor”, that is, all debt was recognized and paid in full. In 2005 Argentina shifted from a policy of constant negotiation and refinancing with the IMF to payment in full, taking advantage of a large and growing fiscal surplus due to rising commodity prices, with the acknowledged intention of gaining financial independence from the IMF.[1]
The Nobel Prize economist Joseph Stiglitz repeatedly criticized the IMF and supported the Argentine strategies on the debt restructuring, but opposed the disindebtment policy, suggesting instead that the IMF should receive the same treatment as the other creditors”
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(…)
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Even as the economic situation improved, the amount of the debt was still the largest defaulted debt in history (about 93 billion USD), and Argentina was in no position to pay without sacrificing essential parts of its budget.
The Argentine government kept a firm stance, and finally got a deal by which 76% of the defaulted bonds were exchanged by others, of a much lower nominal value (25â┚¬“35% of the original) and at longer terms. Among these bonds, some are indexed based on the future economic growth of Argentina.
The terms of the debt exchange were not accepted by some of the private debt holders (amounting to a quarter of the debt). The IMF used to lobby for these holdouts, but its position has been greatly weakened by the anticipated payment made in January 2006.
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Debt reduction as percentage of GDP continues
http://www.mecon.gov.ar/finanzas/sfinan/english/download/informe_deuda_publica_31-03-11_english.pdf
“â┚¬Ã‚¢Gross National Public Debt reached a sum equivalent to US$173,147 million, which
approximately represents 46.3% of Argentina’s GDP. . Compared to the same quarter of the previous year, this ratio has shown a 2.7 percentage points (p.p.) decrease, implying a continuity of the debt reduction process initiated in 2003.”
FC
Oh, and another thing… comparing Argentina to Uruguay is silly to say the least. Uruguay is a tiny country with small population and the Tax Haven of the region. A lot of Argentina´s missing tax revenue (due to evasion and elusion) ends up in Uruguay due to its bank secrecy laws.
http://newish.info/178166-includes-g-20-to-panama-and-uruguay-in-tax-haven-list
“The annual summit of the G-20 concluded today with the publication of a blacklist of 11 tax havens, which include Panama and Uruguay, said French President Nicolas Sarkozy, who hosted the meeting .”
Of course they “promise” to change…
http://corporateinvestigationsinc.wordpress.com/2009/04/07/uncooperative-tax-havens-making-changes/
“I’m sure you have heard of certain nations that were blacklisted. Apparently those nations are making changes to get back into the financial world. Generally these havens are countries that support banking secrecy. The four main countries are: Philippines, Uruguay, Costa Rica and Malaysia. They are not completely â┚¬Ã…“out of the frying panâ┚¬Ã‚Â, but simply moved out of the blacklist status into the gray list status.”
FC
Not so fast in lauding Argentina.This year brings a 70% chance of recession.And they are floating an 8% growth rate on inflationary economics.They do have great natural resources(and no government blocking the tapping of them).Good agricultural exports,and low regulations.Best said they are “hanging in there”as so many countries dip.Richard above is correct in saying they don’t agree with operating on loaned/borrowed money.That alone is the true secret of turning any economy around.Stop spending what you don’t have.
A small minor(?) thing is that GS help Greece hide their true debt to get into the union.
http://www.spiegel.de/international/europe/0,1518,676634,00.html
Besides the above – U.S. banks and investment corporations used derivatives – toxic waste – to bring excess money from profits off exports TO the U.S. — Back into the U.S. system to be used for further loans, that is why a big chunk of the bailout(s) went to Europe and Britain – Think of Greece as another way also to invest those excess dollars from the exports and use the asset value ( not the right word so correct me) of those derivative (fake bonds) to loan (invest) Greece more money. As a physics person the idea of leveraging is still nuts to me.
“The Shock Doctrine” should be required reading for anyone remarking on Argentinian economics. I won’t go into arguments about what is stated here; I’ll let you read the book and find out what the Left already knows.
Imagine, tiring to protect the week and poor by using the unpaid exploitative debt to the greedy international bankers. Oh my, Argentina may just be on to something really simple. Use government policy to forgive the debt of the poor and again make greed a sin.
Jerry…Make greed a sin?Or do you mean make profit motive a sin?And what is greed?Is Obama the very embodiment of greed?He is a very rich man.Intends to become far wealthier after his term I am sure.Has never been charitable.And leads the “greediest”country on Gods green earth.I suppose that makes him enemy number one to your thought process.Greedy international bankers?Please name some of these faceless monsters.Why do I have the feeling I can just guess the predominant religion of those named?
What is an unpaid exploitive debt?And how do we protect the poor and the weak?Do we feed a man a fish for a day and pat ourselves on the back?Or shall the government feed him fish for his lifetime?
Hal indulge me…What does the left already know?
So true, Hal. A disturbing book, outlining some events that will eventually arrive here in full force.
Juan Forero’s semi-breathless embrace of everything neoliberal that’s taking place in Latin America has become a subject of great merriment in our house. While Juan goes on, one of us will mime his performance… and, maybe it’s only funny to us– but one takes what one can, to find humor in troubled times… ^..^