Παρασκευή, 25 Μαΐου 2012

A few quick Notes on Argentina



When Argentina is brought up in relation to Greece, the focus tends to be on the Argentine default and the end of convertibility. But at the time, observers made frequent references to Argentina’s “Hooverite” policies, as its leaders unleashed round after round of belt-tightening.

Here’s a useful timeline of events from the Guardian. (20 Δεκ. 2001)

It’s worth pointing out that prior to the total breakdown, the Argentine government pursued a strategy of austerity in the midst of a severe recession in order to access IMF funds. We’re seeing the same story play out in Greece, only with the Troika playing the role of the IMF.
Six months before the street forced the Argentine government out of office, they opted for their own version of the fiscal pact. Explained Barry Eichengreen:
Domingo Cavallo, Lopez-Murphy’s successor as economy minister and architect of the Argentine currency board, proposed a zero-deficit law mandating that public spending (inclusive of interest payments) be cut to the level of revenues. The Congress quickly concurred. Compliance required sharp cuts in non-interest spending (some state salaries and pensions were cut by 13 per cent), and the predictable political backlash immediately raised questions about the sustainability of these measures.
This was a clear case of an escalating commitment to a losing course of action. It was a mistake to keep kicking the can down the road. The (apologetic) IMF note from 2003, “Lessons from the Crisis in Argentina” (approved by Tim Geithner) concluded:
With regard to crisis resolution, the Argentine crisis illustrates the importance of  timely debt restructuring in cases in which the debt dynamics have become irreversible. Once a debt restructuring has become unavoidable, measures to delay it are likely to raise the costs  of the crisis and further complicate its resolution.
To verify just how little has been learned, we can turn to a terrific piece by Stiglitz from a decade ago, “Argentina’s Lessons“, which is worth quoting extensively:
You ignore social and political contexts at your peril. Any government that follows policies which leave large fractions of the population unemployed or underemployed is failing in its primary mission…
A single-minded focus on inflation – without a concern for unemployment or growth – is risky…
One seldom restores economic strength – or confidence – with policies that force an economy into a deep recession. For insisting on contractionary policies, the IMF bears its great culpability…
Argentina’s crisis should remind us of the pressing need to reform the global financial system – and thorough reform of the IMF is where we must begin.

P.S. This is a very interesting blow-by-blow from a NBER conference on Argentina in July of 2002 (and here are the background papers).
My favourite quote comes from a paper by Ricardo Caballero and Rudi Dornbusch, “Argentina: A Rescue Plan That Works“:
Argentina now must give up much of its monetary, fiscal, regulatory and asset management sovereignty for an extended period, say five years.
No matter where the crisis happens, there will always be economists willing to call for the establishment of protectorates and the restriction of democracy.

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