December 25, 2004


Economic Rally for Argentines Defies Forecasts (LARRY ROHTER, 12/26/04, NY Times)

When the Argentine economy collapsed in December 2001, doomsday predictions abounded. Unless it adopted orthodox economic policies and quickly cut a deal with its foreign creditors, hyperinflation would surely follow, the peso would become worthless, investment and foreign reserves would vanish and any prospect of growth would be strangled.

But three years after Argentina declared a record debt default of more than $100 billion, the largest in history, the apocalypse has not arrived. Instead, the economy has grown by 8 percent for two consecutive years, exports have zoomed, the currency is stable, investors are gradually returning and unemployment has eased from record highs - all without a debt settlement or the standard measures required by the International Monetary Fund for its approval.

Argentina's recovery has been undeniable, and it has been achieved at least in part by ignoring and even defying economic and political orthodoxy. Rather than moving to immediately satisfy bondholders, private banks and the I.M.F., as other developing countries have done in less severe crises, the Peronist-led government chose to stimulate internal consumption first and told creditors to get in line with everyone else.

"This is a remarkable historical event, one that challenges 25 years of failed policies," said Mark Weisbrot, an economist at the Center for Economic and Policy Research, a liberal research group in Washington. "While other countries are just limping along, Argentina is experiencing very healthy growth with no sign that it is unsustainable, and they've done it without having to make any concessions to get foreign capital inflows."

The notion that bankers won't race to lend you money just because you didn't repay a few loans is as absurd as the rest of the orthodoxy about debt.

Posted by Orrin Judd at December 25, 2004 9:57 PM

Mr. Judd;

It would seem a good lesson for Iraq, wouldn't it? I am a bit surprised at how fast the lenders came back, but that they would seemed obvious. Capital in-flow has a lot more to do with rule of law than previous defaults, a lesson the IMF seems incapable of learning.

Of course, it's generally a good bet to go with anything contrary to IMF policy, another good reason for disengaging from that entity.

Posted by: Annoying Old Guy at December 25, 2004 10:22 PM


Odious debt in particular should never be repaid.

Posted by: oj at December 26, 2004 9:04 AM

I remember those dark days really well. The internationalist elites were hammering the Bush Administration for not "doing more" to bail out Argentina. (Read: Bail out bondholders.) Uruguay would follow. And then Brazil. And so on. The cry in Europe was the loudest, as they hads invested the most money, most recently.

If you had put $1,000 in (e.g.) an Emerging Markets Bond Fund in Jan 1, 2001, you would have almost $1,800 today. 80% over four years.

Stupid Bush.

Posted by: Moe from NC at December 26, 2004 9:43 AM

Bailouts are always a bad idea, because they merely encourage a continuation of the poor behavior that started the problem to begin with.

Argentine economic 'growth' is not a surprise, their economy collapsed by about 70% when they had 4 presidents in one year. They have nowhere to go but up. I'll gladly wait on the sidelines until they create some transparency in government and a modicum of integrity in their judiciary. Otherwise, it's just a matter of waiting till the next caudillo shows up.

Posted by: Bart at December 26, 2004 10:51 AM

Yes, we should not bail the banks out.

Posted by: oj at December 26, 2004 11:05 AM