Lessons from Argentina for Greece Post author By Philip Lane Post date July 7, 2011 The WSJ returns to this comparison in this article. Categories In Uncategorized 12 Comments on Lessons from Argentina for Greece ← The Decline of Cash → A French friendly suggestion on how to save Greece from default and collapse 12 replies on “Lessons from Argentina for Greece” Great analysis and good highlighting of the agri. advantages of Argentina mixed with the good fortune of increasing commodity prices – relative to Greece unless we all begin eating copious amounts of olives. But the last two paragraphs had a ring of familiarity. ‘Argentina’s economy contracted more than 10% in 2002. Thousands of unemployed roamed the streets scavenging cardboard. Argentines planted backyard gardens because they couldn’t afford food. Argentina still has one of the world’s worst credit ratings, but it hasn’t been compelled to tap markets due to the bonanza from farm exports and some populist measures to provide the government access to fresh funds. In 2008, as Argentina was feeling the squeeze of the global financial crisis, President Cristina Kirchner nationalized privately held pension funds, with about $30 billion in assets.’ Sounds familiar that. What do you think our export ‘bonanza’ could be – yogurt? 😉 Generally, country comparisons are used to support a fixed view while inconvenient ones are ignored. A New York Times article said recently that Argentina may have one lesson to teach Greece: the danger of fatalism. Argentina is a commodity producer and its recovery coincided with a boom in food and other commodities. For example Argentina is a major soybean producer and soybean prices have risen from $200 a ton in 2003 to about $500 a ton today. The NYT said at the time of its default Argentina had a fiscal deficit of 3.2% of GDP. Greece’s deficit was 13.6% in 2009. And as a percentage of GDP, Greece’s debt of 150% is far worse than the 54% Argentina had when it defaulted. @ Michael Hennigan “A New York Times article said recently that Argentina may have one lesson to teach Greece: the danger of fatalism.” I can’t take this sort of insight seriously. Greece has been taken to hospital by the EU and IMF and is under the expert care of ECB and IMF doctors and due to leave hospital by early 2012. The patient has recently been placed in a straitjacket. And the patient is not improving . And the reason is fatalism? Or is it excessive moussaka ? Pull the other one. The bailouts are a failure because it is impossible to save banks that made stupid loans while similtaneously looking after economic growth. It was Nehru who said “Action to be effective must be directed to clearly conceived ends”. Lessons for Portugal from Greece : http://www.ft.com/intl/cms/s/0/90ef90b4-a800-11e0-afc2-00144feabdc0.html#axzz1RPU6YMCs “according to a German banker recently in Lisbon, Mr Passos Coelho was determined to learn the lessons of the Greek crisis by achieving deficit-reduction goals ahead of schedule. He was also seeking to act quickly and present a clear message, the banker said. Mr Passos Coelho was elected a month ago believing he could produce a fiscal adjustment that would enable Portugal to return to international capital markets earlier than the EU or the IMF envisage. His short honey-moon appears to be over.” Poor Portugal. Spot of bother with the house so they ring up the ECB who send a few builders who end up burning the house down. I thought the interesting thing about all this was the view of the Euro as the pinacle of European Civilization. We forget too quickly the historical context of what has been achieved here. A political decision needs to be taken that Europe itself is too big to fail. We could begin by reforming democracy in Europe – a simple first move would be to rebrand national parties as their European grouping. Fine Gael would become the Christian Democrats and Fine Fail would become whatever group it belongs to. This division between the national and European is more in the interests of politicians than it is in the minds of the populace. Fundamentally this crisis is about a decoupling of political and economic integration. The Euro tied us together much more than we could ever have imagined. Two choices – let both unravel or unleash major political reform. The WSJ piece is interesting, but the discussion here seems to have reverted to the Irish/Portuguese problem and the role of the EU, ECB etc. To get back to the original issue: what can Greece (or for that matter Ireland) learn from the Argentine experience? In purely economic terms, not an awful lot, because the economic and political structures of Argentina are a long way removed from those prevailing in Ireland, and even Greek misgovernment pales into insignificance wehn compared with Argentina. Argentina has a long-term history as a serial defaulter, and a political culture strongly influenced by Peronism: which is like Haugheyism and Ahernism on speed ( the cult of the strong man and the populist link to the “shirtless ones”, or in Irish terms the bearded ones, of the trade union movement). If you think that Greece’s official statistical office is somewhat deficient, it looks positively Scandinavian when compared with Argentina, head of whose statistical office was dismissed whan he refused to doctor the consumer price index: as a result the official inflation rate of about 10% is believed by no-one (it is likely to be >20%). We have two things to learn from Argentina. First, it provides an object lesson in bad government and a toxic political culture. Second, we should be very careful when inferring anything from Argentine statistical sources. Maybe they know how to produce good footballers, and good wine, but now I’m really drifting off-topic. @John Sheehan That comment about wine undermines an otherwise thoughtful post imho. @ seafóid You’re making a big song and dance about a minor point. Clearly a disorderly default is not an event to be wished for. Whether Greece, Portugal or Ireland default, recovering from the status of a failed state would be mainly an issue where states themselves would have to show leadership. It’s a challenge Japan never seriously addressed after its crash. Even its once feared business sector has not escaped the death wish and most of its big companies were founded before 1975. @ Michael Hennigan What more could have been expected of Portugal ? They got political agreement over a big deficit reduction plan , they took their bailout medicine and they get shafted by Moody’s. @ Michael Hennigan Neither Japan post crash nor Argentina in 2001 were bailed out by the Troika. Neither were put on a programme designed to give them enough time to get their financial matters in order before a return to the market. Both Ireland and Portugal handed the reins over to the Troika in good faith. What the markets are now saying is that the leadership of the Troika has failed. If FF were still calling the shots your point about leadership might have some merit. If it were so easy and so likely to lead to success to cut spending to the bone it would have been done last November. Ireland: The Irish Times – Tuesday, March 15, 2011 –karl whelan “Back in November, the plan to fix the banks was to get the Irish State to put in up to €35 billion (half of this borrowed from the EU and IMF) to recapitalise the banks. It was hoped that this would restore market confidence, thus allowing the banks regain access to market funding and repay the fortune they owe the ECB.” And what happened to this plan? Portugal: http://www.ft.com/cms/s/0/90ef90b4-a800-11e0-afc2-00144feabdc0.html#ixzz1RPU8vltb “Drawing an unspoken parallel with political infighting in Greece, Mr Gaspar said Moody’s had not given sufficient weight to the fact that Portuguese parties supporting the bail-out agreement had won 80 per cent of the vote in last month’s general election. This gave credibility to the government’s commitment to meet deficit-reduction targets ahead of schedule and take additional austerity measures beyond those set out in the rescue agreement, he said. According to a German banker recently in Lisbon, Mr Passos Coelho was determined to learn the lessons of the Greek crisis by achieving deficit-reduction goals ahead of schedule. He was also seeking to act quickly and present a clear message, the banker said. Mr Passos Coelho was elected a month ago believing he could produce a fiscal adjustment that would enable Portugal to return to international capital markets earlier than the EU or the IMF envisage” Who was it that said “When the circumstances change I change my mind”. @Seafoid And meanwhile our bond yields rise and rise and the Minister assures us that we will be back in the bond market next year while our Finance Minister has a cunning plan to restore domestic growth as outlined in a Bloomberg headline today…. “Irish Begged to Buy Fridges to Boost Economy By Finbarr Flynn and Dara Doyle – Jul 7, 2011 1:18 PM GMT+0100 And a Pimco representative on Bloomberg says avoid Irish bonds Argentina is not Greece nor is it Ireland. It is not even a member of the EU which is by far the most successful free trade association on earth. Argentina is the country that has everything, abundant agricultural land which ranges from sub tropical to near arctic. To name just a few products they produce grapes, sugar cane, olives, wheat, soy beans, barley, oats ,rye, tobacco all kinds of fruit from mangos to cold climate apples. Livestock in abundance including the best beef outside of Kyoto hand massaged cattle. Argentina has good social supports, it would be difficult to go hungry. The poor complain that they have to eat chicken while everybody else eats fork tender steak. I am always reminded in Argentina that being badly off is a very subjective condition. They do tend to oscillate between feast and eating chicken as the descamisados (a slur meaning shirtless ones) battle it out with the landed aristocracy. Not much different than the tension between our oligarchy and the poorer end of our society. Their president Cristina Kirchner is an economist who knows how to manipulate resources in a way that will get her re-elected. Inflation is running rampant at three to four times the stated Gov’t rate but do not worry she will bring it down after the election. If you want to live the good life learn Spanish, emigrate to Argentina and say hello to the monuments of Irishmen on bronze horses. I must comment on the American business publications who are all preaching from the same page of the American prayer book. The message is undermine the Euro in order to stop its march to being “the” reserve currency. We should give them credit for their cohesion and vision. Greece is likely to muddle through propped up by the rest of Europe. Ireland will give up on divine intercession at some point. Comments are closed.