Innovation/Global Crisis Blog

Anybody Notice Argentina?

By Shlomo Maital

   Argentina: Annual % Change in GDP, 1998-2010 (World Bank)

       In today’s global markets, the dominant metaphor is that of ‘dominos’.   One ‘domino’ (country) topples another.  Tiny Greece, for instance, is threatening to topple the Euro nations.   Argentina is a good example.  In 2000-1, Brazil devalued its currency, the real, from one real per dollar to two, because of a flight of capital.  Meanwhile, Argentina maintained its one-peso-per-dollar exchange rate.  Joined in the Mercosur free trade bloc, Argentina and Brazil ran a healthy trade – until the devaluation of the real made Argentinean goods doubly expensive and destroyed Argentina’s exports.  The massive crisis (see graph below) was made doubly worse when Argentina refused the draconian IMF conditions for emergency credit – and it was nearly a decade until Argentina could re-enter global capital markets.    

  But by 2003 Argentina had bounced back.  The commodity price boom helped Argentina’s exports of corn, soy and wheat.  A smart government bought dollars to keep the exchange rate favorable for exports.  It taxed  both exports and imports (Tea Party guys, are you there?), and used the money to pay for public works, including 40,000 new low-income housing units and a new highway between Rosario and Cordoba.  A Universal Child Allowance gives 1.9 m. low-income families $42 a month per child, starting in 2009.  The grant is linked to how often the child goes to school. 

    What can we learn from Argentina?  The kind of austerity measures now being embraced by America and Europe were tried, in the 1990’s, and failed miserably.  A pro-active government that promotes local industry, pro-job infrastructure and unemployment benefits puts “money in the pockets of ordinary citizens, who then spend it and spur the economy” brought Chinese-style growth to Argentina, in 2003-2010. *

     Who would have thought that Argentina, once a basket case, could teach valuable lessons to America – while America, of course, learns from no-one, from no other country, because, well, because it is America.   At a time when North America, Europe and Asia are all struggling, South American economies are largely thriving.  No longer is South America in the ‘toppling domino’ league– if anything, it is threatened by other dominos.  What a refreshing change.

GDP %  change, Argentina, 1998-2010  

98     99      2000   01      02       03      04     05     06     07     08      09      10

3.9    -3.4    -0.8    -4.4   -10.9      8.8    9    9.2      8.5     8.7    6.8      0.9       9.2

====================

  • Ian Mount, “Argentina’s Turnaround Tango”, Global New York Times, Sept. 4/2011.
Advertisements