By Nikos Konstandaras
When a nation is at a dead end, it wants to hear things are not so bad, it wants promises of a painless escape through a secret passage. In Greece today, where everyone is experiencing their own personal truth and believes that everybody else is conspiring against them, we often hear (from both left and right) that we should declare bankruptcy like Argentina in 2001 and go our own way. As unshakable proof of their wisdom, the proponents of this argument point out that the rich South American country had the region’s fastest growth rate after 2003.
However, Argentina is not out of the woods and it is fighting alone in a difficult international climate. Before making other comparisons, it is useful to remember where Greece is today. A great part of the difficulty we face in reducing our debt and becoming more competitive stems from the fact Greece does not have its own currency to devalue. But this is also our greatest strength: Our place in the eurozone forces us to introduce reforms that will make our economy viable while, at the same time, it ensures the active support of our partners (as long as it lasts).
If we abandon this unequal battle, the return to the drachma will grant us the freedom to try Argentina’s way. When the peso was unpegged from the US dollar in 2001, its value dropped from an exchange rate of 1:1 to 4 pesos for each dollar. Savings were wiped out. But the international economy was booming and Argentina’s many products and commodities found growing markets and achieved good prices. In 2003-11, GDP grew by an annual average of 7.7 percent, thanks to bumper harvests, a hunger for commodities in China and increased sales of cars to Brazil.
Last month, however, industrial output was down for the first time since 2009; drought has hit crops and demand for its exports has slowed. Argentina’s benchmark dollar bonds due in 2017 have a bond yield 1,339 basis points higher than the equivalent US bonds. Measures to stem capital outflows have been enforced as an estimated $200 billion was spirited abroad in recent years. Inflation is seen at 23 percent in 2012. Argentina is shut out of capital markets and foreign investors are avoiding it (more so after it nationalized a Spanish oil firm’s subsidiary).
Worst of all, as a European diplomat with years of experience in Argentina notes, is that the public administration is overstaffed and inefficient and corruption is rampant. With their own currency, Argentina’s governments have not implemented reforms and now find it difficult to meet their nation’s demands.
Argentina’s lessons are indeed valuable, as long as we understand them before it is too late.