Argentina, Portugal and, perhaps, Greece

It doesn’t appear that Argentina, Portugal and Greece have anything in common in terms of their cultural identity, language or history. Nevertheless, in the era of globalization we can learn a considerable amount if we carefully observe the starting point, the growth and manifestation of a crisis. But the resignation of Portugal’s Socialist Prime Minister Antonio Guterres after his party’s poor show in municipal elections last week and six years in power and the dramatic developments in Argentina remind us of nothing at home. Indeed, Greece is enjoying a rare period of stability and increased opportunities. But Portugal also acquired this. The question as to what led voters to give the Socialists the thumbs down may be debatable. In Argentina, however, the situation is more easily explained. Four years of recession and an unemployment rate of 18 percent can shatter any political equilibrium. The hitching of the parity of the country’s currency, the peso, with that of the US dollar, has apparently done nothing to foster growth and stability in the economy. Nevertheless, the common element in these two countries, and with Greece, is precisely this fastening of the external parities of their national currencies. When a country loses the ability to use its external parity as a means of correcting imbalances, the situation can become explosive. When the fluctuation of the national currency can no longer play a corrective role, the real economy – incomes, public infrastructure, employment and external debt – must necessarily bear the full weight of these imbalances. With a strong escudo in their hands, the Portuguese had been spending liberally in recent years. Their government appeared to have responded to the need for relaxing the tight measures introduced during the long road to achievement of the strict criteria for monetary convergence according to the Maastricht Treaty. Imports shot up and the external deficit reached an unheard of 10 percent of domestic product. Control of public spending eased. Business productivity started falling rapidly. The privatizations program fell behind and the deregulation of the big sectors got bogged down. And electoral sanctions against the government were not long in coming. Concern arose over the maintenance of the prosperity brought about by entry into the eurozone. Competence in managing the situation ushered in by the euro became a strong criterion among voters. Portugal has been in the eurozone longer than Greece has, and what we can therefore learn from it is that that this country’s government has no time to waste. Voters will be very conservative in their decisions in next year’s municipal elections. They will weigh the efficiency in the execution of public projects, competence in achieving a balance between making structural changes and maintaining labor rights, and keeping inflation and unemployment at low levels. Argentina offers other lessons. One of the most significant factors in the present crisis in that country is the investors’ preference for liquid assets. Long-term investments have had a dramatic fall in value, as indicated by the fact that the Argentine bond interest rate is four percentage points higher than the respective US securities, despite the fixed parity between the two countries’ currencies. Moreover, liquid deposits are more than 60 percent in dollars – most of it represented by the government’s currency reserves. The incompetence of public administration, the authoritarian and unpredictable policy of recent governments, the entanglement of vested interests and corruption, the clash between the central and regional governments and internal party feuds are the basic characteristics of the inability of the political system to manage the crisis, let alone manage to get out of it. And so, a country with a very high level of development, good schools, good doctors and quality private sector managers is condemned to a crisis of despair. The Argentine experience is a particularly useful lesson for us. First, Greece is in danger if we do not take care to confront the possibility of a strong deflation in the real estate market, a slump in savings and, ultimately, a collapse in the rates of return in business investment. Secondly, and even worse, the crisis in Argentina proves how risky it can be for an economy attempting the rehabilitation the historic entanglement of politics in the dark echelons of favoritism, corruption and administrative incompetence.

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