Friday, June 24, 2011

Don't Cry For Argentina

Some good:
Notably, the one creditor that was paid back in full — in 2006 — was the International Monetary Fund, to which Argentina owed $9.8 billion dating to the 1990s.
A lesson for Greece is “whereas the commercial creditors are expected to take a haircut, the official creditors like the I.M.F. are not willing to,” said Robert S. Koenigsberger, chief investment officer with Gramercy, an emerging markets investment manager.
“That is how commercial creditors get subordinated and bear the brunt of these failed bailouts,” Mr. Koenigsberger said.
Since paying off the International Monetary Fund, Argentina has not borrowed from the fund. That has enabled the Kirchner governments to avoid the agency’s typical prescription of cutting state spending.
[emphasis added]
Some bad:
For one thing, a decade later, Argentina has still not been able to re-enter the global credit market.
“A default is not free,” said Jaime Abut, a business consultant in Rosario, a city north of Buenos Aires. “You have to pay the consequences, and for a long time. Argentina is no longer considered a serious country.
[emphasis added]
Krugman responds: Don't Cry for Argentina
I was really struck by the person who said that Argentina is no longer considered a serious country; shouldn’t that be a Serious country? And in Argentina, as elsewhere, being Serious was a disaster.
Bill Mitchell elaborates on Argentina in Defaulting on public debt as a way to progress (September 7, 2010). Scroll down to Case study: Argentina 2001-2002 …

Bill concludes:
To reiterate, none of this discussion applies to truly sovereign nations who never face any solvency risk.
I think the best thing a non-sovereign government can do in terms of advancing the interests of its people is to move towards sovereignty as soon as possible. That might involve jettisoning a currency arrangement (such as in Latvia, for example).
It might require exiting a monetary union that has taken the currency-issuing monopoly away (such as the EMU nations). In this instance, that might necessitate a formal default on all debt that was incurred in the currency that the nation is exiting (such as Greece at present).
The reality is that a sovereign government holds all the cards in this situation. Please read my blog – Why pander to financial markets– for more discussion on this point.
There would be short-term costs but by re-establishing the currency sovereignty the nation will always be able to advance the best interests of its domestic economy.
This doesn’t mean that a nation that is short of real resources etc will be able to establish a high material standard of living by moving to sovereignty. The real standard of living is always determined by the access a nation has to real resources. Fiscal policy does not create these resources but can ensure they are more fully utilised and thus more effectively deployed. A poor nation will not become rich just because it is sovereign.


Mario said...

interesting article.

I also found this article interesting about co-op companies or "people's capitalism" which many factories became after the crash in Argentina. There is a link in the article.

Here it is:

Maybe this is something that could take root here in the US with so many companies closing down, etc. plus with corporate executives making so much money in relation to the rest of the company, etc.

Either way it's just very interesting to me to see things being done in ways that many of us think "are just not possible" or "efficient."

googleheim said...

1. Many owners of companies in Argentina sent money overseas.
2. Argentina had privatization of utilities BEFORE insolvency. Greece is looking at sell ports AFTER insolvency ( I covered that here back when ).
3. Argentina sold the airlines to Spain with black balance sheet, Spanish put their debt inside to make it red.
4. Argentina is a powerhouse agriculture farm that is almost the same size of USA but with the population of 30 million people. Give me a break - Greece is a scooter compared to Argentina's big rig.
5. Argentina is 3rd top producing country for wine in the world.
6. Argentina settled with commercial debtors by taking them all together at one single time and then paying back pennies on the dollar. Instead of dealing with them independently. Kirchener was a genius.
7. Argentina borrowed money from Chavez and Venezuela to pay back the loans and exchanged anti-europe and anti-american rhetoric ONLY for the purpose to play up to Chavez. Argentina only had to make a lot of steel fabrication like ships in the exchange. Remember the pipeline from Venezuela to Buenos Aires with Maradona holding his fist to Bush's visit ? Maradona was worthless.
8. Kirchener was able to blunt the pro Chavezism by being anti-Iran given the past.
9. Kirchener became president because he saw what was going to happen in Argentina in 10 years ago, so while governor of the province in the south, he hid the savings of the provine in the bank of Luxembourg at amount of $500 million or more dollars when 1 peso was same as 1 U$D ( pre 2001 default ). He then saved his province.

Greece is trying to sell utilities AFTER insolvency ??

Well, we can consider that Argentina was NOT sovereign when Menem sold assets and pegged the peso to the dollar.

Then ( as per Mike NOrman ) Clinton balanced the budget and interest rates went up and washed out Argentina.

If Europe balances their budget, then Greece will wash out perhaps and become sovereign.

If Europe does not balance the budget, maybe Greece will stay.

If the USA balances it's budget, then Europe will have 3 more Greeces : Ireland, Portugal, maybe Spain, maybe Italy.

The key is to find how WHAT balancing action will destroy WHAT insolvent & pegged economy.

Remember to buy American, and therefore reduce China's ability to purchase our debt.

googleheim said...

If Greece sells it's assets and remains non-sovereign, then there will be a severe deflation spiral as we saw before as per Krugman 2 -3 years ago.

Selling assets will make fire sales every where possible, and that is a deflation spiral which will create a contagion throughout Europe !

BEWARE of single ledger ideologues !

Long live double ledger and norman economics blog !

googleheim said...

how about SPiTaly ?

Spain and Italy each partially going down - the rich north booting the poor southerners ?

Mario said...

wow fascinating stuff google.

Clinton balanced the budget and interest rates went up and washed out Argentina.

why did balancing the budget raise rates? Wouldn't it lower rates as cutting all that spending would be deflationary? I wasn't watching the markets then at all, so I don't know historically and figured I'd ask.

googleheim said...

From what Mike Norman explained, Clinton balanced the budget by "taking" money from Social Security.

As we know, social security is not a vat of money that is fed by taxes. It has always been funded by government spend-crediting virtually.

As we know, we are sovereign and have our own USD currency.

As we know, we are not on a gold standard and taxes do not pay for government expenditures. Whoever wants to get on the gold standard and "balance" the budget is actually backwards, and I would say that they would take away our sovereignty if they balanced the budget.

Ron Paul and all the deficit terrorists would create a banking crisis. They would stop bank credits and there would be a run on the banks.

Now, when Clinton balanced the budget he restrained liquidity in the world markets and raised interest rates which did the same.
Argentina could not borrow to pay on their already borrowed note. Similarly, people in California borrowed from their LOC's to pay their LOC's monthly note until they could not keep up with that.

Mario said...


got it. He raised rates as well as balancing budget?!?! Geez that's pretty intense. Thanks man

MamMoTh said...

Actually, Argentina never was and never will be a really serious country.

It must be remembered that Argentina defaulted because the IMF refused to lend them any money. So they ended up defaulting on private bond holders and its own citizens who lost most of their savings, but not on the IMF.

The IMF also pushed for Uruguay to default when it was hit by the crisis later on. But Uruguay managed to get assistance from the US government, restructured its debt, and its economy recovered without losing access to international credit.

googleheim said...

Argentina was the richest country per capita just 50 years ago.

They are a giant farm. I can hardly think anyone can say they are not serious with any validity.

They only have 30 million people, so for what they have in farming, cows, oil, and beautiful women ... how serious do you REALLY need to be ???

MamMoTh said...

No, Argentina was not the richest country per capita 50 years ago.
It was among the richest countries 100 years ago, though.

Having cows, oil and beautiful women does not make it a serious country.

A country is only as serious as its institutions. When you have the first democratic transition of the 20th century taken place in 1989, when you still admire a fascist dictator like Perón, when you have 4 presidents in 7 days in 2001, you can't be serious.

Carla said...

In December 2001, the Argentine peso, once on a par with the U.S. dollar, collapsed to less than a third of its former value. (At press time, the dollar-to-peso ratio is about 4 to 1.) Unemployment rose to more than 20%, businesses shut down, and many people who had trusted the banking system lost their entire life savings overnight. News networks across the world showed images of social unity, such as members of the middle class banging pots in the streets and shouting at police officers, followed by social breakdown, when those same police officers shot rioters on the pedestrianized shopping streets in the city's downtown. Now everything is under control I know it because I have a Buenos Aires temporary rent there, and I live the situation every day!

Anonymous said...

Interesting article :)