Word: argentina
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...going to have an economic crisis, do the rest of the world a favor: signal your intentions well in advance. That's one lesson (there are others) from the default by Argentina on $132 billion of debt. So far, the markets have hardly blinked, and the reason is plain: this train wreck has been coming for two years, giving those foreign banks holding Argentine paper plenty of time to hedge their bets or make provisions against losses. The default, says Nariman Behravesh, chief global economist at DRI-WEFA, an economic consultancy in Massachusetts, was so well anticipated that "foreign investors...
None of this means that others can simply shrug their shoulders. The Bush Administration's attitude toward the new Argentine government of President Eduardo Duhalde, says a senior State Department official, is "We'll have to wait and see." But Argentina bears close attention. For one thing, its very governability is at stake. Before Christmas, riots provoked by cuts in social spending and limits on bank withdrawals brought down the government of President Fernando de la Rua and left 28 dead. Argentina then engaged in the politics of a comic opera, with three men holding the title of head...
Duhalde's economic plan will bring more pain to Argentina's middle class. By breaking the 10-year-old link between the peso and the dollar and allowing a devaluation of the local currency, the new government hopes to improve the competitiveness of Argentine exports. But that will mean rising prices at home and substantial bankruptcies, among both households and businesses. (Most Argentine debts are denominated in dollars and will now have to be repaid with less-valuable pesos.) If rising prices and bankruptcies lead to more social unrest, watch out. Not long ago, Latin America was known less...
Then there's the risk of what Caroline Atkinson, a former senior U.S. Treasury official now at the Council on Foreign Relations, calls "policy contagion." Duhalde has been critical of the free-trade, free-market policies that, under the tutelage of the U.S. and the International Monetary Fund, Argentina has adopted in the past decade. Last week Duhalde committed his government to "the unrestricted defense of national interests." Said the President: "No one wants a return to the old protectionism, but we need to protect our own." Right now Argentina looks like a great, unenviable mess, but if Duhalde really...
Above all, though, Argentina is worth watching because it is a classic case of what economists call "the curse of resources." A century ago, thanks to beef, Argentina was a rich nation and granted itself the sort of social-welfare system that rich nations can afford. But like other places with generous endowments of natural resources--think of the oil-rich states of the Middle East--it has never been able to wean itself from a dependence on them; Argentina's main exports today are pretty much the same agricultural commodities they were 100 years ago. In the 1990s, sustained...