There have been a lot of people talking about Argentina as if it were the model for other governments in sovereign difficulty to follow. Yes, Argentina’s decision to default was realistically the right call given the crushing debt load. And that is the path the euro zone periphery is on. But, beyond this, I fail to see where Argentina is the model.
In fact Argentina has just nationalised YPF, the Argentine subsidiary of Spanish oil giant Repsol. This is expropriation plain and simple. The Spanish press is all over this.
- Kirchner anuncia la nacionalización del cien por cien de YPF – Confidencial
- Kirchner ordena la expropiación de YPF a Repsol – Expansion
It will have negative repercussions. The EU is threatening Argentina but has yet to decide what the consequences will be (link in Spanish). Spain will almost certainly pull its ambassador. They are also discussing what the appropriate response will be. The nationalist/socialist turn in Argentina has been years in the making. President Kirchner raided the pension kitty, replaced central bankers, fudged the inflation statistics, put up import restrictions, started a diplomatic row with the UK over the Falklands, and has now made the most aggressive move in her reign in expropriating oil assets.
My prediction: the next to go is freedom of the press. Kirchner has already warned daily newspapers Clarin and La Nacion. I am sure there will be much more to come on this. My sense is that any move toward economic nationalism and unilateral action in the EU will be part of a whole campaign of nationalism that will pervade all parts of the political economy. The euro zone needs to handle the periphery carefully because Argentina is showing us what happens when national socialism becomes the governing raison d’etre.
Also see “Argentina’s latest looming crisis” from November for a balanced view of prospects for the Argentine economy.
This post originally appeared at Credit Writedowns and is posted with permission.
13 Responses to “Argentina Is Not the Model”
I really disagree with this post. Here is a more "balanced" view. And by the way, to take Clarin's word for what the freedom of press is in Argentina, is like to take Fox's views on the issue of Obama's birth certificate. http://www.cepr.net/index.php/op-eds-&-column…
I don't think people who are pointing to Argentina as a "model" for the euro periphery have in mind that they should nationalize industries, fudge inflation data, or generally indulge in nationalistic populism. The lesson from Argentina is that exit from a fixed exchange rate need not lead to hyperinflation, currency collapse, a lost decade, or other form of immediate Armageddon.
I suppose I am one of those who has been known to hold Argentina up as a "model" in that regard, and I see nothing in Ms. Krichner's latest antics that change anything. As I wrote in a previous post ( http://dolanecon.blogspot.com/2010/12/does-argent… )
"The bottom line: Life in a fixed-rate currency area is not for everyone. Some countries are structurally unsuited for a fixed exchange rate because of their patterns of trade, their exposure to external shocks, or their inflexible labor markets. Others may be structurally suited but lack the needed fiscal or financial discipline. A country locked into a currency union for which it is not suited is like a spouse locked in a bad marriage. Sticking to one's vows and blaming one's own failures for all the problems of the relationship is certainly one alternative. But the option of divorce should not be too hastily taken off the table."
Thanks to PGB for the excellent reference to Mark Weisbrot. Very bad post by Harrison indeed! Another good thing done in Argentina has been the change in the central bank law: now the Argentinean CB has to cooperate with fiscal policy, a dream from my European point of view (http://www.pagina12.com.ar/diario/economia/2-191938-2012-04-16.html or http://nakedkeynesianism.blogspot.de/2012/04/usel…. Should not Harrison jubilate?
CHICKENS IN THE COOP
lets blow the roof off dis place!!!!!!!!!!!!!!!
Who lives in a pineapple under the sea?
Absorbent and yellow and porous is he
The article from Edward is not good or bad, it is to short and there are allot of other great articles about Argentina. The article from cepr.net on the other hand belongs in the garbage can!!
so do u
Guys, I think it's time to nut up or shut up
Argentina acted at the last possible instant to protect its natural resources and its economy. It is really astonishing and frightening that a company would think it is OK to secretly sell the natural resources of Argentina to the Chinese. Were the Argentinians just lucky? Or did they have some premonition that their future and their place in the world's economy was about to destroyed for the benefit of international financiers? As for Spain, they have destroyed themselves by transferring the worthless debts of international financial speculators to the Spanish people. Now that the speculators are free and clear, we can expect the propaganda machine to stop and Spain to slide quietly into its waiting grave.