Its interesting in a schadenfreude kinda way, to watch as Argentina blows up economically yet again .... I mean I have no sympathy for them as a nation.
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| Peronism Leads To Debts |
In between bouts of dictatorship, they have usually interspersed corrupt populist governments, who whip up bouts of anti-British fervour, in order to distract a rather stupid population from the economic woes that that they now are facing.
El Presidenti Cristina Fernandez de Kirchner is no exception to this, and in fact has rather modelled herself on the Hugo Chavez model of government, only with out the vast oil reserves that he had to lessen the damage of his policies by bribing the poor ..... So after the previous debt default of 2001-02, we can now add another as they have failed to pay the 'Vulture Bond' holders in the US who won a judgement there, to force Argentina to be paid in full for old bonds. Technically this means that Argentina is in default again ..... which as they are already locked out of the international money markets, means they will merely remain so for even longer.
So although the Kirchner government is in denial "We're not going to default, they'll have to invent a new term to define what's happening" she has proclaimed ... to deafening silence. But except for a few vague promises from the BRIC nations (Brazil, Russia, India, China and South Africa) of support from the group, in her battle against the "vulture funds" little more is on offer. They also suggested that the organisation's new 'Development Bank' could well offer her an economic lifeline .... or maybe not. We shall see.
In the meantime interest rates on corporate debt is likely to increase, and also the new default may spur some capital outflows, thus exacerbating an already bad shortage of hard currency, and so put renewed pressure on foreign exchange reserves and the almighty peso.
I say 'Almighty Peso', because there was a time when the idea that Argentina wasn't going to flourish, and the Argentine Peso wouldn't rival the US dollar in the Americas, would have been laughable. Argentina had what was referred to as 'Argentina’s Belle Époque', a period before the outbreak of the first world war, when the country claimed to be the world’s true land of opportunity.
In the 43 years leading up to 1914, its GDP grew at an annual rate of 6%, which made it the fastest growing economy in the world for that period, outstripping even the USA. European immigrants flocked to find work in the agricultural sector, which was propelling Argentina’s expansion.
In 1914 half of Buenos Aires’s population was foreign-born, and the country ranked among the ten richest in the world. Whilst it still ranked below Australia, Britain and the United States etc, its economy was ranked above France, Germany and Italy. It's income per head was 92% of the average of 16 rich economies, and it looked down its nose at its South American neighbours. By comparison Brazil’s population was less than a quarter as well-off, and the rest where nowhere, and even at the end of this epoch in 1928, there were more cars in Argentina than in France, and more telephone lines than in Japan.
However this was its zenith, and although it has had periods of growth in the past 100 years, including a commodity boom around soya over the past decade, these economic bursts have only allowed Argentinians to remain marginally wealthier than some of their neighbours. But its position as one of the world’s most vibrant economies is an almost forgotten memory. For example its income per head, is now just 43% of the level of those same 16 rich economies it compared favourably with in 1914, and it now trails Chile and Uruguay, and possibly even Columbia in the Southern Americas.
A lot of this can be laid at the feet of its corrupt or inept politicians, because if the Argentina government in the pre-WWI era led to economic boom, its history since the 1920's has indicated what happens when the politics goes wrong .... Firstly there has been a succession of military coups (First in 1930; followed swiftly and regularly by others in 1943, 1955, 1962, 1966, and 1976) .... this seems to have set the rot, because although the election of 1989, marked the first time in more than 60 years that a civilian president had handed power to an elected civilian successor, it hasn't stopped the inexorable decline into bad debt, boom and bust (with more bad debt).
Ah, but there was 'once a dream that was Argentina. You could only whisper it. Anything more than a whisper and it would vanish... it was so fragile'.
So although the Kirchner government is in denial "We're not going to default, they'll have to invent a new term to define what's happening" she has proclaimed ... to deafening silence. But except for a few vague promises from the BRIC nations (Brazil, Russia, India, China and South Africa) of support from the group, in her battle against the "vulture funds" little more is on offer. They also suggested that the organisation's new 'Development Bank' could well offer her an economic lifeline .... or maybe not. We shall see.
In the meantime interest rates on corporate debt is likely to increase, and also the new default may spur some capital outflows, thus exacerbating an already bad shortage of hard currency, and so put renewed pressure on foreign exchange reserves and the almighty peso.
I say 'Almighty Peso', because there was a time when the idea that Argentina wasn't going to flourish, and the Argentine Peso wouldn't rival the US dollar in the Americas, would have been laughable. Argentina had what was referred to as 'Argentina’s Belle Époque', a period before the outbreak of the first world war, when the country claimed to be the world’s true land of opportunity.
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| Argentina's Belle Epoch - They Weren't Even Anti-British Then - see the Union Jacks in Top Left Picture. |
In the 43 years leading up to 1914, its GDP grew at an annual rate of 6%, which made it the fastest growing economy in the world for that period, outstripping even the USA. European immigrants flocked to find work in the agricultural sector, which was propelling Argentina’s expansion.
In 1914 half of Buenos Aires’s population was foreign-born, and the country ranked among the ten richest in the world. Whilst it still ranked below Australia, Britain and the United States etc, its economy was ranked above France, Germany and Italy. It's income per head was 92% of the average of 16 rich economies, and it looked down its nose at its South American neighbours. By comparison Brazil’s population was less than a quarter as well-off, and the rest where nowhere, and even at the end of this epoch in 1928, there were more cars in Argentina than in France, and more telephone lines than in Japan.
However this was its zenith, and although it has had periods of growth in the past 100 years, including a commodity boom around soya over the past decade, these economic bursts have only allowed Argentinians to remain marginally wealthier than some of their neighbours. But its position as one of the world’s most vibrant economies is an almost forgotten memory. For example its income per head, is now just 43% of the level of those same 16 rich economies it compared favourably with in 1914, and it now trails Chile and Uruguay, and possibly even Columbia in the Southern Americas.
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| Argentina's GDP Per Person Going The Wrong Way ...... |
A lot of this can be laid at the feet of its corrupt or inept politicians, because if the Argentina government in the pre-WWI era led to economic boom, its history since the 1920's has indicated what happens when the politics goes wrong .... Firstly there has been a succession of military coups (First in 1930; followed swiftly and regularly by others in 1943, 1955, 1962, 1966, and 1976) .... this seems to have set the rot, because although the election of 1989, marked the first time in more than 60 years that a civilian president had handed power to an elected civilian successor, it hasn't stopped the inexorable decline into bad debt, boom and bust (with more bad debt).
Ah, but there was 'once a dream that was Argentina. You could only whisper it. Anything more than a whisper and it would vanish... it was so fragile'.
Update: Even in 2022 Argentina is still repeating the debt cycle and is likely to default once again, after a similar issue in 2020.
The Argentines are just another of the Latin races who have proved to be unable to step up to the plate. In fact all the Catholic countries have missed the boat to make it to the top. I wonder why?
ReplyDeleteIt's strange, but aren't Brazil doing much the same a century later. They are a BRIC nation but are now slumping again under social problems?
ReplyDeleteInterestingly, the Protestant view of Catholics as 'shiftless and lazy" has hung on at some level right up to this century. The Americans often refer to Mexicans in this manner, and the Northern Europeans often referred to Southern Europeans in a similar manner. Northern Ireland's problem also stemmed partly from this belief .... So its not a new point. Whether its really valid (at least in an economic sense), its harder to judge. Thanks for the comments.
ReplyDeleteI see Clarkson and hius gang discovered how 'multicultral' the conquistador society of Argentinian gauchos can be, when thugs drove them out of the country. We don't fully realise that the US and northern western Europe, are decades ahead of the rest of the world when it comes to matters of tolerance instead of nationalism.
ReplyDeleteBut as you hinted at in the post, it could so easily been another story for Argentina.
Yes quite funny, but does suggest that Argentina is heading toward becoming another Venezuela with state sponsored thugs as well. Thanks for the comment.
DeleteEx President and now Vice-President Cristina Fernandez de Kirchner has been sentenced to six years in jail for corruption .... but partial immunity, and appeals, mean she won't serve any prison time for quite a while, if ever.
ReplyDelete