Is There Something the U.S. Can Learn from Argentina?

I come from Argentina, one of the only countries in the world that has moved from the ranks of the developed world to the less developed world. Argentina's GDP per capita was higher and better distributed when I was born in the '60s than now. And as recently as 2002 the country was on the ropes with nearly half of the population living below the poverty line, the largest default in human history (3 times the size of Enron) and enormous unemployment.

Yet, declaring default and mostly not paying its foreign debt turned out to be a blessing in disguise for Argetina. After defaulting borrowing became impossible, most credit disappeared and the economy became a mostly cash/equity game. Since then, surprisingly, the country has been doing better and better. Argentina has grown at 9% compounded -- all this while having very little consumer credit, very little foreign debt, very little national debt, very little corporate debt and very little mortgage debt.

In Argentina, cash really is king as the other forms of payment are practically non-existent. So as the world goes into a US-originated credit crunch, Argentina finds itself in a unique position: that of having high reserves, no net debt and isolated from global financial turmoil. It is ironic that the U.S. has been going around the world promoting credit as the cure to anemic economic growth using the IMF and the World Bank as its flagships and now finds itself intoxicated by its own medicine. In the meantime, former failed states such as Argentina discover that a mostly equity-based economy is much better in times of financial crisis, that the indebtedness that the US was predicating for decades has a lot of drawbacks. Especially when you become, by far, the largest debtor in the world, your currency sinks and people begin to wonder if it still makes sense to continue to collect your paper.

Follow Martin Varsavsky on Twitter: www.twitter.com/martinvars

Comments

[Merlin7]

Debt is the big trap that enslaves Americans and other Westerners from birth. Our children are conditioned early on to go into debt quickly and become slaves to their ever-increasing indebtedness. It's capitalism run amok -- but then that's the very definition of modern (neo)liberal economics.

[factanonverba]

Absolutely. From Caracas to Havana to Buenos Aires to La Paz to Santiago to Sao Paulo to Bogotá and Quito, the entire region is awash in experiments that are making a difference in people's lives. Chavez is unleashing block democracy. Colombia's ciclovias are perhaps the biggest and best effort to rethink the public space and how to use it. And in Argentina you have wholesale experimentation in worker cooperatives. It is also clear what has not worked: the Washington Consensus. Neo-liberal economic policies have been dumped in favor of state led development. How many best practices will the rest of the world adopt? Who knows but there is a trend. Look at Colombia's ciclovias. Started in the late 1990s in Bogota, they now extend to every major Colombian city. They are being implemented in Barcelona, Santiago and Guadalajara. Baltimore and Cleveland are looking into them. Why? Because they work. They save energy, encourage public health and participatory democracy. Bogota's drop in crime has been nothing short of spectacular. Its homicide rate has been cut in half. In 1994, there were 4,457 homicides in Bogotá, representing a rate of 80 deaths in each group of 100,000 inhabitants (similar to Rio de Janeiro, which had a rate of 73.6 / 100,000 last year). In 2003, the city recorded 1,607 homicides, or approximately 23.4 / 100,000 — a 48 percent decrease in ten years. Bogotá is a less violent city than São Paulo or Washington DC or New York.

[manndan]

Damn, I was hoping for some input here. Potential investors this might be the prototypical place to look for your own economic salvation in the coming worldwide economic meltdown.

[peterg76]

Argentina figured out that banks (including the IMF theocrats) don't care about any prosperity except their own.

Imagine what that insight could do for stronger economies.

[ArmandAllegro]

And the oil rich demand payment in Euros...

[Boyaca]

Right on. When will the world learn that lesson that says do not be a lender or borrower. Argentina has done great under Kirsner´s policies. All the nay sayers are sitting with egg on their faces as they compare Argentina´s strong position with that of the USA meltdown.