Debt crisis, default, and beyond: the Argentine experience

June 3-6, 2013 Eurodad-Glopolis International Conference Prague

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Debt crisis, default, and beyond: the Argentine experience

Alan CibilsPolitical Economy DepartmentUniversidad Nacional de General SarmientoBuenos Aires, Argentina


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Topics

Factors contributing to Argentina’s debt buildup

The role of the IMF Default: good or bad? Argentina post-crisis Lessons


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Arentine Public Debt: 1966-2000(billions of US dollars)

0

20

40

60

80

100

120

140

160

1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Military Alfonsín Menem


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Argentina’s 1990s public debt build-up: main causes Privatization of social security:

Promoted by IMF and WB, it generated a large fiscal gap covered by borrowing (debt)

Policy environment: Fixed exchange rate Inability to conduct independent monetary policy

External interest rate shocks: Higher interest rates turned Argentine debt

structure into Ponzi scheme


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Argentina’s public debt build-up and IMF IMF:

Wrong diagnosis of the problem: Confused fiscal spending with debt service IMF still insists on this wrong diagnosis (probably

explains its “success” in Europe) Lending conditioned on austerity Austerity deepened recession:

increased capital flight Increased deficit Increased debt


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December 2001 default

Default became inevitable: Following three years of recession and austerity Important to admit that situation was unsustainable Alternative: downward cycle of debt and austerity Only real solution was default +devaluation

Liberated fiscal resources for other socially necessary and productive uses

No longer needed access to IMF or financial markets due to fiscal surplus

Default IS an option to be considered


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Post-crisis Argentina

Between 2002-2007: High economic growth, lower unemployment and poverty. Causes: recovery of own currency, devaluation and ability

to conduct independent exchange rate, monetary and fiscal policies

Since 2007 (to present): growing inflation (25% yearly for the last four years) Currency appreciation, economic slowdown, higher poverty

and inequality Neoliberal media blame Argentina’s current

economic problems on the default: This is FALSE—problems are political and home-grown,

unrelated to default.


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Lessons

Default IS an option (¿necessity?) Recovering currency/monetary policy is key Changing economic strategy is key:

Abandon neoliberal agenda/IMF Economic policy should be focused on

Sustainable development Employment Education and Health care Income distribution

Debt crisis, default, and beyond: the Argentine experience

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