Argentina: A Quiet Economic Growth Giant? (Naked Capitalism)

SUNDAY, OCTOBER 23, 2011

The Verboten Story of Argentina’s Post-Default Economic Success

Even notice nothing is ever said in the mainstream media about Argentina’s economy, save that it had a big default? You’d never know the following about Argentina:

From 2002 onward, Argentina grown nearly twice as fast as Brazil, and has sported one of the highest growth rates in the world.

Its success is not dependent on a commodities boom

It has increased social spending from 10.3% of GDP to 14.2% of GDP

Inequality has fallen. Poverty and extreme poverty have fallen by roughly 2/3

What is particularly striking is how quickly Argentina’s economy rebounded after its default. From a paper by Mark Weisbrot, Rebecca Ray, Juan A. Montecino, and Sara Kozameh (hat tip reader Thomas Ross):

In December of 2001, the government defaulted on its debt, and a few weeks later it abandoned the currency peg to the dollar. The default and devaluation contributed to a severe financial crisis and a sharp economic contraction, with GDP shrinking by about 5 percent in the first quarter of 2002 and nearly 11% for the full year. However, recovery began after that one quarter of contraction, and continued until the world economic slowdown and recession of 2008-2009. The economy then rebounded, and the IMF now projects growth of 8 percent for 2011.

Argentina’s real GDP reached its pre-recession level after three years of growth, in the first quarter of 2005. Looking at twenty-year trend growth, it reached its trend GDP in the first quarter of 2007.

By contrast, the US economy contracted 6.8% in the fourth quarter of 2008, and shrank 2.6% in 2009. The US only now has reached its pre-downturn level of GDP, meaning nearly four years later versus Argentina’s three. In addition, Argentina has regained its trend line of growth, while it is not clear whether the US ever will. The Carmen Reinhart and Kenneth Rogoff work on severe financial crises has found that they result in “permanent” falls in the standard of living, but that has not been the case with Argentina.

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