Argentina defaults

	Argentina defaults
	Estimated reading time: 3min 04secs	Dec-24-01

Argentina has halted debt payments when it is economically experiencing the longest recession in history –42 months- reports a record unemployment rate –20%- and in political terms the De la Rúa Administration has experienced the fastest political erosion since 1930, as the government approval rating stood at only 4% when reaching two years in office.

But De la Rúa’s collapse only two years after taking power within the framework of the longest recession in history and record unemployment also entails the end of currency board.

De la Rúa resigned before facing this problem that compounds default and devaluation bequething it in an irresponsable way to his predecessor.

Now the PJ takes power and Adolfo Rodríguez Saá is the man that will make immediate decisions in the days ahead to overcome the crisis until the president elect assumes in March 3.

But his first measures show that while he takes default for granted he seeks to preserve convertibility so that his successor –for only a year and a half- on March 3 be the one to bear the cost of abandoning currency board.

The truth is that Argentina has already experienced, since November 30 when cash restrictions were imposed in the financial system, the sort of crisis that ends up in default and devaluation and which by the late ‘90s Ecuador in Latin America, Russia in Europe and South Korea, Malaysia, Singapore, Indonesia, Thailand and Burma in Asia also experienced.

In all those cases as well as in Argentina, the flight of deposits and reserves prompted a GDP drop between 12 and 15% this year, violent riots and politico-institutional crises. Only in 5 of the 8 countries, the governments managed to survive to this sort of crisis.

In the Argentine case, the crisis was triggered by the November 30 measures, reporting a 10% GDP drop in the fourth quarter, violent social conflicts and the government’s colapse, making default and devaluation inevitable with the currency board crisis.

Now the point is whether this process will be organized and efficient or disorganized and inefficient and this is the major issue to solve by the new Peronist administration.

Of the 8 countries that experienced the same crisis, 3 were in better shape in less than a year: South Korea, Malaysia and Singapore. The other 3 have still problems to walk out of the crisis: Indonesia, Thailand and Burma. The other 2, Russia and Ecuador, overcame the woes after a two-year-long process. Both countries are growing today 5% when the world is doing so at only 1%.

The skills showed by the new Peronist government will determine in which of the three groups Argentina will fit. An efficient government may push the country out of the crisis quickly as happened in the first group of nations.

But reality is that new President Rodríguez Saá has only put through an emergency program to curtail though not solve the crisis in the next three months.

Until December 19 the economy was in tune with the speed and pace of the Argentine crisis. From that day on the social conflict sets the pace and speed of the political and economic crisis.

The question is whether the social demand will curtail the crisis for three months until a new President takes power.

Answer Rosendo Fraga in our Forum
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