Scott Barber's Profile
Breaking point? Greece vs. Argentina
As the crisis in Greece continues, the comparisons with Argentina’s chaotic bankruptcy a decade ago start to look more justified. In Argentina, a bank deposit freeze was the tipping point, triggering mass violent protests. People took to the streets banging pots and pans to protest against an economic collapse that plunged millions into poverty. The government declared a stage of siege and presidents resigned one after another. Greek unemployment and industrial production numbers out yesterday were dreadful but how to they compare to Argentina in late 2001?
The table and charts below show some key economic series in Argentina in the run up to 2002 and after. Argentinean real GDP fell nearly 20% from its peak in 1998 to 2002 -that compares with around a 12% fall so far in Greece. The unemployment rate in Argentina reached a peak of 24% not far above the 21% Greece reported yesterday. On other metrics Greece looks much worse; the IMF puts public debt at 50.8% of GDP in Argentina compared to an expected 166% in Greece this year.
The IMF published its Lessons of the crisis in Argentina in 2003 (approved by Tim Geithner no less). Looking at the conclusions, the IMF faced many problems now becoming familiar in Greece as this passage shows:
“When the economy slid into recession, the Fund faced a somewhat different and more serious dilemma. In terms of policy advice, fiscal easing in support of growth was not a viable option given the exploding debt dynamics, while tightening would exacerbate the downturn. In hindsight, the most viable option would appear to have been an early debt restructuring involving a significant present value reduction, combined with the abandonment of the currency board. However, the authorities were unwilling even to consider the possibility of an exit: neither the government nor the public were prepared to take such a drastic course until it was forced upon them by events.”
Looking at the data post default Argentina started to recover fairly quickly, however the comparison here looks weaker. Argentina devalued into strong global economic upswing that started in 2003, and had the benefit of being a commodity exporter. While you could argue a swift resolution to the Greek crisis might be the catalyst for a similar rebound, this seems unlikely given the number of other countries with similar (if not as extreme) debt problems.