Why Greece Is Not Argentina

by Rebecca Wilder

Seeking Alpha
April 1, 2011

I politely disagree with the conclusions of the article written by my Angry Bear colleague, Kash, where he envisages Greece defaulting in 2011 similarly to Argentina in 2001.

I do agree that the macroeconomic initial conditions in Greece scream default. (Actually, if you focus just on the measurable factors like the current account, debt levels, or fiscal imbalances, Greece is much worse than Argentina in 2001; see Table 4 of this IMF paper to see Argentina's initial conditions and compare them to Greece in 2009 using the IMF World Economic Outlook Database.)

Where I disagree, arguing that Greece is not like Argentina, is that the debt crisis in Argentina didn't bring down the banking system of Latin America overall. In contrast, the default of Greece has the potential to do just that in Europe.

In Argentina, the Latin American banking system (and sovereign bonds, for that matter) was quite resilient in the face of that nation's sovereign default. Uruguay was the exception, when its two largest private banks -- Banco Galicia Uruguay and Banco Comercial, which account for 20% of the country's total -- saw near-term liquidity pressure and an ensuing banking crisis in 2002 (see this IMF paper for a history of banking crises). All else equal, the IMF reports only minor impact to the region as a whole.

More