Financial Times
Editorial
October 20, 2011
Greeks and eurozone policymakers alike, take note. There is life after sovereign default after all, and it is populist, high-growth and Argentinian. This Sunday, Cristina Fernández, with her running mate Amado Boudou, the economy minister, will likely secure a second presidential term with one of Argentina’s biggest-ever majorities. Her remarkable popularity is largely due to the country’s economic recovery, which began after Argentina devalued and defaulted on $100bn of debt in 2001. It has continued ever since, lubricated by what Ms Fernández calls “The Model”. This, she claims, is a model for the world. It is not – unless luck and institutional theft constitute valid economic policy.
On the surface, everything looks fine in Latin America’s third-biggest economy. It is growing at near double-digit rates without the gaping current account and fiscal deficits that puncture most emerging market booms. Yet this picture of health is an illusion. It rests on the good fortune of the China-inspired commodity boom. To continue, it requires that the price of Argentinian commodities, which account for almost two-thirds of exports, keep rising. The fiscal surplus has long been a fiction: gaps have been filled by raiding pension funds and central bank reserves. Meanwhile, inflation is running at more than 20 per cent. Economists who disagree with the official 9 per cent figure are hounded and fined. Why? Because nearly half of Argentinian debt is index-linked, so the difference generates huge savings.
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