Financial Times
December 4, 2011
It is only vanity that makes anyone believe they are special or “different”. Asia didn’t think Latin America’s long history of financial crises held many useful lessons in 1997; it did. The same is true of Europe. It risks falling victim to the same vanity today.
Take UK prime minister David Cameron’s much touted “big bazooka”. In 1980s Latin America, such comprehensive packages were simply known as “el paquete”. Of course, “el paquete” is only the beginning of the end of a crisis. The real challenge is implementation. This requires leadership.
Technocratic governments (pace Italy and Greece) can work. Fernando Henrique Cardoso, for example, was an academic before he became Brazil’s finance minister and twice president. But bear in mind that Mr Cardoso had a popular mandate. Without that, any government is just a caretaker.
Argentina is a case in point. In 2001, it ran through a series of governments before triggering the world’s then-biggest default ($100bn; so small compared to Italy’s €1.9tn bond market). Even the brilliant economist Domingo Cavallo failed to turn the tide. To restore competitiveness without breaking Argentina’s euro-like currency peg, he engineered a “synthetic devaluation”. Across-the-board export subsidies and import duties came straight out of the textbooks, but didn’t work. Just as they often do in Europe today, investors saw the country’s debt dynamics still working against it.
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