Ah, Christina, Greece thanks you for the history lesson. By nationalizing YPF, an energy company that is clearly a unit of the Spanish oil company Repsol, Argentine President Christina Fernandez reminds us all of an important point: Before there was “Greece” there was “Argentina.”
Greece, a beautiful land of beautiful people that gave the world democracy, has of late found its brand horribly damaged by fiscal and macroeconomic mismanagement – much of its own making, but some foisted upon it by its EU partners.
Not long ago, describing an economy in the emerging world as “another Greece” might have seemed a compliment of sorts, a hopeful note that, in spite of some inefficiencies, the country had made good strategic choices and seemed bound for a steady period of prosperity.
But that was back in the early part of this century, when the magical powers of the Euro – the currency union that would drag the weak ever upward toward Teutonic levels of power - was still conventional wisdom.
Today, of course, being labeled “Greek” suggests something quite different: economic incompetence and malfeasance, or worse, laziness to the point of decadence. These harsh accusations are now leveled by the very same Eurozone partners who dictated the terms of Greece’s accession to the currency union but who have now realized, to their horror, that far from raising all Eurozone boats, the ties that bind them to Greece and other peripheral EZ economies are dragging them instead into the abyss of sovereign debt.
But, again, before there was Greece, there was Argentina. Blessed with vast and resource rich country and clever, well-educated people, the Argentines should be chiseling their way into the BRICS, or at least the triple-AAA group now being called the “MIST” – Mexico, Indonesia, South Korea and Turkey.
Instead, led by an erratic populist, the country appears bent on wrestling back the title of “World’s Most Incompetently Managed Economy” from Athens, casting its lot with the likes of Venezuela, Bolivia and Ecuador when the evidence of how an economy in the “upper middle income” category should engineer the final leap into the developed world is literally all around it, just across the border in Chile and Brazil.
For students of macroeconomic history, Argentina is synonymous with poor policy choices and squandered potential. But you don’t have to mine history to see this approach at work. Current events will do just fine.
Earlier this year, having previously fired a well-regarded Central Bank chairman and started doling out precious reserves to secure her reelection, the Fernandez administration began issuing what might be called “patriotic” economic statistics that mask the damage her policies have done to the economy.
Some outside observers had seen enough. The Economist, in a piece entitled “Don’t Lie to Me Argentina,” delisted the country from its statistical data because no credible case can be made that the official statistics aren’t cooked. Inside Argentina, economists and business journalists who dare question this have been publicly berated by her administration and some have received death threats.
These policies have their defenders, of course. Mark Weisbrot at the Guardian plucks figures selectively from Argentina’s official sources and argues that the renationalization makes sense – largely because Europe’s own economy is a mess. This non-sequitur aside, he makes no mention of the fact that Argentina’s brisk growth rate is built on falsified statistics, an unsustainable monetary policy and inflation rates that have caused enormous capital flight as Argentines with money seek to invest take steps to avoid holding the local currency, the Argentine Peso.
Weisbrot even cites Mexico’s nationalized oil company, Pemex, as a good precedent for Argentina’s move – failing to note that the Mexican presidential election currently features a serious debate about opening up foreign investment in PEMEX to reverse a generation of decay at what should be a national jewel.
A more sober analysis of contemporary Argentina comes from Jaime Darenblum, a former Clinton administration ambassador to Latin America and now a scholar at the Hudson Institute, He notes that the country’s real (as opposed to reported) inflation rate puts it in a club with such economic superstars as Zimbabwe and Iran. (By his reckoning, Argentina’s inflation rate broke the 25 percent mark in 2012, and “the country’s cumulative inflation since 2007 has been a staggering 137 percent.”
Politically, this has been good for Fernandez at the polls – she was easily reelected to a new term in October. But Argentina’s populist-in-chief will soon run out of things to hand out as patronage – a problem already clear in Venezuela. In both cases, while allies of the ruling party have benefited, those benefits do not show up as a reduction in poverty generally, or as long-term growth or fiscal stability.
The Chavez moment, in fact, is passing. After a decade of raiding the national treasury, expropriating the property of others and dressing it up as “Bolivarian revolution,” Venezuela’s GDP growth lags behind the rest of the region, national debt is rising very fast and the nationalized oil company has been producing less every year due to inefficiencies and a lack of investment in infrastructure. More seriously, there appears to be no fallback plan if oil prices were suddenly to move below the country’s breakeven price of about $90 per barrel.
Happily for Brazil, Chile and other competently managed South American economies, they are not shackled to Argentina (or Bolivia, Venezuela or Ecuador, for that matter) by a currency union. But these important economies will ultimately feel the effects of Argentina’s drive toward the economic fringes if they cannot prevail upon their neighbor and fellow Mercosur trade zone member to behave rationally. It’s one thing to spread the wealth; it’s another to cook the books. As any Greek can tell you, that’s a guaranteed road to economic perdition.
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