Argentina on My Mind

In the various measures of vulnerability for emerging markets (middle income countries open to capital flows) that are now being examined and re-examined carefully, Argentina does reasonably well.  Its banking system does not appear to be highly exposed to problems in the US and Europe, and its macroeconomy – while not in great shape by any means – is far from being among the most dependent on continued capital inflows from abroad.

Argentina does produce and export a lot of commodities, and these prices are falling, so this creates a potential difficulty for government finances.  Still the government’s proposed response is a stunner: President Cristina Fernandez de Kirchner announced Tuesday that she plans to take over (i.e., nationalize) 10 private pension funds (the Argentine Congress would have to approve this; we’ll know soon how that will go).  The pension funds hold a great deal of government debt, so grabbing them would presumably get the government off the hook for that debt.  But what about people’s pensions?!?

Most importantly, does this indicate that governments around the world feel they can break contracts and expropriate property freely just because all economies have encountered some sort of trouble and many industrialized countries are “recapitalizing” something?  If the global crisis is becoming a smokescreen for confiscation, then our problems just got a lot worse.

4 thoughts on “Argentina on My Mind

  1. We are expats that live in neighboring Uruguay. Anytime Argentina does something stupid, we get hit as well. So, we are bracing ourselves for the worse.

  2. As a long suffering investor in Argentine debt, I can reassure you that the folly committed by Argentina has few, if any, imitators. They are in a class by themselves; who else has defaulted on World Bank debt when they really didn’t have to? There is ample precedent in Argentina for this type of non-sense. In 2002 the government froze all deposits and handed out various types of instruments that many idividuals had to sell at a discount to pay their living expenses. Brazil also did something like this during the Collor administration, but is unlikely to repeat it , given the high quality of their economic leadership. The moral is that one’s investment should never be subject to the writ of the utterly unpredictable Argentine government.

  3. A while back (~2005) self-interested pollyannas like Pimco’s El-Erian argued that EM was in a new paradigm of responsibility and decreased vulnerability. One of his debators was Roubini, who argued it was some skill, but largely luck, including a massive positive terms-of-trade shock (aka commodity boom). I always thought the only scientific proof of the “new improved EM” hypothesis would be when there is a G7 or commodity crash.
    Some countries will be OK, but many — not just Arge — will go down in flames. The CA deficits in EMEA are *worse* than Asia ’97; Vene and Arge are heterodox to an extreme; Russian, Kazakh and Ukraine corporate debt maturities are massive; Asia is export dependent; Mexico it turns out has “only” $80bn in reserves and hasn’t reformed enough. Yes, they are called emerging (and sometimes submerging) for a reason.

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