Argentina and the magic soybean: the commodity export boom that wasn't Argentina's record levels of employment and massive reductions in poverty have little to do with exports Mark Weisbrot, The Guardian, Friday 4 May 2012 http://www.theguardian.com/commentisfree/cifamerica/2012/may/04/argentina-magic-soybean-export-boom
Robert Naiman Policy Director Just Foreign Policy www.justforeignpolicy.org [email protected] (202) 448-2898 x1 On Fri, Jun 26, 2015 at 10:05 AM, Louis Proyect <[email protected]> wrote: > (Can someone explain to me how a socialist Grexit will avoid an economic > catastrophe? Argentina was an export-oriented nation that took advantage > of a commodity boom while Greece relies on imports. I have yet to see an > answer to this, including from Left Platform luminaries--the KKE and > Alex Callinicos are hardly worth mentioning. Yanis Varoufakis > understands this but the ultraleft can't be bothered with what he says > because he stays at fancy hotels apparently. What a fucked up situation.) > > NY Times, June 26 2015 > If Greece Defaults, Imagine Argentina, but Much Worse > By JAMES B. STEWART > > There may be a one-word explanation for why Greece will ultimately > capitulate to European demands for more austerity: > > Argentina. > > Greece is hardly the first nation to face the prospect of defaulting on > its sovereign debt obligations. Argentina has defaulted on its external > debt no fewer than seven times since gaining independence in 1816, most > recently last year. But it’s Argentina’s 2001 default on nearly $100 > billion in sovereign debt, the largest at the time, that poses a > cautionary example for Greece. > > Should Greece default, “Argentina is an apt analogy,” said Arturo C. > Porzecanski, a specialist in international finance at American > University and author of numerous papers on Argentina’s default. But for > Greece, “It would likely be worse. Argentina was comparatively lucky.” > > Daniel Gros, director of the Center for European Policy Studies in > Brussels and the author of “A Tale of Two Defaults,” a paper comparing > Greece and Argentina, agreed. “Default would be much worse for Greece > than it was for Argentina,” he said. > > Like Greece today, Argentina had endured several years of hardship and > austerity by 2001. It borrowed heavily from the International Monetary > Fund, the World Bank and the United States, all of which demanded > unpopular spending cuts. The I.M.F. withheld payments when Argentina > (like Greece) failed to meet its deficit targets. A bank run led the > government to freeze deposits, which set off riots and street > demonstrations. There were deadly confrontations between police and > demonstrators in the heart of Buenos Aires, and the president at the > time, Fernando de la Rúa, fled the country by helicopter in December. In > the last week of 2001, Argentina defaulted on $93 billion in sovereign > debt and subsequently sharply devalued the peso, which had been pegged > to the dollar. > > In addition to social unrest and a wave of political instability (at one > point, the country had three presidents in four days), Argentina’s > economy plunged into depression. Tens of thousands of the unemployed > scavenged the streets collecting cardboard, an enduring image that gave > rise to the term “cartoneros.” Dollar-denominated deposits were > converted to pesos, wiping out over half their purchasing power. > > The country became the epicenter of Europe’s debt crisis after Wall > Street imploded in 2008. Now, it is struggling to pay its debt, and its > people and creditors are growing restive. > > Despite this trauma, the Argentine economy stabilized in 2002. The > country was able to repay the I.M.F. in full by 2006. But the country > has never re-entered the international debt markets. It has refused to > comply with a ruling by a United States federal court judge that the > country must repay in full private creditors who did not participate in > the country’s debt restructuring. As a result, Argentina defaulted again > last year, and the standoff continues. > > Even without much external financing, Argentina’s economy has fared > relatively well since 2002, leading some economists, notably Mark > Weisbrot of the Center for Economic and Policy Research in Washington, > to suggest that Greece should default, suffer the short-term pain and > follow Argentina’s example. > > But even Yanis Varoufakis, Greece’s firebrand finance minister who > advocates standing up to the European Union’s demands, said the idea > that Greece could default and emulate Argentina was “profoundly wrong,” > as he put it in a recent blog post— a point he reiterated when we spoke > a few weeks ago. > > Argentina’s economic recovery was largely driven by a fortuitously timed > surge in commodity exports driven by demand from fast-growing Brazil and > China. (Although the commodity boom is long over, and Argentina’s > economy today is at best stagnating, those two countries still account > for about 28 percent of its exports.) Soybean meal, corn and soybean oil > are the country’s top three exports. Argentina had a population of over > 41 million and gross domestic product of $610 billion in 2013. Although > it’s a net importer of energy, it has vast shale oil and gas reserves > that could make it self-sufficient. > > Greece, by contrast, is heavily dependent on imports. Its top three are > crude oil, refined petroleum and pharmaceuticals, all necessities. While > its top export is also refined petroleum, it has to import crude oil for > its refineries. Its only major homegrown exports are fresh fish and > cotton. It would be hard to significantly increase sales of either > product: The European Union has strict quotas to prevent overfishing, > while cotton production is struggling from reduced demand for textiles > and a lack of bank financing. > > “Idle productive resources in Greece cannot produce much for which there > is increasing demand,” Mr. Varoufakis wrote. > > Mr. Gros noted, “Greece doesn’t export much.” If the country left the > European Union and brought back a sharply devalued drachma, “They’d gain > some from tourism,” he said. “But they’ve already cut prices and tourism > has gone up. But it hasn’t really helped because total revenue hasn’t > gone up.” > > And compared with Argentina, Greece is tiny, with a population of just > over 11 million and gross domestic product of $242 billion in 2013. > “Argentina is a resource-rich country that, if forced to, can live with > its own resources,” Mr. Porzecanski said. “The economic viability of > Greece on its own has never been tested” since 1981, when Greece joined > the European Union. > > From a small island to the capital in Athens, here is a glimpse into > some of the lives of Greeks as their country struggles to repay billions > in debt. > > Everyone pretty much agrees that, if Greece could devalue its currency, > as did Argentina, its economy would benefit. But it was also relatively > easy for Argentina to devalue the peso by severing its link to the > United States dollar, a tie that was self-imposed. As Mr. Varoufakis put > it, Greece doesn’t have a currency that’s pegged to the euro: “It has > the euro.” The practical challenge of disseminating a new currency would > be enormous. Moreover, Greek savings now denominated in euros (and, in > many cases, deposited in European banks outside Greece) can’t be > converted to drachmas, as the Argentines converted savings into pesos. > > Converting to the drachma would also be a crushing blow to the private > sector, much of which finances its activities with euro-denominated > loans from non-Greek banks. “They wouldn’t be able to service the debt > with devalued drachmas,” Mr. Porzecanski said. Nor would Greek courts > have the final say in any ensuing litigation. > > In Argentina, “the government ruled that a corporation or bank that owed > debts denominated in dollars were payable in pesos at a one-to-one > exchange rate,” Mr. Porzecanski said. “They could do that with internal > debt. But Greek companies have a lot of cross-border obligations. The > European Central Bank has kept Greek banks alive. Its collateral would > be worth only a small fraction if Greece leaves the euro. The Greek > banks would be insolvent immediately.” > > In sum, he said, “It would be a royal mess.” > > But as game theorists point out, there’s no guarantee a rational outcome > will prevail. > > After surging early this week on optimism that Greece had come forward > with a workable proposal, markets gyrated on concerns that it still > didn’t go far enough to satisfy Greece’s major creditors. And Mr. > Varoufakis, while conceding that leaving the euro would be a disaster, > still contends a Greek default would be manageable and give Greece more > leverage in longer-term negotiations to keep Greece in the European > Union and eurozone. > > No matter how much worse it might be for Greece than Argentina, “the > outcome will ultimately be determined by politics, not economics,” Mr. > Gros said. “Economists are terrible at predicting political outcomes.” > > Mr. Porzecanski put it another way: “Do the Greek people know they’re > playing with fire and might get burnt? It’s what they voted for, and > they seem to have voted with their eyes wide open. Not everyone values > prosperity the same way” as people in the United States and most of > Europe do. > > For others, which evidently includes many Greeks, ceding national > sovereignty to foreign lenders may be worse than economic chaos. As Mr. > Varoufakis wrote, “I salute the Argentinian people for having toppled a > regime, and more than one government, that tried so desperately to > sacrifice a proud people on the altar of I.M.F.-led austerity.” > > People in countries like Venezuela and Cuba have tolerated failed > economies and low standards of living for years, and the Russians seem > all too willing to follow President Vladimir Putin into recession. > “Populism and nationalism,” Mr. Porzecanski said, “are still potent > forces.” > _______________________________________________ > pen-l mailing list > [email protected] > https://lists.csuchico.edu/mailman/listinfo/pen-l >
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