Andres Oppenheimer

Andres Oppenheimer: Greece would err in following Argentina’s steps

Latin America’s old-guard leftist leaders and at least two prominent U.S. Nobel Prize-winning economists say that Greece, much like Argentina in 2001, can default on its foreign debts without facing and apocalyptic scenario. Trouble is, Greece isn’t Argentina.

To be fair, there are two clearly different camps among those who applaud Greek Prime Minister Alexis Tsipras’ decision to reject European Union and International Monetary Fund calls for structural reforms in exchange for new rescue loans.

The first group is made up of Latin America’s old-guard leftist leaders such as the presidents of Venezuela, Ecuador, Bolivia, Argentina and Cuba. Most of them have ruined their countries’ economies or use anti-capitalist rhetoric to justify their authoritarian ways, and can’t be taken too seriously when they celebrate Greece’s July 5 “No” vote against austerity measures.

But the second group includes Nobel Prize-winning economists Joseph E. Stiglitz and Paul Krugman, and other respected non-orthodox economists who make several valid points in their defense of Greece’s financial rebellion. They point out, for instance, that European leaders share the blame for Greece’s current crisis for having imposed unrealistic austerity packages on Greece in recent years.

“Argentina shows Greece there may be life after default,” reads the headline of a column written by Stiglitz and Martin Guzman in the Huffington Post. “Defaults are difficult. But even more so is austerity. The good news for Greece is that, as Argentina showed, there may be life after debt and default.”

Stiglitz and Guzman argue that Argentina in the late 90s, much like Greece more recently, adopted severe IMF-suggested austerity measures, which instead of allowing the country to grow further crippled its economy and made it even harder for the country to pay its debts.

In both cases, these countries had to partially freeze their bank deposits, and later — in different ways —decided to default on their foreign debts. Argentina’s decision in 2001, much like Greece’s “no” vote to austerity in 2015, shook the world markets.

But Argentina recovered quickly, and in fact grew at record rates in the late 2000s. Greece should be no different, critics of austerity packages argue.

To their credit, Stiglitz and Guzman concede that “to some extent, Greece faces a more complex situation than Argentina did in 2001,” because Argentina recovered with a large currency devaluation that made the country’s exports more competitive. Greece, by comparison, doesn’t have its own currency — it adopted the Euro decades ago — which means it would have to create a new domestic currency in the midst of a crisis with little international support.

Most economists say there are several other — more important — differences between Argentina and Greece’s experiences.

First, Argentina benefitted from a huge rise in world commodity prices after its 2001 default, which allowed the country to have its biggest export boom in recent history.

Thanks to its soaring soybean exports to China, Argentina’s economy grew at 9 percent annual rates despite the country’s international financial isolation in the mid 2000s, before falling again since 2013 because of the government’s rampant populism. Not surprisingly, many Argentines joked during the boom years that the recipe for their country’s post-default recovery could be summed up in two words: “soja y suerte” (soybeans and luck).

Second, Argentina benefitted from financial help from oil-rich Venezuela, which bought about $5.6 billion in Argentine debt bonds and invested hundreds of millions in Argentina between 2003 and 2008, as late Venezuelan President Hugo Chávez was courting Argentina as an ideological ally.

Third, Argentina’s economy is more diversified than that of Greece, which relies mostly on tourism. While Argentina devalued its currency to export at cheaper prices and attract more tourism, Greece’s current turmoil has already caused a drop in tourism, which could prevent a quick economic recovery.

My opinion: Greece and Argentina have a lot in common, including a tradition of living beyond their means, massive corruption, and a failure to improve their education and innovation systems to become competitive in the new global knowledge economy.

Just as an example, Greece registered only 66 international patents last year, and Argentina 88, compared to South Korea’s 18,000, and the United States’ 159,000, according to U.S. Patent and Trademark Office figures.

But Greece can’t expect to benefit from the same external headwinds that helped Argentina emerge from its 2001 default. There is an odd chance that Greece could be rescued by bankrupt Russia, but it would be difficult. Most likely, barring a realistic agreement with its EU partners, a Greek decision to cut itself loose from the Eurozone would deepen its current crisis. There is no “soybeans and luck” recipe in sight for Greece.

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