Argentina Is Not a Model for Greece

In today’s World Politics Review I argue that Argentina’s recovery from meltdown in 2001 is not a model that Greece can emulate. Primarily, this is because Argentina devalued its currency by 70 percent, then saw its fortunes rise with a global commodity boom. By contrast, most scenarios for a Greek default include the country staying in the euro zone. Even if it reverted to the drachma most of Greece’s GDP is generated from services, especially tourism, so an Argentine-style export bonanza is not at hand.

Furthermore, strong growth in Brazil, and across the Southern Cone more generally, created extra demand for Argentine cars and other manufactures. Greece certainly can’t count on demand from neighbors to help it out, seeing as how the likes of Italy and Spain are sweating through their own debt-related stagnations.

The major problem with drawing lessons from Argentina’s post-2001 performance is that its recovery owes to good luck, not good policy. Rather the Kirchner presidential duo has gutted the central bank and national statistic bureau, and employed populist tactics that sped along what would have otherwise been a strong economic rebound. As a result of their short sightedness, Argentina’s economy is addled by inflation and an extreme reliance on just a few commodities. Heaven forbid a drop in commodity prices or a slowdown in Brazil–Argentina’s miraculous recovery would be undone.

Parallels between Argentina and Greece may be overdrawn, but their paths are actually starting to converge: Argentina’s economy is overheating just as Greece’s is falling apart.