There is lots of stuff flowing from Argentina… Econs from CEPR. - Mark Weisbrot and Juan Antonio Montecino wrote a note recently saying Greece should be taking lessons from Argentina. It should exit Euro and grow via the depreciation route as Arg did. They even say the grpwth in Arg post 2001 crisis was not purely a commodity driven one..
Carlos Zarazaga of Dallas Fed says the opposite. He actually warns the European leaders of the kind of costs one incurs post a debt crisis based on Argentina case study. The economy did grow post 2001 crisis but was more of a rebound from crisis:
Seven years of uninterrupted expansion followed, as GDP per working-age individual grew at a 7 percent average annual rate. This performance was not as impressive as it appears because a good part of it was a natural rebound from the previous severe contraction. Nevertheless, the turnaround is oftentimes taken as evidence of the economic growth benefits of default.
If that were true, the opposite conclusion would apply to Argentina’s earlier default, in 1983. As Chart 1 also shows, the 1983 default was followed by years of economic decline, the so-called lost decade—hardly evidence that defaults cause growth. That leaves unresolved how Argentina’s economy managed to recover so well from the catastrophic events leading to the 2001 default. In reality, it is far from clear that it did recover.
The author looks at a metric - capital stock to output – to suggest the issues with Argentina:
The evolution of capital stock per working-age person in Argentina, also from 1951 to 2009, is depicted two ways in Chart 2—expressed as a natural logarithm multiplied by 100 and relative to output per working-age person, the capital-output ratio.[2]
Strikingly, the level of the capital stock in Argentina was approximately the same in 2009 as it was about 27 years earlier, right before the 1983 default. That is not quite the performance expected from healthy emerging-market economies, in which the capital stock should grow at or above the pace of output.
In other words, the ratio of the capital stock to output—the capital-output ratio—should be either stable or rising over time. By that standard, Argentina’s capital-output ratio should resemble that of a solid performer among emerging market economies—South Korea. That country’s capital-output ratio has risen steadily since the 1960s, from about 0.9 to 2.8, where it appears to have settled.[3] Incidentally, that level is in the same order of magnitude as the capital-output ratio consistent with long-run growth features of the United States economy.
Argentina’s capital-output ratio behaved much as South Korea’s did, but only until the 1983 default. After that, the ratio declined sharply, a worrisome symptom of abnormally low investment rates that cannot be detected by simply looking at output growth. The downward tilt to the capital-output ratio hints at the possibility that the 1983 episode inflicted lasting damage to capital accumulation, which the 2001 default did little to repair. In fact, capital accumulation during the expansion following the 2001 default was considerably weaker than it should have been, given the high output growth rates observed during the period.[4]
Hence, it seems commodity booms were the reason for the 2001 recovery:
That subpar performance suggests that the subsequent output growth would have been much less impressive if the country hadn’t soon started benefitting from booming global commodities prices for items—such as soybean and its byproducts—representing a sizable share of exports. In other words, it may well have been the case that Argentina’s economic growth after the 2001 default resulted more from luck than the wisdom of the government’s decision.
The two defaults in 1983 and 2001 wiped away a lot of capital stock from the country:
Accordingly, output per working-age individual in 2009 should have been greater by a factor of between 1.3 and 1.6—that is, 30–60 percent larger. That would have represented a tremendous improvement in Argentina’s standard of living. The sheer magnitude of this lost opportunity suggests that the cost of defaults may have taken the subtle form of the prosperity that never was, hidden behind circumstantially high output growth rates that may have conveyed the false sensation of an imminent catch-up with the income levels of the world’s most prosperous nations.
It seems fair to conclude that countries considering a default should make sure that the benefits of that option are at least as large as the costs of the subsequent missed opportunities, gauged perhaps with more sophisticated versions of the capital-output ratio calculation. Even then, the evidence suggests that unless those countries become as lucky as Argentina, the subsequent output growth performance might more resemble the lost decade that followed Argentina’s 1983 default than the terms-of-trade-driven expansion after its 2001 default.
Some interesting references on the Arg crisis and recovery as well..
