Argentina again headed for a crisis?

I hope not. Andres Velasco of Harvard writes well crisis signs are becoming visible:

Investors looking to do business in Argentina have long been issued similar warnings. This is the country that scholars study when they want to understand financial crises. The country’s largest such crisis, in 2001, brought down the local banking system and caused the Argentine government to default on its debts. The economy contracted by a whopping 18%, and the unemployment rate peaked above 22%.

After a period of calm that has now lasted a decade, dire economic warnings are back.  Forecasts for the world economy are turning pessimistic, and economists in export-dependent Argentina are finding much to worry about. Itau, Latin America’s largest bank, is predicting GDP growth in Argentina of only 3.2% next year, down sharply from 6% in 2011.

Inflation is another concern. With official figures widely discredited, private analysts estimate that consumer prices are rising at an annual rate of 25% or more.

Its energy policy has turned it from an exporter to importer:

Those are careful estimates by serious economists. But, then again, one should take all economic forecasts about Argentina with a grain of salt. In the decade since the last crisis, Argentine policymakers have broken almost every rule in the economic-policy playbook. Again and again, local and international economists have issued dire warnings about what would happen if it persisted in its heterodoxy. And yet Argentina has managed to grow fast, doubling per capita income since 2002.

Energy policy is a perfect example of a wrongheaded strategy. The Argentine government fixed gas prices, despite ongoing inflation. Gas became artificially cheap, consumers seldom bothered to turn the thermostat down, and producers stopped investing. As a result Argentina, once a thriving gas exporter, had to seek imports to overcome domestic shortages.

Since 2001, Argentina grew in backdrop of global great moderation. That has ended and again has shown the vulnerablity of Argentina’s policies…

Interesting times….If this comes true, how many times  will we cry for Argentina?

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.


%d bloggers like this: