Bradford DeLong wrote:
> >Brad,
> >
> >as recent as 2/3 years ago, both IMF and WB put Argentina as the star all
> >LDC should follow. All the problems facing today were there, not as deep
> >and intense, but were there, income distribution and poverty had worsen,
> >money from privatization was used to increase spending and pay for
> >"fees".
>
> Growth in real GDP per capita of 4.0% in 1993, 4.5% in 1994, -4.2% in
> 1995, 4.2% in 1996, 6.8% in 1997, 2.6% in 1998. These left Argentina
> in 1998 with real GDP per capita levels 18% above what they had been
> six years earlier--a pace of growth that, if it could have been
> sustained, would double Argentinian material standards of living in
> 24 years.
But why did it stop?? I am under the impression that those rates of growth were unsustainble not because an overvaluation of the exchange rate which made exports uncompetitive, as you argue below, but because most of the growth figures are biased due to the privatization process and because it was (the rate of growth) partly sustained by a regressive income distribution wich is would make things worse in the long run. I will try to provide some more detailed arguements later
>
> Then the appreciation of the dollar coupled with the Currency Board
> that ties the peso to the dollar made Argentinian exports
> uncompetitive, and created expectations of a devaluation; the runup
> of government debt created further expectations of a devaluation; the
> failure of a devaluation to take place caused large increases in peso
> interest rates as financiers anticipated that devaluation would come
> soon, and these increases in interest rates discouraged investment.
> The fall in investment and in exports created a recession...
I would agree that the rise in interest rates discouraged investment. But Argentina only exports less than 10% of what it produces.... it is very hard to argue that you can have a recession because of problems in your exports in a country like Argentina. Argentina just stopped growing because the figures reflected the "new investment" coming from privatizations, and that money just stopped flowing in.
>
> As Barry Eichengreen pointed out to me last spring, the parallels
> between the situation of Argentina in 2001 under its Currency Board
> and Britain in 1928 after its return to the Gold Standard were
> remarkably close...
>
>
I envy you guys in the North who always have time to see the historical causes of current evils....no time in the south, we are too busy dealing with problems...:-)))
> Brad DeLong