Argentina in 2001: Roadmap for Greece today?

1 point

15 years ago

There was a great article in the WSJ recently that compared Greece’s current fiscal state with Argentina’s back in 2001. The article analyzed the steps that the South American country took to cope with its massive debt load and overvalued currency and how Greece might be able to adopt a similar plan. Back in 2001, Argentina was basically in the same boat as Greece: the country was underwater with interest payments / massive amounts of debt and its exports/growth were hampered by such a strong currency. The burden forced Argentina to default on its debt and re-value its currency (peso). While the economy crashed in the near term, a decade of strong growth followed.

As the WSJ points out, there are several differences between Argentina (2001) and Greece which suggest that the Argentinian solution might not be as successful in Greece. First, Greece is deeply integrated into the European Union (EU) and the adoption of the Euro which would make it difficult to ditch the euro in the more isolated way Argentina did with the peso. Second, Argentina enjoyed a decade of growth driven by its explosive farming sector; Greece, on the other hand, lacks this type of growth capability in any of its sectors (including tourism). Lastly, while Argentina’s economic state was in bad shape, the severity of Greece’s economic woes is on another level. If Greece’s debt payments were eliminated, the country would still have a budget deficit roughly three times the size of Argentina’s in 2001. Bottom line is that Greece should look elsewhere for a plan to emerge from this economic state; although the reality is that any plan may be futile. Greece’s fate may already be a foregone conclusion.