Argentine Election Highlights Successful Economic Policies: Lessons for the Eurozone

Argentina's election this weekend, in which President Cristina Fernandez de Kirchner -- who succeeded her now-deceased husband as president in 2007 -- is expected to win handily in the first round.

MARK WEISBROT, via Dan Beeton, beeton at cepr.net
Weisbrot is co-director of the Center for Economic and Policy Research, which today releases a report "Argentine Success Story and Its Implications" that "finds that the Argentine economy and social indicators have done remarkably well since the country defaulted on its debt almost nine years ago." The paper notes that "Argentina's dramatic recovery from its severe 1998-2002 recession has significant policy implications for other countries, most notably Greece and some of the other weaker eurozone economies burdened by unsustainable debt."

Weisbrot said today: "Since its recovery began, shortly after its debt default in 2002, Argentina has had the fastest growth in the Western Hemisphere over the past nine years, and among the highest real growth rates in the world. For the years 2002-2011, including the IMF projections for the end of this year, Argentina's real GDP has grown by 94 percent.

"There has also been a huge reduction in poverty and inequality, and record gains in employment. Clearly most Argentines have benefitted enormously from the government's economic policies, and that's why Cristina Fernandez de Kirchner is likely to be re-elected. The percentage of Argentines in poverty and extreme poverty has fallen by about two-thirds from its peak.

"Argentina's experience contradicts the widely held conventional wisdom that recessions caused by financial crises must be followed by slow, painful, difficult recoveries. Argentina started growing just one quarter after its default, and reached its pre-recession level of GDP just three years later. Greece is expected to take more than a decade to reach its pre-crisis level of GDP.

"It was very important that Argentina defaulted on most of its foreign debt, and freed itself from having to follow destructive policies imposed by creditors. He noted that countries such as Greece and possibly some of the other weaker eurozone governments should see Argentina's successful policies as a possible alternative to years of recession or stagnation and high unemployment."

The paper also finds that "Argentina's economic growth success is not the result of a commodities boom, as is sometimes claimed" and that "Argentina experienced its remarkable economic growth despite the challenges of a refusal of a minority of creditors to accept the eventual restructuring agreement in 2005, subsequent legal action by these creditors and 'vulture funds,' and problems borrowing from international financial markets over the last nine years.

"This should give pause to those who argue, as is quite common in the business press, that pursuing policies that please bond markets and international investors, as well as attracting FDI [foreign direct investment], should be the most important policy priorities for any developing country government. Argentina's success suggests that these capital inflows are not necessarily as essential as is commonly believed. And it also suggests that macroeconomic policy may be more important that is generally recognized."