Monday, October 13, 2008

Argentinisation of the Advanced Markets

After the 2001 debt default, Argentina has been criticised, condemned and since 2002 has been kind of ex-communicated from the financial markets by the The Whizkids of Wall Street who thought of themselves as the ¨Masters of the Universe¨.

Today´s Clarin has a story entitled ¨Argentinisation of USA¨ It has compared the situation of Argentina in 2001 to that of USA and Bush with de la Rua. It has gone into the interesting similiarities between their crisis and their actors with what is happening in a much bigger scale in USA. It is the time of Dulce Revanche ( sweet revenge).

In the ninties many Latin American countries adopted, willingly or unwillingly, Washington Consensus policies of privatisation, liberlisation and minimisation of government role in the market. But unfortunately these policies did not lead to the predicted results causing a backlash of anti-neoliberalism in the region. Today the policy makers and free marketeers are horrified by the colossal intervention of the governments in the Developed Markets to repair the damage inflicted by the unrestrained Capitalism. The traditional and the new left of the region says.. I told you so...

Argentina had declared the world´s largest debt default of 80 billion dollars in December 2001. The Argentines say this is nothing in comparison to the hundreds of billion of dollars of default in USA and Europe. Today´s Clarin says the money used in EU for rescue of banks is equal to ten times the GDP of Argentina and in USA it is three times more. They further say that the number of victims of their debt default was a few hundred thousand bond holders and a few crooked banks who mislead them. On the other hand, the criminal greed of the wall street sharks has affected millions of common people in USA, Europe and in fact the whole world.

After the Argentine crisis, the opinion makers of the world had accused the Argentines of reckless borrowing beyond their means, corruption and much more. The Argentines are justified now to reciprocate the gesture. President Cristina , when she was in New York last month, told the Americans of her feelings implicitly and explicitly. Since the Americans had branded the crises in Latin America as tequila crisis, caipirinha crisis and tango crisis, she called the American crisis as Jazz Crisis, although no one paid attention to it except the Argentine media.

I wrote an article in Financial Express of India in December 2005 on the reasons for Argentina´s debt problem.
My conclusion was that it was the same whizkids of wall street who pushed the petro dollars on the willing Argentines to make their six figure commissions with made up stories of Argentine capacity for repayment. Now they have become victims of their own poisonous greed.

The good news is that despite the extraordinary shock from USA and Europe, the Argentine economy and financial market is not shaken. They have withstood the shock on the back of some strong macroeconomic fundamentals, resilience of the economy, adequate foreign exchange reserves and preparedness. Having gone through so many crises in the past, the Argentines are better prepared than the Americans or Europeans. Surely they are not immune and have to go through some pain, with the expected decline in commodity prices and other such factors.

This is true of most of Latin America too, as acknowledged by IMF and the pundits. The chief economist of World Bank in his october report to the IMF and World Bank meetings on the crisis says that Latin America is less vulnerable to macro‐financial shocks than before and this is due to fundamental improvements. He calls Latin America as a better‐built boat facing a nastier storm. He adds that the region has been caught in the global selloff of stocks but the fall is less pronounced than in Asia and Eastern Europe.

And here is the most revealing and amusing irony.
Moodys report´of 13 october says Latin American debt is safer than that of USA. They say Latin American corporate debt is now the most stable in the world.

The Argentines feel some consolation. They are not alone, as they felt in 2001-2. It makes the Argentines feel better that the even the most efficient and sophisticated markets like USA and Europe could end up in a mess bigger than theirs. They feel a bit jealous though that the wall street crooks have beaten their compatriots in claiming the championship.