Pity poor Argentina. It was recently reported that Colombia had passed Argentina as the third largest economy in Latin America after Mexico and Brazil. If that wasn’t bad enough, tiny Uruguay is exporting more beef than Argentina. Inflation in Argentina was 30 percent last year; this year it could be 40 per cent.
It is hard to believe that in 1914 Argentina was one of the wealthiest countries in the world. It’s GDP was higher than Germany, France and Italy. A hundred years ago, for this country with incredible natural resources and talented people, anything was possible. The years since have not been a straight downward spiral. The economy has been more like a roller coaster with some highs and lots more lows.
The search for an explanation for Argentina’s demise begins with bad government. In the 20th century there have been five military coups. The Perons, the General and his wife Eva, left lasting scars as did the Dirty War of the late 1970s. For that, there has been no closure. The current president, Cristina Fernandez de Kirchner, who succeeded her husband as president, has done little to attract foreign investment.
With all of that, Argentina may still rebound in the next decade. The country’s Vaca Muerta (Dead Cow) shale oil and gas field is estimated to be the world’s third largest (Economist, Feb. 15, 2014, p. 22). If Argentina induced foreign companies to invest, this could be a powerful boost for the entire economy. However, the government will have to offer a regulatory regime that is welcoming and attractive to investors.
The hurdle in the immediate term will be Argentina’s response to this week’s Supreme Court decision not to reverse a lower court ruling holding that Argentina cannot pay new bondholders unless it meets its obligations to old bondholders. President Kirchner has an opportunity finally to put behind her the 2001 sovereign debt default and get ready to re-enter capital markets . . . or default yet again.