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The (Verboten) Argentine Success Story and Its Implications (pdf)

The Argentine economy has grown 94 percent for the years 2002-2011, using International Monetary Fund (IMF) projections for the end of this year. This is the fastest growth in the Western Hemisphere for this period, and among the highest growth rates in the world. It also compares favorably to neighboring economies that are commonly seen as quite successful, such as Brazil, which has had less than half as much growth over the same period.

Argentina was trapped in a severe recession from mid-1998 to the end of 2001. Attempts to stabilize the economy and maintain the currency peg to the U.S. dollar, through monetary and fiscal tightening, led by the IMF and backed by tens of billions of dollars in lending, failed to arrest the economy's downward spiral.

In December of 2001, the government defaulted on its debt, and a few weeks later it abandoned the currency peg to the dollar. The default and devaluation contributed to a severe financial crisis and a sharp economic contraction, with GDP shrinking by about 5 percent in the first quarter of 2002. However, recovery began after that one quarter of contraction, and continued until the world economic slowdown and recession of 2008-2009. The economy then rebounded, and the IMF now projects growth of 8 percent for 2011. Argentina's real GDP reached its pre-recession level after three years of growth, in the first quarter of 2005. Looking at twenty-year trend growth, it reached its trend GDP in the first quarter of 2007.

The country experienced this remarkable economic growth despite the default and difficulties borrowing from international financial markets over the past nine years, and relatively little Foreign Direct Investment (FDI). 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 should be the most important policy priorities for any developing country government.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Sun Oct 30th, 2011 at 06:57:28 AM EST

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