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Debt crisis, default, and beyond: the Argentine experience

Debt crisis, default, and beyond: the Argentine experience. Alan Cibils Political Economy Department Universidad Nacional de General Sarmiento Buenos Aires, Argentina. Topics. Factors contributing to Argentina’s debt buildup The role of the IMF Default: good or bad? Argentina post-crisis

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Debt crisis, default, and beyond: the Argentine experience

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  1. Debt crisis, default, and beyond: the Argentine experience Alan Cibils Political Economy Department Universidad Nacional de General Sarmiento Buenos Aires, Argentina Eurodad-Glopolis International Conference Prague

  2. Topics • Factors contributing to Argentina’s debt buildup • The role of the IMF • Default: good or bad? • Argentina post-crisis • Lessons Eurodad-Glopolis International Conference Prague

  3. Arentine Public Debt: 1966-2000(billions of US dollars) Eurodad-Glopolis International Conference Prague

  4. Argentina’s 1990s public debt build-up: main causes • Privatization of social security: • Promoted by IMF and WB, it generated a large fiscal gap covered by borrowing (debt) • Policy environment: • Fixed exchange rate • Inability to conduct independent monetary policy • External interest rate shocks: • Higher interest rates turned Argentine debt structure into Ponzi scheme Eurodad-Glopolis International Conference Prague

  5. Argentina’s public debt build-up and IMF • IMF: • Wrong diagnosis of the problem: • Confused fiscal spending with debt service • IMF still insists on this wrong diagnosis (probably explains its “success” in Europe) • Lending conditioned on austerity • Austerity deepened recession: • increased capital flight • Increased deficit • Increased debt Eurodad-Glopolis International Conference Prague

  6. December 2001 default • Default became inevitable: • Following three years of recession and austerity • Important to admit that situation was unsustainable • Alternative: downward cycle of debt and austerity • Only real solution was default +devaluation • Liberated fiscal resources for other socially necessary and productive uses • No longer needed access to IMF or financial markets due to fiscal surplus Default IS an option to be considered Eurodad-Glopolis International Conference Prague

  7. Post-crisis Argentina • Between 2002-2007: • High economic growth, lower unemployment and poverty. • Causes: recovery of own currency, devaluation and ability to conduct independent exchange rate, monetary and fiscal policies • Since 2007 (to present): • growing inflation (25% yearly for the last four years) • Currency appreciation, economic slowdown, higher poverty and inequality • Neoliberal media blame Argentina’s current economic problems on the default: • This is FALSE—problems are political and home-grown, unrelated to default. Eurodad-Glopolis International Conference Prague

  8. Lessons • Default IS an option (¿necessity?) • Recovering currency/monetary policy is key • Changing economic strategy is key: • Abandon neoliberal agenda/IMF • Economic policy should be focused on • Sustainable development • Employment • Education and Health care • Income distribution Eurodad-Glopolis International Conference Prague

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