Sources:
WSJ: Argentine Episode is Little Comfort for Greece
IMF: IMF Executive Board Completes Fourth Review Under Stand-By Arrangement for Greece
World FactBook: Argentina's Economy
Last week the International Monetary Fund (IMF) completed its fourth review under the Stand-by Arrangement for Greece. This review allows for the immediate disbursement of €3.2 billion to the country, making the IMF’s total disbursements nearly €17.4 billion. Although Greece’s economic adjustment program has continued to make some progress and a return to positive economic growth is expected by the middle of 2012, the economy is extremely fragile and fiscal adjustments are to come in the future. Over the past ten years, there has been a wave of financial crises all throughout the world. But perhaps the one that resembles the most to that of Greece is the collapse of Argentina’s economy in 2001.
There are strong parallels between Argentina and Greece. Both countries have overvalued their currencies, suffered from undisciplined fiscal policies, and taken advantage of apparent stability, in order to take on a lot of debt. For instance, in 2001, Argentina’s economy was in a very similar predicament as that of Greece. It was crushed by debt and its exports crippled due to an overvalued peso. This caused the country to default on its foreign debt and put an end to the currency’s 1-to-1 peg to the U.S. Dollar. The economy bottomed out that year, with real Gross Domestic Product (GDP) 18 percent smaller than in 1998 and almost 60 percent of Argentineans under the poverty line. Nonetheless, after the devaluation of the peso and the default on its debt, Argentina‘s economy experienced exponential growth in the years to follow.
However, Greece’s economic recovery may not come as easy as Argentina’s did. This in part because the solutions used by Argentina to combat the crisis may not work for Greece’s economic troubles. One of the main issues is Greece’s deep integration into the European Union, which makes it extremely difficult for the country to renege on its debts or devalue its currency the way Argentina did. Another factor to consider is that even if Greece’s debt payments were eliminated, the country would still have a budget deficit equal to about three times the size of Argentina’s in 2001. Lastly, one of the reasons why Argentina was able to emerge from its economic crisis so quickly is because of its strong farming sector which allowed the country to exploit the weak peso by exporting to the world. However, Greece does not count with a strong farming sector which is going to make it even more difficult for the country’s economy to recover.
Showing posts with label Argentina. Show all posts
Showing posts with label Argentina. Show all posts
Thursday, July 14, 2011
Thursday, July 07, 2011
Uruguay’s Economic Recovery through Innovative Policies
Sources:
World Bank - Country Partnership Strategy for the Republic of Uruguay
World Bank - Uruguay: From Crisis to Opportunity
U.S. Dept of State - Uruguay's Economy
Uruguay has come a long way since 2002, when it faced one of the steepest economic and financial crises to hit the country in a decade. The Argentine withdrawals from Uruguayan banks and the devaluation of Brazil’s currency caused Uruguayan goods to become less competitive. All these factors, along with the outbreak of foot and mouth disease, led to massive amounts of borrowing from international institutions and financial instability in the country. However, despite the severity of the crisis, Uruguay’s economy has bounced back, in large part due to the aid of the World Bank.
According to a recent World Bank report, Uruguay has proven very successful in its implementation of the Bank’s initiatives to bolster economic and social recovery. Poverty rates have decreased, the national debt reduced, and the health care system underwent significant reforms. In addition, the Bank also helped Uruguay to eliminate foot and mouth disease, boosting the country’s image as a reliable beef exporter.
The reforms proposed by the World Bank included structural changes and short-term stabilization policies as a way to shield the country from external economic shocks. These policies included strengthening the financial sector through a flexible menu of lending and non-lending services, developing local capital markets through innovation and infrastructure, and finally, cutting the external debt and reducing the role of the US dollar in the local economy. The Bank also sought to provide financial and technical support to Uruguay by providing loans in local currency and lowering the cost of financing.
Supported by the Bank’s program, Uruguay’s economy achieved a 6.6 percent growth on average from 2004 to 2008 and poverty declined by nearly 39 percent over the last 8 years. Public debt had decreased from 79.3 percent of Gross Domestic Product in 2005 to 60 percent in 2009. Also, with the aid of the Bank-financed Non-Transmittable Diseases Project, Uruguay was able to restructure its health system in order to include more accessible primary care services to the population.
World Bank - Country Partnership Strategy for the Republic of Uruguay
World Bank - Uruguay: From Crisis to Opportunity
U.S. Dept of State - Uruguay's Economy
Uruguay has come a long way since 2002, when it faced one of the steepest economic and financial crises to hit the country in a decade. The Argentine withdrawals from Uruguayan banks and the devaluation of Brazil’s currency caused Uruguayan goods to become less competitive. All these factors, along with the outbreak of foot and mouth disease, led to massive amounts of borrowing from international institutions and financial instability in the country. However, despite the severity of the crisis, Uruguay’s economy has bounced back, in large part due to the aid of the World Bank.
According to a recent World Bank report, Uruguay has proven very successful in its implementation of the Bank’s initiatives to bolster economic and social recovery. Poverty rates have decreased, the national debt reduced, and the health care system underwent significant reforms. In addition, the Bank also helped Uruguay to eliminate foot and mouth disease, boosting the country’s image as a reliable beef exporter.
The reforms proposed by the World Bank included structural changes and short-term stabilization policies as a way to shield the country from external economic shocks. These policies included strengthening the financial sector through a flexible menu of lending and non-lending services, developing local capital markets through innovation and infrastructure, and finally, cutting the external debt and reducing the role of the US dollar in the local economy. The Bank also sought to provide financial and technical support to Uruguay by providing loans in local currency and lowering the cost of financing.
Supported by the Bank’s program, Uruguay’s economy achieved a 6.6 percent growth on average from 2004 to 2008 and poverty declined by nearly 39 percent over the last 8 years. Public debt had decreased from 79.3 percent of Gross Domestic Product in 2005 to 60 percent in 2009. Also, with the aid of the Bank-financed Non-Transmittable Diseases Project, Uruguay was able to restructure its health system in order to include more accessible primary care services to the population.
Monday, November 22, 2010
Argentina Ready to Pay Paris Club Debt
Sources:
Bloomberg.com: Argentina's Paris Club Debt to be Resolved by Early 2011, Lorenzino Says
Lanacion.com.ar: El Club de París quiere que la Argentina pague en el corto plazo
Lanacion.com.ar: La Argentina y el Club de París
Noticias.terra.com.ar: El FMI ve como una "cosa buena" el inicio de negociaciones de la Argentina y el Club de París
WSJ.com: UPDATE: Argentina Rules Out Quick Paris Club Repayment –Minister
Argentine President Christina Fernández de Kirchner announced earlier this week that Argentina would begin negotiations to pay off its debts to the Paris Club, a group of international creditors that includes the U.S., Japan, and Germany. Argentina has been in default with the Paris Club since its economy collapsed in 2001.
The Paris Club debt totals about $7.7 billion. The Argentine Government originally announced plans to pay the debt with foreign currency reserves in late 2008, but when Lehman Brothers failed and the global financial crisis ensued, the Government changed course and decided to hold on to those reserves through the lean times. Now that the country is back on track economically (its economy is projected to grow by around 9% this year), the Government has decided that it is financially capable of making the debt payments.
Normally the Paris Club will only negotiate debt repayment plans with the participation of the International Monetary Fund and its team of auditors. However, most Argentine politicians say the 2001 collapse was a direct result of the changes the International Monetary Fund required Argentina to make to qualify for loans, which has resulted in poor relations between the two over the last decade. This inspired Argentina to successfully insist that any negotiations with the Paris Club not include the IMF. This is a huge political victory for Argentina, where politicians claim victory in this “David versus Goliath” clash. The IMF has even made public statements saying that its exclusion is a “good thing.”
Though the IMF will not participate in the negotiations, the meetings will surely still be contentious. The Paris Club creditors want Argentina to pay the debt off as fast as possible to avoid another change of course by the Argentine Government. This fear has escalated with the recent passing of former President Néstor Kirchner who was widely expected to run for (and easily win) the presidency in 2011; with his death the race is now wide open.
Argentina, on the other hand, disagrees with any proposed payment schedule that might interfere with its growth. The Argentine Government has already made it clear that it will not pay the debt in one lump sum or in less than one year, but it is also anxious to receive the benefits that come with removing the stigma that comes with defaulting on national debt. The Government hopes that paying the debt will increase the amount of foreign capital flowing into the country, which would help build needed infrastructure and fund further economic expansion.
Discussion:
1) Some government critics have suggested that Argentina wants to keep the IMF out of the negotiations process because the Government fears that the IMF auditors will find flaws in the Government’s accounting that will expose an economic situation less favorable than the picture the Government currently projects. This is surely a situation the Paris Club recognizes, and yet it has agreed to negotiations without the IMF. Why?
Bloomberg.com: Argentina's Paris Club Debt to be Resolved by Early 2011, Lorenzino Says
Lanacion.com.ar: El Club de París quiere que la Argentina pague en el corto plazo
Lanacion.com.ar: La Argentina y el Club de París
Noticias.terra.com.ar: El FMI ve como una "cosa buena" el inicio de negociaciones de la Argentina y el Club de París
WSJ.com: UPDATE: Argentina Rules Out Quick Paris Club Repayment –Minister
Argentine President Christina Fernández de Kirchner announced earlier this week that Argentina would begin negotiations to pay off its debts to the Paris Club, a group of international creditors that includes the U.S., Japan, and Germany. Argentina has been in default with the Paris Club since its economy collapsed in 2001.
The Paris Club debt totals about $7.7 billion. The Argentine Government originally announced plans to pay the debt with foreign currency reserves in late 2008, but when Lehman Brothers failed and the global financial crisis ensued, the Government changed course and decided to hold on to those reserves through the lean times. Now that the country is back on track economically (its economy is projected to grow by around 9% this year), the Government has decided that it is financially capable of making the debt payments.
Normally the Paris Club will only negotiate debt repayment plans with the participation of the International Monetary Fund and its team of auditors. However, most Argentine politicians say the 2001 collapse was a direct result of the changes the International Monetary Fund required Argentina to make to qualify for loans, which has resulted in poor relations between the two over the last decade. This inspired Argentina to successfully insist that any negotiations with the Paris Club not include the IMF. This is a huge political victory for Argentina, where politicians claim victory in this “David versus Goliath” clash. The IMF has even made public statements saying that its exclusion is a “good thing.”
Though the IMF will not participate in the negotiations, the meetings will surely still be contentious. The Paris Club creditors want Argentina to pay the debt off as fast as possible to avoid another change of course by the Argentine Government. This fear has escalated with the recent passing of former President Néstor Kirchner who was widely expected to run for (and easily win) the presidency in 2011; with his death the race is now wide open.
Argentina, on the other hand, disagrees with any proposed payment schedule that might interfere with its growth. The Argentine Government has already made it clear that it will not pay the debt in one lump sum or in less than one year, but it is also anxious to receive the benefits that come with removing the stigma that comes with defaulting on national debt. The Government hopes that paying the debt will increase the amount of foreign capital flowing into the country, which would help build needed infrastructure and fund further economic expansion.
Discussion:
1) Some government critics have suggested that Argentina wants to keep the IMF out of the negotiations process because the Government fears that the IMF auditors will find flaws in the Government’s accounting that will expose an economic situation less favorable than the picture the Government currently projects. This is surely a situation the Paris Club recognizes, and yet it has agreed to negotiations without the IMF. Why?
Saturday, November 06, 2010
Latin America Reacts to “Quantitative Easing 2”
Sources:
Estadao.com.br: Meirelles vê problemas em excesso de dólares e quer acordo no G-20
Elmercurio.com: Dólar cierra con su mayor caída en 16 meses y Wall Street marca máximo en dos años por la Fed
Lanacion.com.ar: La euforia en los mercados impulsa a la economía local
Mercopress.com: Emerging Economies Ready to Counter the Federal Reserve Latest Liquidity Injection
WSJ.com: Fed Fires $600 Billion Stimulus Shot
On Tuesday, November 2, the Federal Reserve (the Fed) announced a second round of quantitative easing, a process in which the Fed buys government bonds from banks in the hopes that the banks will use the money received to inject capital into the market by issuing new loans. The $600 billion plan has its supporters, but many—both in the U.S. and abroad—are concerned with the possible side effects of the program. The main concern in the U.S. is the possibility of inflation, but abroad the concern is the devaluation of the U.S. dollar. These are essentially two sides to the same coin.
If the value of the dollar falls, other countries’ exports become more expensive for consumers in the U.S. Theoretically this will reduce the total amount of imports the U.S will bring in from the rest of the world. The devaluation will also make U.S. products cheaper for foreign consumers to buy, which should increase the amount of exports leaving the U.S. This would be a boon for U.S. producers who would likely increase hiring to meet the increased production requirements of a higher global demand for their products. The flip side is that the rest of the world’s producers would see their exports fall—many global economies would suffer so that one large one could grow. This is not the guaranteed result of the new program, but it is the possible outcome Latin America fears the most.
Brazil has been one of the world’s most vocal critics of the policy, with the country’s finance minister saying the program’s real purpose is to drive down the value of the dollar so as to increase U.S. exports at the expense of the rest of the world (and not to free up credit in the U.S. as the Fed claims). He even went so far as to compare the program to throwing money out of helicopters. This anger comes from the fact that Brazil has spent the last several weeks trying to stop capital inflows which were putting upward pressures on its currency, the real. It fears that those efforts will have all gone to waste as the Fed’s new cash injection will simply redouble the U.S. foreign investment in emerging markets like Brazil, further pushing up the value of the real.
Other countries have shown more cautionary responses. Chile’s currency appreciated more than any currency in the world except for the Russian ruble in the days after the announcement. This surely makes Chile’s exports less attractive compared to the rest of the world, but the announcement also caused global commodity prices to rise, including the price of copper, Chile’s main export. These two phenomena may ultimately cancel each other out. Argentina likewise benefited from the announcement after the price of its two largest exports, grain and soy, rose dramatically.
These mixed reactions are a good example of the conundrum Latin America (and most of the developing world) faces because of the global economic downturn. The region exited the recession quickly and is now experiencing robust growth, but no one expects that growth to continue if the U.S. and European economies do not begin to grow more rapidly. At the same time, Latin America is concerned that those economic powers might turn to protectionist measures to spur internal growth while ignoring the consequences for the rest of the world.
Discussion:
1) How concerned should Latin America be about this new round of quantitative easing?
2) Should the U.S. concern itself with the economic fears of the rest of the world right now, or is now the time for the U.S. to help itself first and the rest of the world second?
Estadao.com.br: Meirelles vê problemas em excesso de dólares e quer acordo no G-20
Elmercurio.com: Dólar cierra con su mayor caída en 16 meses y Wall Street marca máximo en dos años por la Fed
Lanacion.com.ar: La euforia en los mercados impulsa a la economía local
Mercopress.com: Emerging Economies Ready to Counter the Federal Reserve Latest Liquidity Injection
WSJ.com: Fed Fires $600 Billion Stimulus Shot
On Tuesday, November 2, the Federal Reserve (the Fed) announced a second round of quantitative easing, a process in which the Fed buys government bonds from banks in the hopes that the banks will use the money received to inject capital into the market by issuing new loans. The $600 billion plan has its supporters, but many—both in the U.S. and abroad—are concerned with the possible side effects of the program. The main concern in the U.S. is the possibility of inflation, but abroad the concern is the devaluation of the U.S. dollar. These are essentially two sides to the same coin.
If the value of the dollar falls, other countries’ exports become more expensive for consumers in the U.S. Theoretically this will reduce the total amount of imports the U.S will bring in from the rest of the world. The devaluation will also make U.S. products cheaper for foreign consumers to buy, which should increase the amount of exports leaving the U.S. This would be a boon for U.S. producers who would likely increase hiring to meet the increased production requirements of a higher global demand for their products. The flip side is that the rest of the world’s producers would see their exports fall—many global economies would suffer so that one large one could grow. This is not the guaranteed result of the new program, but it is the possible outcome Latin America fears the most.
Brazil has been one of the world’s most vocal critics of the policy, with the country’s finance minister saying the program’s real purpose is to drive down the value of the dollar so as to increase U.S. exports at the expense of the rest of the world (and not to free up credit in the U.S. as the Fed claims). He even went so far as to compare the program to throwing money out of helicopters. This anger comes from the fact that Brazil has spent the last several weeks trying to stop capital inflows which were putting upward pressures on its currency, the real. It fears that those efforts will have all gone to waste as the Fed’s new cash injection will simply redouble the U.S. foreign investment in emerging markets like Brazil, further pushing up the value of the real.
Other countries have shown more cautionary responses. Chile’s currency appreciated more than any currency in the world except for the Russian ruble in the days after the announcement. This surely makes Chile’s exports less attractive compared to the rest of the world, but the announcement also caused global commodity prices to rise, including the price of copper, Chile’s main export. These two phenomena may ultimately cancel each other out. Argentina likewise benefited from the announcement after the price of its two largest exports, grain and soy, rose dramatically.
These mixed reactions are a good example of the conundrum Latin America (and most of the developing world) faces because of the global economic downturn. The region exited the recession quickly and is now experiencing robust growth, but no one expects that growth to continue if the U.S. and European economies do not begin to grow more rapidly. At the same time, Latin America is concerned that those economic powers might turn to protectionist measures to spur internal growth while ignoring the consequences for the rest of the world.
Discussion:
1) How concerned should Latin America be about this new round of quantitative easing?
2) Should the U.S. concern itself with the economic fears of the rest of the world right now, or is now the time for the U.S. to help itself first and the rest of the world second?
Saturday, September 04, 2010
Latin America Surges Forward in the Face of the Continued Global Recession
Sources:
Elcomercio.pe: La economía peruana crecerá más de 6% este año, aseguró la ministra Mercedes Aráoz
WSJ.com: Mexico’s Economy Expands in Second Quarter
Estadao.com.br: Serasa: economia brasileira desacelera no 2º trimestre
Mercopress.com: Peru and Chile Will Lead Latam Expansion in 2011 with 6% Growth Each
Mercopress.com: Argentine Economic Activity Expands 11.1% in June Over a Year Ago
Businessweek.com: Venezuela Economy Down 3.5 pct in First Half 2010
Despite the fact that most of the world has still not completely shaken off the global recession, Latin America has clearly set itself apart as countries across the region are experiencing their best growth rates in years. The International Monetary Fund (IMF) is predicting that Chile’s economy will expand by 6% this year (in terms of Gross Domestic Income). This growth is thanks to effective reconstruction spending following the massive earthquake on February 27 of this year and a rise in commodity prices. This growth will far outstrip the IMF’s prediction for global expansion of only 4.2% for the year.
Peru and Mexico are experiencing equally impressive levels of growth as well. Standard & Poor’s is predicting growth of 7.5% (in terms of Gross Domestic Product) for the year in Peru, though the Peruvian government is predicting only 6%. Peru is also benefiting from high commodity prices, but the Minister of Economy credits higher domestic demand and private investment as the main source of growth. The Bank of Mexico is predicting an annual growth rate between 4-5% (GDP) this year driven by a strong recovery in the country’s manufacturing sector. Mexico’s economy expanded at the fastest rate in over a decade in the second quarter this year.
The industrial sector pushed Brazil’s growth to 8.4% (GDP) in the first half of 2010 compared to the first half of 2009, and the IMF is predicting a growth rate of 4.1% (GDP) for the year. Ironically, like most of Latin America, second-half growth rates will likely decline in Brazil due to the fact that the country had already exited the recession and was again experiencing growth by the end of last year, making the year-to-year comparison less favorable. Even Argentina, a country with a less-than-stellar economic record since its 2001 economic collapse, saw growth of 11.1% (GDP) in June 2010 as compared to June 2009 after an excellent agricultural harvest.
One country bucking the growth trend is Venezuela. The Venezuelan economy shrank 3.5% (GDP) in the first half of 2010 after shrinking 3.3% in 2009. The government blames its financial woes on low global oil prices (oil makes up 95% of Venezuela’s export earnings), while government critics blame the country’s socialist economic policies and low consumer demand and investment for the poor showing.
Discussion:
1) After famously suffering through the “Lost Decade” of the 1980’s many Latin American countries have shifted to more democratic governing systems and have experienced subsequent economic growth. Does the fact that Latin America appears to have already exited the global recession and returned to the excellent growth rates it had been experiencing in recent years signal that the region as a whole is on a path to first-world status, or should the world continue to be wary of the historically troubled region?
Elcomercio.pe: La economía peruana crecerá más de 6% este año, aseguró la ministra Mercedes Aráoz
WSJ.com: Mexico’s Economy Expands in Second Quarter
Estadao.com.br: Serasa: economia brasileira desacelera no 2º trimestre
Mercopress.com: Peru and Chile Will Lead Latam Expansion in 2011 with 6% Growth Each
Mercopress.com: Argentine Economic Activity Expands 11.1% in June Over a Year Ago
Businessweek.com: Venezuela Economy Down 3.5 pct in First Half 2010
Despite the fact that most of the world has still not completely shaken off the global recession, Latin America has clearly set itself apart as countries across the region are experiencing their best growth rates in years. The International Monetary Fund (IMF) is predicting that Chile’s economy will expand by 6% this year (in terms of Gross Domestic Income). This growth is thanks to effective reconstruction spending following the massive earthquake on February 27 of this year and a rise in commodity prices. This growth will far outstrip the IMF’s prediction for global expansion of only 4.2% for the year.
Peru and Mexico are experiencing equally impressive levels of growth as well. Standard & Poor’s is predicting growth of 7.5% (in terms of Gross Domestic Product) for the year in Peru, though the Peruvian government is predicting only 6%. Peru is also benefiting from high commodity prices, but the Minister of Economy credits higher domestic demand and private investment as the main source of growth. The Bank of Mexico is predicting an annual growth rate between 4-5% (GDP) this year driven by a strong recovery in the country’s manufacturing sector. Mexico’s economy expanded at the fastest rate in over a decade in the second quarter this year.
The industrial sector pushed Brazil’s growth to 8.4% (GDP) in the first half of 2010 compared to the first half of 2009, and the IMF is predicting a growth rate of 4.1% (GDP) for the year. Ironically, like most of Latin America, second-half growth rates will likely decline in Brazil due to the fact that the country had already exited the recession and was again experiencing growth by the end of last year, making the year-to-year comparison less favorable. Even Argentina, a country with a less-than-stellar economic record since its 2001 economic collapse, saw growth of 11.1% (GDP) in June 2010 as compared to June 2009 after an excellent agricultural harvest.
One country bucking the growth trend is Venezuela. The Venezuelan economy shrank 3.5% (GDP) in the first half of 2010 after shrinking 3.3% in 2009. The government blames its financial woes on low global oil prices (oil makes up 95% of Venezuela’s export earnings), while government critics blame the country’s socialist economic policies and low consumer demand and investment for the poor showing.
Discussion:
1) After famously suffering through the “Lost Decade” of the 1980’s many Latin American countries have shifted to more democratic governing systems and have experienced subsequent economic growth. Does the fact that Latin America appears to have already exited the global recession and returned to the excellent growth rates it had been experiencing in recent years signal that the region as a whole is on a path to first-world status, or should the world continue to be wary of the historically troubled region?
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