They are probably in bigger trouble than the European periphery. Why hold them up as a model? Why not instead obsess over the quality of a country’s institutions? They get a D. Here is the latest:
As Greece and Italy go to hell in a hand basket, down here in the Banana Republic of Argentina we’re seeing a déjà vu of the 2001 collapse. The government imposed a “green” corralito by which through one excuse or another the American currency is being unofficially but effectively banned. The US Dollar was the way in which Argentines protected their savings from the even more volatile funny money that is the Argentine peso. With the new restrictions, before buying dollars you have to be authorized by the AFIP, the Argentine version of the IRS. Through a complex system that not even themselves understand, they check how much money you earn, what are your expenses, how much you may have saved based on that, and only then do they somewhat estimate what you should be allowed to buy. There’s people that own big companies that aren’t even allowed 50 USD.
…So yes, these are interesting times to say the least. Lots of rumors, lots of desperate people out there. People that were just about to travel and needed dollars but can’t buy them, people about to close business deals in dollars but can’t get the money either. USD accounts being closed, Pesos accounts being closed as well out of fear and the too vivid ghost of 2001. Interest rates have doubled in banks in the last few days and everyone is just waiting, and I guess that the key word in today’s article. Waiting, staying put to see what happens. What happens when the economy is about to collapse, or just collapsed? Everyone waits. I saw the exact same thing 10 years ago. No one buys anything or sells anything unless they really have to.
Here is more, and I thank Matthew Weitz for the pointer. There is mounting capital flight, and multinationals are seeking to repatriate capital. A confiscatory devaluation may be in the works. Yes I do know all the good numbers they have put up in the last few years, but I also know Austro-Chinese-Soya business cycle theory! It’s also the case that Argentina will send economists to jail for trying to calculate the correct rate of inflation.
In short, I am crying for Argentina.
File also under “Yet another reason not to take IS-LM models too seriously.”