How’s the Argentina recovery coming along?

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.”


I couldn't agree more!
regards from an argentine economics student

Just one more reason why you're supposed to buy your inflation hedge *long* in advance.

Also, Argentinians surely could have held their savings in gold. Plus, bitcoins will be even better for this purpose once their value stabilizes, since it's impossible for the authorities to seize or, if you follow certain precautions, track.

Jeff Garzik, one of the Bitcoin developers, explained as such in an interview and concluded that "attempting major illicit transactions with bitcoin, given existing statistical analysis techniques deployed in the field by law enforcement, is pretty damned dumb"

Where is the beef?

How is this post not a straw man? Argentina is used as an example of a country where default was not the end of the world. Pointing out that their institutions are crap and that they might be in trouble 10 years later is irrelevant.

wow. Did you look at that guy's blog? Why on earth do you trust anything he says? Anyone recommending a large knife to fend of muggings is not a good economist...
From what I can tell looking at the Argentine press (including anti-Kirchner papers like La Nacion) what he's saying is hugely exaggerated and essentially the rumor and conspiracy mongering that's quite typical among Argentines who dislike their government. Here's a more even handed report from WSJ:
People have been predicting the imminent collapse of the Argentine economy for five years now. Maybe it's time for some humility? Would Tyler be willing to strongly predict that Greece will outperform Argentina over the next 5-10 years?

Argentina is a complicated place. Some institutions are a disaster - the courts, first and foremost - as is the treatment of inflation and INDEC by the government. Other institutions, like AFIP, are actually quite capable (I doubt, btw., that institutional quality has decreased since 2001). Its economy is equally complex. It's pretty hard to deny that overall people are doing better than in 2001 now. It's also hard to deny that there are severe structural problems. I don't think sweeping generalizations are that helpful (and, if you look at Krugman's post, he looks at post-devaluation economic performance - I'm not sure how that's related to justified complaints about poor quality of institutions).

Confirmed. FerFAL, the guy writing that blog, seems to have no clue. In one of the comments to the post that Tyler links to he writes:

"You coudl make a sweet deal right now on realstate in Buenos Aires if you know the market and get a good tip on someone wanting to sell. The problem would be getting the moeny into the country if its not here already. But yes, now would be the time to buy, given that the price is low enough.

This makes no sense. Whenever you have capital controls for outflows (in this case, restrictions to buying USD with ARS) it is fairly easy to get your money into the country. You just need to be matched with one of the many people trying to get out, and you even earn a premium for it!

Of course! You're going to waltz into the country and illegally trade enough foreign currency to buy real estate! This in a place that, as mentioned, sends economists to jail for trying to calculate the correct rate of inflation.

as far as I know it's not illegal to bring (huge amounts of) dollars into Argentina (hence "outflow controls".) Like everywhere you have to register cash exceeding 10k, but you can come in with a suitcase full.

Also, while it's certainly not good that the Argentine government is punishing firms for publishing inflation estimates it doesn't like, I'm pretty sure no one has gone to jail over this, so let's not perpetuate that myth. There have been some fines, but let's keep things in perspective, yes?

"Anyone recommending a large knife to fend of muggings is not a good economist…"

What do good economists recommend, a small knife?


If you had read more of his blog, you would know how dangerous Argentina can be. When he is talking about surviving and economic collapse, he is not talking about the up coming one, but the one that has already occured in Argentina in the early aughts. My favorite anecdote is the one where the Argentinian beauty queen is stuck in Chile during the earthquakes and has to walk home: where she suffers a home invasion just as she gets to her front door. She notes that she felt safer in Chile -earthquake and all.

His collapse advise says to forget about the bunker and keep your day job and involves such discussions as what happens when all the ATM machines shut down, and how to get around street rioting without being hurt. All based on experience.

I think his advise (English is not his first language) could be read as: If you really really need to move to Argentina, the prices would be inexpensive, but you will have a hard time not getting screwed on the currency exchange.

a knife to a fist fight; a gun to a knife fight.....

I didn't think I have to spell this out, but an economist - capable of simple expected utility calculations - recommends carrying moderate amounts of cash and no important documents, handing over your wallet and shrugging it of. Even if you only have a 5% chance of getting hurt by resisting a mugging, resisting is a terrible idea (and the chances are, obviously, much higher than that).

And, having lived and traveled for more than a year in Argentina recently and with several of my friends living there - no, Argentina is not a dangerous country. BsAs is about as safe/dangerous as a larger US city - see e.g.
and most of the rest of the country is safer. Venezuela is dangerous. Parts of Mexico are dangerous. Argentina is not.

Krugman holding Argentina as a model is no different from how Samuelson used to hold the Soviet Union as a model.

exactly, well said!

This post is near-baseless , irrelevant to the points made about how defaulting didn't destroy the country, and shows Tyler's desperation to defend the logic of austerity, the facts be damned. I read Marginal Revolution every day because I've come to expect some of the highest quality content I've found in right wing to right of center media. This post is well below that quality. I hope this isn't the beginning of a sustained trend.

One post out of the hundred this week surely is a trend.

There have been other posts in recent weeks that i think are of similar quality. By the way, do you wait until something or someone is completely ruined before trying to intervene?

Perhaps you should revisit your a priori distribution

What is it with that country and terrible political decision-making when it comes to the economy? It's like they keep drawing bad cards.

Their politicians. And the mass of the people who enable them.

So glad I didn't by that vineyard in Mendoza.

Sorry, should be 'buy.'

> Yes I do know all the good numbers they have put up in the last few years, but ...

Yes I do know all the facts disagree with me, but I'll keep thinking what I want to think.

Default are sometimes the least bad choice. That's all Argentine example says. Eurozone would have been far better off if Greece defaulted a few years ago.

When you have to fine economists who publish their own inflation numbers, *something's* not right.

yes, but that's something is probably not the devaluation 10 years ago. Do you really not get that point? Tomasz is the fourth person in this thread to point this out.

Yeah, I'm sure previous defaults doesn't at all affect current risk of capital flight.

This is silly. The restrictions are mostly temporary, and residents can own USD$ soon; they'll just have to declare their transactions to the tax office. These currency houses used to engage in capital flight, where rich Argentines would avoid declaring income by washing it into US dollars and transporting it physically over the border. The tax office doesn't stop you from switching to USD$, but it does stop you from doing so under the radar to avoid taxes.

Your source is probably one of the worst I've seen on this blog, and take it from an economics guy living in the country, he's completely wrong about what is going on. Just re-posting Argentine conservative scare-mongering as facts. As someone who does business in this country, I assure you there's no collapse coming.

Not true. What has been severely restricted is the posssibility of buying foreign currency in the white market, showing your ID, (and lately your tax inscription), and entering the data base of the AFIP with a red flag. Not a very advisable option for money laundry. Self incrimination has been banned by these restrictions..
The black market is open us usual.

The restrictions are not temporary at all.

Right now the purchase of foreign currency is almost banned, even for those who work at government agencies or receive government pensions. As Mariano described this only affects ordinary people, criminals keep using the black market as usual. The AFIP is only releasing foreign currency in case of special origin (Lottery prize, lawsuit settlement) or special destination (journey abroad, real estate purchase)

Today they've added three new measures:
- Banks are know obliged to sell as much currency as they buy from exporters. So if the have fewer exports than imports, someone will have to be banned.
- Some banks are only accepting withdrawals from USD savings accounts as long as those are converted to Pesos. Everyone is trying to get their dollars out of the banking system out of fear of compulsory conversion to Pesos.
- The Customs office closed all imports for a few hours trying to implement a new system the will control how each import is paid. After a brokers riot, they finally stepped back, but promised they will insist once the system is working properly.

Thomasz: "Eurozone would have been far better off if Greece defaulted a few years ago."

Under that scenario, would they be better off today, or would today just be another fine day for another default? (Or, perhaps, a month or a year from now.) Not arguing, just asking whether you think defaulting is or just kicking the can down the road.

That's the problem of jumping into conclusions with one data point. Default did a world of good to Argentina's growth. We know that they were lucky with commodity prices, but the truth is that (even with the Kirchners, and controlling for public expenditures growth) they grew a lot after default. Analyzing the consequences of default without referring to all other (wrong) policies followed by the Kirchners is self-serving and misleading. Needless to say that I agree with Krugman on this one.

Where's E Barandarian?

Detained after trying to flee Argentina with 1000 USD in cash. Ouch.


I also miss Barandarian

I'm crying, but not for my home country. Those that want to read a reasonable assessment of Argentina's balance of payments and the foreign exchange market, take a look at

Please take note that Eduardo is a well-known economist associated with the Brookings Institution (btw, the paper he refers at the end of his post has not been circulated yet). He knows what he's talking about. I disagree with him, however. He concludes
"At any rate, neither a continued miracle nor an inevitable hard landing seems to be on the cards in the near term."

Eduardo's near term for a hard landing may be (much?) longer that mine (anytime after March 2012 if soybeans prices are below today's level). I think that the country's consolidated total government expenditure --it'd have increased from US$ 2 billion in 2003 to over US$ 200 billion this year-- is (much?) larger than the amounts shown in his Figure 8 (apparently it refers only to federal government expenditure over GDP). In addition, although government expenditure is expected to increase next year, it will be difficult to finance the increase if the world prices of soybeans do not recover their record levels of earlier this year (25% over today's prices that are still very high in relation to the 1990s).

I'm crying for my grandchildren's countries --U.S.A. and Chile. Both run by Harvard graduates that have shown to be poor fraudulent clowns. Whatever mistakes past presidents made, their ineptness has surprised even to many that voted for them. To make things worse, their mistakes and weaknesses have prompted large numbers of young people to challenge the political system and as usual the left has joined the protests (in U.S.A. the Administration and its mercenaries, but in Chile the opposition and its mercenaries) to demand the "end of capitalism" and the "beginning of Fantasyland".

I'm also crying for my youngest daughter's country --Spain. Although the Socialist government is coming to an end (the election is on November 20), the new government will face a big mess. Because of the ineptness and corruption of the Socialist government --both at the national level and at the level of the "comunidades"-- the new government will discover that Spain's public debt and deficit are much higher than reported so far and that most funds have already been committed and perhaps disbursed, leaving almost nothing to pay new bills in this fiscal year. In addition, you have the same problem of a large number of young people protesting with the support of socialists and other left-wing parties but more importantly with the support of large unions of public employees. This coalition of "indignados" will block legally or illegally the approval and/or the implementation of the new government's policies.

Sorry it was US$ 20 billion in 2003.

spelling Barandiaran

Years ago Rudiger Dornbusch wrote an article called "The Latin Triangle" about political economy cycles in Latin America--inflation, austerity, devaluation, etc. Devaluation was the right solution for Argentina in 2001, currency board was a bad idea that deserved to die, but after the "nike effect" Argentina didn't know when good was good enough and time to consolidate the gains it had made. I am going to re-study Dornbusch and see if his model predicts outside his data set on the latest developments in Argentina

After a decade of post-default growth, the government chooses to manipulate the currency, and this proves...what, exactly?

I'm all for Cowen-Krugman interchange, but you're completely ignoring his point, which is that sovereign default can be a reasonable choice.

Planet Money recently did a piece on the actual negative consequences of Argentina's default. Why not bring that up?

Thats Tyler. When the facts disagree with him, ignore the facts and make up a couple of straw men supported by links to random blogs. Maybe next time you should link to zerohedge to prove that Keynes was a fraud too, they have lots of material I am sure you can quote.

yet another reason to not to assume catholic cultures function like protestant cultures

"Krugman holding Argentina as a model is no different from how Samuelson used to hold the Soviet Union as a model."

Well, after several efforts, Tyler Cowens got the commenters he merits. This Krugman obsession is getting ridiculous, and the distortions siller: to say that Krugman held up Argentinia as a "role model" is a flat-out lie, and not even the post he links to says anything like that. Indeed, Krugman made some very specific claims - but insted of addressing them with real arguments we get silly Krugman bashing.

Mr Cowen's Krugman thing gets really stupid at this point, and I'm happy to see that I'm not the only one to notice.

When I see the police brutality that I seen this days.... I really wonder who is the banana republic here. The repression, the luck of freedoms, the abuse of power. The rule of the beast at it best, that is the USA

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