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Its spending and expropriation spree hardly provides a model for Greece
That Argentina is being hauled before the World Trade Organization by the European Union for its beggar-thy-neighbour trade and investment policies at the same time as it is being hailed as a model for Greek salvation confirms that we live in interesting times. That Argentina’s policies — in particular the recent expropriation of YPF, the local subsidiary of Spanish oil giant Repsol — are ostensibly being guided by an academic with Elvis sideburns who combines Che Guevara with John Maynard Keynes suggests a stranger-than-fiction narrative somewhere between Gabriel García Márquez and Ayn Rand.
This bizarre situation is of more than passing interest to Canadian mining companies in Argentina. Might they be next? Prime Minister Stephen Harper’s firm stand at the recent Summit of the Americas against Argentinean sabre-rattling over the Falklands certainly did not endear him to Argentina’s dragon lady, President Cristina Fernandez de Kirchner.
Greece’s prospective exit from the euro is claimed to be parallel to Argentina’s decision 10 years ago to ditch a link with the U.S. dollar. Argentina, it is claimed, hasn’t done too badly since, which offers some hope for the Grexit. However, while abandoning the euro may allow it to devalue, Greece does not have the abundant natural resources of Argentina. Also, unlike Argentina, it does not have a currency. Finally, Argentina is not a model for any government whose interests go beyond power-hungry populism.
Argentina’s resources have been developed by foreign investment, a golden goose that is now being strangled. Its apparent prosperity in the past decade would not have been possible without the currency discipline of the 1990s. Just as with Greece and the euro, however, Argentina failed to impose structural reforms on the Big Labour-dominated Peronista economy, and went on a spending spree, which led to default in 2001. The spree has continued, enabled by the commodities boom. Government expenditure has risen from 22% of GDP in 2002 to 38% in 2011. Inflation is currently running above 20%, and rising.
Under Ms. Fernandez and her hubby predecessor, Nestor Kirchner, the economy has been looted to win votes. When Nestor died in 2010, there was some doubt whether his widow would have the clout to hold on to power. In fact, she was re-elected with a landslide last year. Since then, she has tightened exchange controls and applied the screw to imports. Sniffer dogs now patrol exit points, searching not for drugs, but for the smell of the ink on U.S. dollars. Money is still flooding out of the country at a record rate.
For the rest of this article, please go to the National Post website: http://opinion.financialpost.com/2012/05/25/peter-foster-last-tango-in-argentina/