THOUGH LATIN AMERICAN ECONOMIES LIKE ARGENTINA, VENEZUELA AND COLOMBIA HAVE SHOWN SOME RESILIENCE AGAINST THE OVERRIDING DOWNTURN IN THE RECENT PAST. BUT, WITH HUGE SOVEREIGN DEBTS AND THEIR GROWING INCAPABILITY TO SERVICE THEM AT A STANDARD RATE, THEY STILL STAND ON THE VERGE OF COLLAPSE, FEELS MANISH K. PANDEY…
For most countries, tolerating a short-term deficit to stimulate the economy is a reasonable tradeoff. But, for Argentina, however, the picture is complicated by the country’s limited access to foreign capital as it has been in default since 2001. Though Christina’s predecessor, her husband Nestor Kirchner had restructured most of the debt and even repaid money borrowed from IMF, Argentina still remains in default of over $20 billion of debt from its 2005 restructuring and over $6 billion in Paris Club debt. Worse, Argentina’s total debt, not counting that held by the holdouts, as of today stands at $140 billion (almost 50% of GDP)!
The Argentine government has also been questioned by analysts on the validity of certain economic indicators, which the government is reported to have skewed seemingly to get a favourable market standing. For instance, inflation has been ‘officially’ hovering around 9% since 2006. But it was privately estimated at 12-15% that year and over 15% in 2008. All this has led to a scenario where investors are left with little (or say no) faith on the Argentine government. According to Argentina’s central bank, capital flight from the country has reached $5.5 billion in Q2 2009, bringing a total of $11.2 billion in H1 2009. In fact, since 2007, capital flight has reached about $43 billion on worries over its economic outlook. Economist Rodrigo Alvarez from consultants Ecolatina, warns that capital flight from Argentina has reached levels similar to those of 2001. In his view, the government needs to restore confidence before it’s too late. Even as per Morgan Stanley analysts, Argentina’s fiscal accounts are moving toward deficits, which will likely increase worries on fiscal sustainability and “the country’s ability to honour its debt service obligations.” Considering this they have even lowered their “forecasts for Argentina’s fiscal balance to -0.6% of GDP (from 0.0%) for 2009 and -0.9% of GDP (from -0.4%) for 2010.”
The scenario is somewhat similar in Venezuela where high levels of government spending and unorthodox economic policies are catching up very fast. In fact, the country’s GDP has already fallen by 4.5% in Q2 2009, following a 2.4% decline in the first quarter.
For most countries, tolerating a short-term deficit to stimulate the economy is a reasonable tradeoff. But, for Argentina, however, the picture is complicated by the country’s limited access to foreign capital as it has been in default since 2001. Though Christina’s predecessor, her husband Nestor Kirchner had restructured most of the debt and even repaid money borrowed from IMF, Argentina still remains in default of over $20 billion of debt from its 2005 restructuring and over $6 billion in Paris Club debt. Worse, Argentina’s total debt, not counting that held by the holdouts, as of today stands at $140 billion (almost 50% of GDP)!
The Argentine government has also been questioned by analysts on the validity of certain economic indicators, which the government is reported to have skewed seemingly to get a favourable market standing. For instance, inflation has been ‘officially’ hovering around 9% since 2006. But it was privately estimated at 12-15% that year and over 15% in 2008. All this has led to a scenario where investors are left with little (or say no) faith on the Argentine government. According to Argentina’s central bank, capital flight from the country has reached $5.5 billion in Q2 2009, bringing a total of $11.2 billion in H1 2009. In fact, since 2007, capital flight has reached about $43 billion on worries over its economic outlook. Economist Rodrigo Alvarez from consultants Ecolatina, warns that capital flight from Argentina has reached levels similar to those of 2001. In his view, the government needs to restore confidence before it’s too late. Even as per Morgan Stanley analysts, Argentina’s fiscal accounts are moving toward deficits, which will likely increase worries on fiscal sustainability and “the country’s ability to honour its debt service obligations.” Considering this they have even lowered their “forecasts for Argentina’s fiscal balance to -0.6% of GDP (from 0.0%) for 2009 and -0.9% of GDP (from -0.4%) for 2010.”
The scenario is somewhat similar in Venezuela where high levels of government spending and unorthodox economic policies are catching up very fast. In fact, the country’s GDP has already fallen by 4.5% in Q2 2009, following a 2.4% decline in the first quarter.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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