Paul Krugman (and Matt Yglesias) do a disservice to Argentinians

By saying it´s the prototype success story that a country like Spain could emulate:

Matt Yglesias, who just spent time in Argentina, writes about the lessons of that country’s recovery following its exit from the one-peso-one-dollar “convertibility law”. As he says, it’s a remarkable success story, one that arguably holds lessons for the euro zone.

Matt is pretty emphatic, ending his post with:

So what’s the lesson for Spain? Piggybacking on the dollar ultimately failed Argentina, because pegging to the dollar didn’t suddenly turn Argentina into the United States. Similarly, adopting macroeconomic policies made in Frankfurt and Berlin doesn’t give Spain Germany’s fundamentals, it just saddles Spain with policies that are designed for Germany. A full monetary union is not the same thing as a currency peg, and unwinding the euro would wreak even more short-term havoc than Argentina’s default. But an economically sovereign country at least has the opportunity to get things right, while a country shackled to another nation’s macroeconomic policies is basically left hoping for charity. If officials in Spain and elsewhere aren’t considering the possibility of quitting the eurozone, they should be.

And Krugman manages to compare Argentina favorably with Brazil. Interestingly, although Krugman says:

Just to be clear, I think Brazil is going pretty well, and has had good leadership. But why exactly is Brazil an impressive “BRIC” while Argentina is always disparaged? Actually, we know why — but it doesn’t speak well for the state of economics reporting.

a few days ago I did a post on “Why Brazil doesn´t grow?” And as the picture below shows over a 60 year span Argentina has done much worse.

Just as over the 10 years from 1990 to 1999 when the dollar peg was in place Argentina managed to increase incomes per capita, this also has happened since 2003. But note that not much credence can be given even to that lackluster performance because since 2007 the Kirchner government, first with Nestor and since his death in 2010 with his wife Cristina, has intervened heavily in Indec – the National Statistics Office – manipulating all sorts of data ranging from inflation to output and now also to the poverty numbers. The interventions have been so blatant that even the sober Economist has taken down Argentina from its data roster published  every week .

According to Indec, for example, there are only 2.6 million poor people in Argentina or 6.5% of the population. But according to Argentina´s Catholic University (UCA), that number is 8.7 million, or 21.9% of the population. Among those, Indec says the destitute are almost nonexistent at 680 thousand, but rise to 2.2 million according to UCA.

Interestingly, since her husband became president in 2003, Cristina´s fortune has risen 930%, now standing at USD 17 million. And she relishes playing the role of a modern day Evita.

Maybe Argentina´s “remarkable success story” is about to close out. The recent expropriation of YPF Repsol Oil Company by the government is a good measure of how desperate they are to grab funds for their “do good” populist actions.  According to Alvaro Vargas Llosa (Mario´s son):

Meanwhile, the government realized that the money it was squeezing out of farmers in order to subsidize the millions of urban voters it was intent on turning into a permanent political constituency was not enough to sustain this socioeconomic model. Therefore several companies owned by foreigners, although none as important as YPF, were nationalized. But that was not enough either. The private pension system and the central bank´s reserves were subsequently taken over by the government. Then came draconian capital controls in order to slow what was becoming a massive capital flight (some $75 billion left the country in four years.)

But, of course, even that was not enough to sustain what was left of the Kirchner model. The takeover of YPF was the natural step to take. The president needed three things. One: a new foreign scapegoat (the campaign to regain control of the Falklands had worked as a temporary distraction but had run out of steam.) Two: fresh money, since the only alternative at that point was to spend the already dwindling foreign currency reserves. And three: direct control of the giant Vaca Muerta shale formation recently discovered by YPF in the Neuquén Basin, which in the eyes of the government could be the key to the perpetual funding of the populist model for years to come. The president´s supporters are already preparing the ground for a constitutional change that would lift the impediment to her reelection and ensure her perpetuation in the Hugo Chavez way.

Yes, Messrs.’  Krugman and Yglesias, a “remarkable success story” indeed! Only those kinds of success stories don´t usually last.

Update: From Mansueto Almeida I get confirmation that since 2007 Argentina has also “falsified” real GDP by fudging with the deflator. The chart illustrates the difference between the official (Indec) and private estimate..

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2 thoughts on “Paul Krugman (and Matt Yglesias) do a disservice to Argentinians

  1. Nick – No. It´s from the Total Economy database at Groningen University (now managed by The Conference Board). It´s in PPP dollars. But I don´t know if the basic data has it´s origins at Indec!

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