Signs of Trouble in Argentina
The Argentine Economy has been a topic of major discussion in the past few weeks. Following the landslide re-election of President Cristina Fernandez de Kirchner on October 24th coupled with the economic boom Argentina has been experiencing in the past few years they are certainly under the spotlight in terms of Latin American economies.
Despite their recent successes Argentina is facing various problems and controversies. Many have speculated that Argentina’s recent economic prosperity can be largely attributed to soaring Soybean prices, one of the countries major exports, and that the country’s economy is too dependent on the prices of commodities. According to this article from the New York Times: “Argentina’s continued success relies on commodity prices remaining high and on strong demand from China and Brazil, but economists say those factors may soon be undermined by the global economic downturn. Growth is expected to slow to 4.6 percent next year, in line with the rest of the region, but inflation may remain stubbornly high, economists said.”
Delving deeper into the problem – various sources report that despite the inflow of cash from exports the country is experiencing record levels of capital flight from the country. According to this recent article from MercoPress economist Carlos Melconian is quoted as saying “The government of former president Fernando De la Rúa blew up when 19 billion dollars flew out of the country and here we are with 51 sustained months of capital flight, four times more and so far nothing has happened. This is because the 98 billion dollars of agro-exports have been sufficient to sustain such a drain”
All of this information coupled with a report released yesterday by the CIF Leader Index stating that the probability of a recession has me wondering – clearly President Kirchner is aware of these warning signs, but what is doing to fend off this pending economic recession? Lately, it seems that many leaders are unable to learn from the past mistakes of other countries. The housing bubble in the United States led to one of the worst recessions in history yet there was no lack of warning signs leading up to it. What’s more this situation is eerily reminiscent of the real estate bubble that occurred in Japan in the 1990’s. Clearly property value bubbles and soaring export revenues are two different things but that is not to say situations like Argentina’s have not occurred in the past. I guess the question now becomes: is Argentina’s faith in Cristina Fernandez de Kirchner misplaced, or will she be able to learn from past situations and enact economic policies that continue the trend of economic prosperity in Argentina?