The New York Times posted a truly awful story online yesterday headlined “Argentina’s Default Offers a Cautionary Tale for Greece.”
It does, if the cautionary tale is: What are the heck are you waiting for? Are you going to kill your economy and your own citizens so global investors don’t have to take a haircut when you could default like Argentina and start growing again?
Let me outsource the criticism of the New York Times article to… The New York Times:
OK, I guess I don’t quite see how Argentina’s default, of all examples, can be viewed as a cautionary tale for Greece:
That’s Paul Krugman, of course, politely swatting down his colleagues on the news side. I’ll note that the news side must have noted Krugman’s 1:20 p.m. comment because the headline was changed not long after on the Web and by the time it landed in today’s print edition, the emphasis had been totally changed:
A Tale of Default, 10 Years Later.
In Argentina, Strong Growth But Little Access To Credit.
That doesn’t cut it—at all. The big problem with this story is that it’s written from an almost purely financial point of view, rather than a public-interest point of view, and so it gets the whole thing ass backwards. It treats borrowing as an end in itself, rather than as a means to an end, which is economic recovery.
The fact that Argentina’s economy has grown about three times as fast as our own since it defaulted is buried down in the eleventh paragraph as a sort of caveat to the story’s doom-and-gloom warnings of the perils of a default. The Times doesn’t return to anything about how Argentina’s economy has gone gangbusters since defaulting until the 31st paragraph:
And yet — buoyed by its ability to devalue its currency back during the crisis — Argentina’s economy is growing.
Miguel Faraoni, who heads Faraoni y Lo Menzo, a toymaker here, said he could not compete in the 1990s, when Argentine toy production fell to a flood of Chinese products. He considered bankruptcy around 2001 when he was employing only six workers, down from 30 in 1990.
Today he has 40 workers, and Argentina’s toy industry has a 40 percent share of domestic sales, up from 10 percent in 2001. “We are working 24 hours a day to meet domestic demand,” Mr. Faraoni said.
Hey, guys: That’s your lede. An editor really should have caught this.
And this is a true WTF moment:
Greece, with few agricultural exports, cannot expect a similar windfall. But economists say it can benefit from Argentina’s example on debt restructuring — mainly by seeking to avoid repeating it.
First of all, “economists say” is vague enough to be meaningless. More problematically, it’s also vague enough to be false, implying as it does that all or most economists think Greece should avoid restructuring its debt. This is wrong in a couple of ways: Lots of economists think it’s a much better idea for Greece to give haircuts to its lenders rather than kill its economy by imposing austerity and paying them in full. But also, find me an economist who thinks that Greece won’t default on its debt—and soon—and I’ll show you an incompetent and/or captured economist.
Compounding the problem, the Times doesn’t give us any reason why its “economists” think Greece should avoid restructuring its debt. Here are the paragraphs immeditately following that assertion:
The Argentine government waited until 2005, when its economy was already in recovery, to conduct the first of two debt restructurings. Nongovernment foreign investors — the biggest included pension funds from Italy, Japan and the United States — took haircuts costing them two-thirds of their investments.
Notably, the one creditor that was paid back in full — in 2006 — was the International Monetary Fund, to which Argentina owed $9.8 billion dating to the 1990s.
A lesson for Greece is “whereas the commercial creditors are expected to take a haircut, the official creditors like the I.M.F. are not willing to,” said Robert S. Koenigsberger, chief investment officer with Gramercy, an emerging markets investment manager.
Argentina's GDP "growth", and the relationship it has with its 2001 default, looks good only if you believe they are being strait with thier inlfation reporting (hint: lots of people dont believe it) and barring that, thier GDP per capita growth over the past decade makes Krugman's chart even less impressive.
http://www.wbur.org/npr/112014811/argentina-accused-of-economic-tall-tales
But you two are entitled to yuor fantasies.
#1 Posted by Mike H, CJR on Fri 24 Jun 2011 at 04:00 PM
Haters gonna hate!
Good article.
#2 Posted by ernestoandres, CJR on Sat 25 Jun 2011 at 07:31 AM
First off, Juan Forero's reporting leaves a lot to be desired in my experience. What the guy is quick to condemn in Venezuela, he''s quick to excuse in Colombia. He also tends to be a little sloppy when it comes to producing the evidence used to justify his headlines.
Second, there have been two types of inflation going on in Argentina.
There was the devalued currency after the default, which lead to both a competitive labor force and a reduction in the value of debts accumulated in Argentinean pesos. The cheaper labor force created opportunities for Argentinean businesses in the South American market and the devalued debts stopped the deleveraging process from becoming a drag on the economy. Argentina took off (with help from Hugo Chavez who provided capital investment for the pleasure of sticking it to the IMF).
However, from 2002 to 2008, the Argentinean peso did not fluctuate much. It stayed stable around 30 cents.
http://moneycentral.msn.com/investor/charts/chartdl.aspx?showchartbt=Redraw+chart&D4=1&DD=1&D5=0&DCS=2&MA0=0&MA1=0&CF=0&symbol=%2fARSUS&nocookie=1&SZ=0&CP=0&PT=11
which is a 2/3rds tumble from the dollar peg before the default, but it did not contribute to inflation much until 2008.
Which means a different type of inflation was occurring. The GDP of the country grew quickly and consumer demands for products also grew beyond what Argentina's economy was producing. When demand exceeds supply, price inflation occurs. Both Venezuela and Argentina are struggling with price inflation because the people have money in their pockets but the stores are empty.
Inflation number 1 was caused by currency of reduced worth, inflation number 2 was caused by a surge of domestic demand.
"GDP per capita growth over the past decade makes Krugman's chart even less impressive."
How so? They tripled gdp per capita in the space of 6 years:
http://www.google.com/publicdata?ds=wb-wdi&met_y=ny_gdp_pcap_cd&idim=country:ARG&dl=en&hl=en&q=argentina+gdp+per+capita
And in Venezuela, GDP per capita has gone over triple in 4 years.
Growth like this puts incredible stress on commodity production which then puts pressure on wages to match the increasing cost of living - or at least it does when labor is empowered to negotiate their wages.
The other option, which is what happened to the US under Paul Volcker and later Reagan, is to beat back the surge in demand by jacking up interest rates until the money - which would of been spent on consumer goods - is used up on credit payments. Then if you break an air traffic controller's union or to you functionally remove the unions' ability to negotiate.
Greece, unfortunately, is part of a monetary union and cannot devalue their currency until they leave it.
And even then, if the debt is denominated in Euro's, not dinars or whatever Greece would use, then a devaluation would just increase the payments in dinars and not reduce the debt. This was what the idiot neo-libs counseling Russia suggested and it killed their banks and sent their economy into a tailspin. Greece is a big complicated problem.
#3 Posted by Thimbles, CJR on Sat 25 Jun 2011 at 12:09 PM
@ Thimbles, why do you bring up a reporter whose name is not on the story and whose byline has not been in the paper for almost five years?
#4 Posted by David Cay Johnston, CJR on Fri 1 Jul 2011 at 10:02 PM