Party Like 2001: Argentina Again Headed for Default

There is no shortage of bad news these days...even The Captain and Tennille of "Muskrat Love" fame are calling it quits. In a sort-of related story, the Argentinian love affair with the retro-Peronist Fernandez-Kirchners appears to be coming to an end. Buoyed earlier by disavowing its foreign debt and engaging in a program of massive government spending powered by money printing, things were bound to come to an unfortunate end sooner or later. 2014 may be the year when the hurt that has been storing up since Argentina's 2001 default comes back in a big way:

Thirteen years after that collapse, President Cristina Fernandez de Kirchner is running out of time to avert another crisis. The policy mix that Fernandez and her late husband and predecessor, Nestor Kirchner, used to usher in 7 percent average annual growth over the past decade -- higher government spending financed by printing money -- is unraveling. 

Populism plus mismanagement equals a fine mess as the government has issued economic statistics from fantasyland to hide the extent of its woes. The government claims inflation "only" in the low double digits, but more reality-based calculations suggest more than that--even double:

Inflation soared to 28 percent last year, according to opposition lawmaker Patricia Bullrich, who divulges monthly estimates for economists cowed into silence by Fernandez’s crackdown on price reports that clash with official figures. By the government’s count, inflation was less than 11 percent.  

And we get to the most dispiriting thing: the 2001 crisis was accompanied by the Argentine currency board being shattered to smithereens as its pegged rate could not be maintained. Well, guess what? In 2014, the Argentine peso is worth even less than way back when. Some progress, huh?

The peso sank 3.5 percent to a record low of 7.14 per dollar yesterday, according to Banco de la Nacion Argentina, and has plunged more than 25 percent in the past 12 months. That’s its worst selloff since the devaluation that followed the default. Currencies from only three countries in the world have fallen more: war-torn Syria, Iran and Venezuela.

Power outages like the one that sunk Kanaza’s shop into darkness are becoming more frequent, deepening the economic slump, after the nation’s grid atrophied under a decade of government-set electricity price controls. The International Monetary Fund, which censured Argentina last year for misreporting inflation, predicts economic growth will slow to 2.8 percent this year, about half the 5.1 percent average across developing nations. 

No electricity, soaring inflation, violent protests, worthless currency...some successful anti-neoliberal project this is. The general pattern of what's happened in Venezuela and Argentina are similar. The populists Hugo Chavez and Nestor Kirchner were able to buy off public support in the face of rising global commodity prices. However, their successors Nicolas Maduro and Cristina Fernandez have been unfortunate enough to be in office at a time when commodity prices have slumped and these countries' economic fortunes have become pear-shaped. Against such an unfavorable backdrop, they have no money to go where their mouths are at.

Argentina is also beginning to play nice with the international community after years of playing the "screw the foreigners"  cards to win domestic approval. It's probably too little, too late:

As dollars vanish from the central bank, the government has begun to seek to normalize relations with foreign creditors. On Jan. 20, Argentina presented a proposal to the Paris Club of creditors to seek a negotiated resolution to outstanding debt of about $10 billion. The government also has begun talks to compensate Repsol SA for the stake in oil company YPF SA it nationalized in 2012, and is preparing to unveil new inflation and growth data to address International Monetary Fund concerns over the accuracy of official statistics.