Invest in Argentina

A History of Erratic Performance

The history of Argentina's economic performance has been an uneven one.  In 1989 Argentina's economy was in the midst of a tailspin. In 1991, Argentine Prime Minister Carlos Menem responded with a "shock therapy" package of trade liberalisation, deregulation, and privatisation.  Radical monetary reforms pegged the Argentine peso to the USD. Inflation fell sharply in subsequent years, and Argentine GDP skyrocketed at a superheated clip in the early 1990s.  

Encouraged by early high returns, Wall Street touted Argentina as one of the best growth prospects of any early 1990's economy. Unfortunately, Wall Street oversold Argentina, and an FDI glut gave birth to a severe economic bubble. Wall Street's incestuous ratings system also rewarded overinvestment in Argentina, as the major buyers of Argentine bonds were the very mutual fund and pension fund managers whose performance (and thus compensation) were contingent on larger purchases of Argentine bonds and equities.  Thus, Wall Street's incentives roped it into hawking the bonds and equities of the least economically stable country in Latin America. The optimism emanating from Wall Street, combined with massive FDI, lulled the Argentine government into a run of unsustainable fiscal policies. The Asian financial crisis of 1998 pricked the Argentine bubble, and instigated a rolling recession that erupted into a national default by January 2002. The wrenching recession left well over a fifth of the labor force jobless and threw millions into poverty. 

In 1999, Argentine GDP contracted by 3%.  The issue of Argentina's massive public debt became a subject of considerable controversy and increased tension between Argentinian governments and the IMF.  In December 2001, an ill-advised government freeze on bank withdrawals to stem capital flight prompted massive riots (and bank runs in defiance of the government ruling).  On December 23, 2001, the interim president declared a short-lived debt moratorium.  After a few days, Argentina officially defaulted on $93 billion of debt.  In January 2002, the peso-dollar peg, a linchpin of the Argentine economy for 11 years, was unceremoniously scrapped.  The peso suffered a swift and sharp devaluation (about 75% of its value) which in turn triggered a surge in inflation.

After a lengthy debt restructuring process Argentina reentered international debt markets selling US$ 500 million of its Bonar V five-year dollar-denominated bonds, mostly to foreign banks.  Moody's boosted Argentina's debt rating from "B-" to "B".  The reliance of Argentina on Venezuela for a large portion of its financing needs has not been well received in Wall Street circles.  On July 18th Goldman Sachs emerging markets research noted, "Instead of trying to restore its credibility with broad capital markets, the government keeps on relying on Venezuela as its main credit supplier."  The total amount of Argentina's debt held by Venezuela is estimated at US$4billion.   

Goldman Sachs notwithstanding, the weak Argentine peso propelled a boom in exports, and after a catastrophic contraction in 2001-02 (in which Argentina went through five different presidents in five weeks), Argentina made a major economic comeback. Unfortunately, inflation seems to have caught up with Argentina, now that President Nestor Kirchner has ordered the Argentine statistics bureau to stop reporting inflation statistics (because they were beginning to inflict serious political damage on his public image). Kirchner remains highly popular as the president who finally brought both political and economic stability to Argentina, but Argentina's economic future is dubious.