When the Argentine economy collapsed in December 2001, doomsday predictions abounded: Unless it adopted orthodox economic policies and quickly cut a deal with its foreign creditors...

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BUENOS AIRES, Argentina — When the Argentine economy collapsed in December 2001, doomsday predictions abounded: Unless it adopted orthodox economic policies and quickly cut a deal with its foreign creditors, hyperinflation would surely follow, the peso would become worthless, investment and foreign reserves would vanish and any prospect of growth would be strangled.

But three years after Argentina declared a debt default of more than $100 billion, the largest in world history, the apocalypse has not arrived.

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Instead, the economy has grown by 8 percent for two consecutive years, exports have zoomed, the currency is stable, investors are gradually returning and unemployment has eased from record highs — all without a debt settlement or the standard measures required by the International Monetary Fund for its approval.

Argentina’s recovery has been achieved, at least in part, by ignoring and even defying economic and political orthodoxy. Rather than moving to immediately satisfy bondholders, private banks and the IMF, the Peronist-party-led government chose to stimulate internal consumption first and told creditors to get in line with everyone else.

“This is a remarkable historical event, one that challenges 25 years of failed policies,” said Mark Weisbrot, an economist at the Center for Economic and Policy Research, a liberal research group in Washington, D.C. “While other countries are just limping along, Argentina is experiencing very healthy growth with no sign that it is unsustainable, and they’ve done it without having to make any concessions to get foreign capital inflows.”

The consequences of that decision can be seen in government statistics and in stores, where consumers once again were spending robustly before Christmas.

More than 2 million jobs have been created since the depths of the crisis early in 2002, and according to official figures, inflation-adjusted income has also bounced back, returning almost to the level of the late 1990s, before Argentina sought to tighten its belt according to IMF prescriptions, only to collapse into the worst depression in its history, which also set off a political crisis.

Some of the new jobs are from a low-paying government make-work program, but nearly half are in the private sector. As a result, unemployment has declined from more than 20 percent to about 13 percent, and the number of Argentines living below the poverty line has fallen by nearly 10 points from the record high of 53.4 percent early in 2002.

“Things are by no means back to normal, but we’ve got the feeling we’re back on the right track,” said Mario Alberto Ortiz, a refrigeration repairman. “For the first time since things fell apart, I can actually afford to spend a little money.”

Traditional free-market economists remain skeptical of the government’s approach. While acknowledging there has been a recovery, they attribute it mainly to external factors rather than the policies of President Nestor Kirchner, who has been in office since May 2003. Increasingly, they also maintain that the comeback is beginning to lose steam.

“We’ve been lucky,” said Juan Luis Bour, chief economist at the Latin American Foundation for Economic Research here. “We’ve had high prices for commodities and low interest rates. But if we want to grow in 2005, we’re going to have to settle the debt question and have foreign capital come in.”

Some of the record budget surplus has come from a pair of levies on exports and financial transactions that orthodox economists at the IMF and elsewhere want to see repealed. About a third of government revenues are now raised by those taxes, which have surged.

“The IMF wants these taxes to be eliminated, but on the other hand they also want Argentina to improve its offer to creditors and also pay back the fund so it can reduce its own exposure here,” said Alan Cibils, an Argentine economist associated with the independent Interdisciplinary Center for the Study of Public Policy here. “In other words, they are saying, ‘You have to pay out more and take in less,’ which is a sure prescription for another crisis.”

Because of the absence of a debt accord and a stalemate over utility tariffs, some investors, mainly European, continue to shun Argentina. But others, mainly Latin Americans used to operating in unstable environments or themselves survivors of similar crises, have increased their presence here amid expanding opportunities.

“So why are they investing? Because today, clearly, they can get a very good rate of return,” says Economy Minister Roberto Lavagna.

The Brazilian oil company Petrobras bought a stake in a leading energy company. Another Brazilian company, AmBev, has acquired a large interest in Quilmes, Argentina’s leading beer brand, and a Mexican company has bought control of a leading bread-and-cake maker.

Asian countries, with China and South Korea in the lead, have begun to move in. During a state visit last month, the Chinese president, Hu Jintao, announced that his country plans to invest $20 billion in Argentina over the next decade.

But the bulk of the new investment comes from Argentines who are beginning to spend their money at home, either bringing their savings back from abroad or from under their mattresses.

For the first time in three years, more money is coming into the country than is leaving it.

“The thing is that Argentina has a current account surplus, so they don’t really need so much foreign investment,” said Claudio Loser, an Argentine economist and the former Western Hemisphere director for the IMF.

That has given Kirchner the luxury of taking a hard line with the monetary fund and with foreign creditors clamoring for repayment of the $167 billion still owed.

His government is not only talking about cutting its last ties to the IMF but also insisting that any payback to bondholders be linked to Argentina’s continued good economic health.

“It’s very simple,” said Lavagna, the economy minister. “Nobody can collect from a country that is not growing.”