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Thursday, May 17, 2012

Greece 2012 Mirrors Argentina 2001 Economic Disaster

9:28 PM Unknown
Watching the slow motion car crash that is the Greek exit form the Euro is all to familiar to the average Argentine. They have been that done that and gone step by step through every little horror show that the Greek population are now enduring.
   A brief history of the Argentine crash.
1976-83 Military Dictatorship. 30,000 Argentines Murdered by the state.
83-90 Weak demorcracy and hyper-inflation
1990 Argentine peso pegged one to one with the U$S
Dec 2001 Argentina defaults on over 100 billion U$S of Public Debt.
   The key to the Argentine crises is in the peg to the U$S Dollar.(Much as Greece is pegged to the Euro) It stopped the inflation and it brought an end to the chaos. But it also pinned Argentina to the US currency and in the 90s Bill Clinton was US president ,he had a balanced budget and a very strong Dollar. This made Argentina very uncompetetive with other countrys in the region and by 1998 Argentina plunged into a deep recesion. (As Greece did in 2007)
    At this point both coutrys needed to be able to have some wriggle room to kick start their economys. Both were given more loans and dragged deeper and deeper into debt.

   In Buenos Aires the capital flight bagan and Argentines shipped over U$S100 billion Dollars to the safety of US banks. Mainly in Miami for some reason. For this they received 4% interest and the security of knowing that their money was in real greenbacks and not the pegged peso that was being used in Buenos Aires.
  The Argentine Government finding the coffers were empty had to go to the lending agencys (the US banks) and borrow back the money but at 16%.
In Greece the capital flight is all but over ,thought this week its citizens still managed to pull another 800 million Euros out of the system before its innevitable collaspe.
The bigger suprise was that any one still had any money in those banks in the first place. The greek goverment finds itself paying at least 16% to borrow back the money that its own citizens have sent abroad.
   When Argentina finally defaulted the country exploded in rage and anyone who still had money in the bank lost 70% of their savings from one day to the next. And millions lost their jobs and food kitchens were set up all around the country in order to prevent starvation.
    I remember walking past the Parliament Building(Congresso) at about 8pm in Febuary 2002 and seeing hundreds of people queing for food. What struck me most was that this food kitchen was right in front of Government building so that the politicians could not help but see the mess they had been a party to.
   The default though very harsh set Argentina free and soon growth returned and for most years since the economy has grown at over 8%.This year growth is forcast at 4%.
Peoples savings were decimated for example U$S100 became $100 pesos approx U$S33. But if you had a mortgage of US$100,000 that became $100,000pesos Approx U$S33,000. So there were also winners.
    Much of the Billions that had been removed off shore returned and a building boom took off. Argentina became one of the cheapest places in the world ,so tourism took off and hotels shot up all over the country.
    So with Greece the imediate future is bleak but there is a silver lining. The money to kick start their economy is already in place . Just overseas or in Banco de la Mattress
or in safty deposit boxes. And its Greek money that they have not had the confidence to spend in a recesion hit economy. When they see the first signs of growth the money will flood back in as it did in Argentina.
  The down side of default is the vulture funds.  They will buy distressed and defaulted bonds for cents on the dollar and sue for the full amount. Thus leaving default and accessing the global finance markets becomes impossible until these vulchers have been paid off.
   Argentina has still not exited default and so long as comodity prices remain high maybe she will soldier on without the international markets.
   But i will always remember the saying i heard in Buenos Aires in 2002.
If you owe the bank a thousand dollars its your problem.
If you owe the bank 130 Billion dollars its their problem.
Buenos Aires

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