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Moutusi Sau
Senior Associate, Program Research Analyst, Center for Financial Markets
Moutusi Sau is a senior associate at the Milken Institute's Center for Financial Markets in Washington, D.C. She conducts research and helps execute programmatic activities on Milken Institute projects involving new tools for access to capital, strengthening capital markets in developing countries, and housing finance reform.
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Argentina default: Different this time? 

By: Moutusi Sau
August 04, 2014
   
   

The ongoing debt talks between U.S. hedge funds and Argentina have failed to yield an agreement, and the South American nation is heading toward its second major debt default since 2001. With this backdrop, we took a look at Argentina’s economic indicators with an eye to how this time is different from the first time. 

In 2001, Argentina defaulted on close to $100 billion. However, the current legal battle with U.S. “vulture funds” is for a relatively meager $1.3 billion payment plus interest.  Then, Argentina faced a staggering unemployment rate of 19.2 percent, rising inflation of 25.8 percent as well as a heavy debt load. Argentina doesn’t have those kinds of troubles today. The jobless rate is 7.1 percent. Inflation is running at 11.9 percent and the level of debt ($29 billion) is much lower. What might be considered an additional silver lining is Argentina’s foreign exchange reserves$28.1 billion in 2013 compared to $14.5 billion in 2001. A caveat, however: Those reserves have declined in the past two years. The economy has made significant progress over the past decade, as evident in GDP data. Lately, though, the economy has slowed, with some commentators writing that extensive government intervention in the markets has taken a toll.

Overall, Argentina is in a much sturdier economic state than it was back in 2001. Yet the current debt impasse is surely a blow to the economy, though not an altogether surprising development.

Be sure to check out the history of currency crises around the world at www.globalbanking.org.

 

Sources: World Bank World Development Indicators, IMF World Economic Outlook Database Note: Unemployment rate for 2013 - National Statistics and Censuses Institute; Inflation for 2014 – WSJ Link to the chart: https://public.tableausoftware.com/views/Argentina_1/Dashboard1?:embed=y&:display_count=no