Weekly Geopolitical Report – The Eighth Default of Argentina (October 20, 2014)
by Kaisa Stucke & Bill O’Grady
Very few countries have seen as spectacular of a decline in its economic standing over the past 100 years as Argentina has. The country started the 20th century as one of the richest in the world, but has fallen behind as a result of its turbulent political history and inconsistent economic policies.
Argentina has been in the international headlines recently due to its sovereign debt default. This default is the eighth default in the history of the country. Additionally, Argentina is facing capital flight, rising inflation and dwindling dollar reserves. The government’s response has been to tighten its grip on the economy, instituting trade barriers to protect its domestic industries and restricting capital outflows to support its official currency peg. While this is a serious issue for Argentina and a possible concern in the general trade policy for Latin America, we do not believe that this situation will persist in the rest of emerging markets. More than anything, Argentina’s extensive government interventions and resulting economic calamities might serve as a cautionary tale for other countries that may be considering deglobalization.
This week we will look at Argentina, its long history of economic booms and busts, its political background, and its extensive chronicle of sovereign debt defaults. As always, we will conclude with market ramifications.