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Cockamamie Schemes Can’t Stop Argentinian Death Spiral

Argentina is already in trouble with the IMF for playing fast and loose with economic statistics. Now President Kirchner has put a two-month price freeze on all products sold in Argentina’s major supermarkets in an attempt to slow down the inflation her government claims isn’t serious. It’s the kind of move rattled Argentinian governments traditionally make as their “unorthodox” (read “crackpot”) economic plans begin to unravel. Read more about it from the BBC here.

By this point it’s perfectly clear to most Argentines where the government’s economic policies are leading. Argentina has been down this road many times before. After the old, discredited government leaves office, tail between its legs, the economy in a shambles, the hopeful new team takes office on a wave of enthusiasm. The dramatic economic plan is unveiled. The country’s natural wealth temporarily helps fuel a rebound and for a little while Argentina gets its swagger back. We were a rich country once, they say, and we will be again. The currency often shoots up, and Argentines flood overseas to buy suddenly cheap goods. (This is almost always a sell signal for the Argentine market; when you see lots of Argentines abroad, sell Argentine stocks and bonds. Fast.)

Then little by little things begin to go wrong and the government resorts to increasingly dubious patches and quick fixes — often involving the confiscation of foreign owned assets and local savings. The smart money tiptoes out of the country. The president starts squawking about the Falklands, colonialism and the horrible evils of neo-liberalism. Inflation accelerates. Price controls appear, followed in due course by shortages and black markets. The downward spiral continues until the old quacks are ignominously retired and the new quacks move in.

We’ve seen all this before and, sadly, we are likely to see it again. The real questions this time are how long can President Kirchner stave off the collapse, and how badly will she damage Argentina’s battered institutions, international reputation and public credit before she surrenders to facts.

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