The 2001-2002 economic crash in Argentina remains a landmark moment here, always in the back of people's minds, as in "Could it happen again?" and "Should I be getting ready for the next one?" It's understandable: Poverty hit more than half of the population, banks froze people's savings, the currency lost three-quarters of its value, the long list of horrors. It traumatized Argentines, like a natural disaster or war.
The economy's since recovered marvelously, with poverty about cut in half and the economy booming by near double-digit rates. But the crash's specter remains, and it's been looming larger in recent weeks. Due to a variety of factors, Argentines are becoming more skeptical about the future, and some are getting ready for the plunge.
Local media report that people are buying up dollars for fear that the peso could slide again and that the government will respond by freezing bank accounts, like it did in the bad old days. Government officials have denied any such measures are in the works, but people don't seem to be listening. The country's central bank recently had to inject $1 billion in dollars into the banking system to counter the bank rush.
Other evidence: In the capital of Buenos Aires, a poll by the Public Opinion Center of the University of Belgrano found that 69 percent of respondents believed another crash was "very probable," with 41 percent believing it could be triggered by inflation.
Which leads to the factors. First there's the protracted battle between President Cristina Fernández de Kirchner and the country's farming sector, the main economic engine here, over higher export taxes imposed on soybeans and sunflowers in March. Farmers have blocked roads and withheld production to protest the higher taxes, and as the conflict drags on, the risk to the economy grows.
Then, there's inflation, which the government says hovers around 8 percent annually but which economists estimate is as much as three times that number. And a more recent factor, the Argentine peso is weakening against the dollar, a decline that bucks the worldwide trend. This morning, the peso was trading at 3.18 to the dollar.
And then there's the global factors, the weakening U.S. economy and shaky prices for soybeans, wheat and other commodities Argentina exports.
Will it all add up? A snowball effect? Some aren't waiting around for the answer. They're getting ready now.
Another crash by Argentina would be absolutely unnecessary - Fernandez de Kirchner would go down as one of the worst presidents in Argentine history because she squandered advantages that other Argentine presidents of recent years (since 2001) have not had, as well as burgeoning confidence.
Argentina would have no one to blame but itself if that were to happen. Madame Kirchner would do well to set a date for coffee with Michelle Bachelet, Pres. Garcia of Peru and Alvaro Uribe of Colombia, even invite Lula over, for some guidance as how to keep Argentina out of the muck that Ecuador, Venezuela and Bolivia seem to be manufacturing.
By the way: what's happening in Uruguay? rarely see them mentioned in Inside South America!
Posted by: Andrew Miller | May 15, 2008 at 11:39 AM