ARGENTINA: A dramatic improvement follows default
Usually Argentina grabs international headlines when it enters yet another crisis. And major crises have seemed unending. However, observers of this Latin American country with its early history of economic success but subsequent severe ups and downs under various governments, civilian and military, will notice that the economic data for the past three years are impressive.
In 2002, Argentina defaulted on some $62 billion in international debt, the largest sovereign default ever. About the same time, the Peso was cut lose from its peg to the US dollar, and the economy went into a freefall, the GDP shrinking 10.9 percent that year.
However, a new leader, President Nestor Kirchner, who assumed office in May 03, managed to calm the ship of state, and in the last few years has nudged Argentina down a path of pragmatic economic policies that have seen its fortunes change dramatically for the better.
The three pillars of Kirchner administration policy have been:
1. Social responsibility
2. Sustainable economic growth (while preserving social responsibility)
3. Fiscal responsibility
Argentina’s ambassador to Washington, José Octavio Bordón, himself a former presidential candidate, says there needs to be a balance among the three pillars if there is to be sustained growth and development in the medium to long term.
The ambassador demonstrates the turnaround achieved by his government through pages of macro-economic data and charts. After it plunged in 02, Argentina’s GDP grew by some 8.8 percent in 2003, and 9.0 percent last year. It is expected to grow by a slower six percent this year, he says, as part of a process in which the economy settles into a sustainable pattern of reasonable growth. “The stop and go performance of the economy has proven to be one of the causes of the impoverishing, polarization and concentration of wealth. Therefore, stable growth is the right way to achieve a better quality of life,” the ambassador says.
“We like to be a popular government,” the ambassador says. “Not populist.”
The impact for Argentineans has been dramatic. GDP per capita has risen from $2,920 in 02, to an estimated $4,212 this year. The result has been a sharp decrease in poverty and unemployment levels.
Among the indicators the ambassador stresses: in 2002, 55 percent of the Argentine population lived below the poverty line. Today the figure is 37 percent. Over the same period, unemployment dropped from 22 percent, to 12 percent, as a result of 2.5 million new jobs being created.
In the meantime, over this period Argentina has made $11 billion in payments on the portion of its $158 billion in foreign debt that it did not default on. And, on June 2, after three years of negotiations with dozens of governments and lending institutions around the world, Argentina finally reached an agreement whereby the $62.3 billion in bad debt was exchanged for $35.3 billion in new bonds and interest payments of $680 million.
Ambassador Bordón points out that before the default, Argentina had entered into agreements with creditors that it could not possibly honor, thereby setting up an inevitable meltdown. He said his government had insisted in the negotiations on the new debt deal that it would not enter into any agreement that would cripple the Argentine economy. It is critical that the economy not be strangled by debt payments, and that it be allowed to grow to create the wealth needed to pay off the debts, he says. He also notes that the deal just struck with creditors calls for one third of the repayments to be in the local currency, as opposed to a mere three percent before.
“It was a very successful solution because it was the first market [rather than political] solution of the debt crisis.” All in all, 86 percent of Argentina’s foreign debt is now being serviced efficiently, the ambassador says.
The debt settlement comes amid several signs of better times, including a two percent fiscal deficit in 01 being turned into a five percent surplus last year, and hard currency reserves rising from $10 billion in 02 to $21 billion today. And in another sign of renewed health, imports and exports have both grown, the former from $9 billion in 02 to $22 billion last year, and the latter from $26 billion to $34 billion over the same period.
The main trading partner for Argentina is MERCOSUR, the free trade area of Brazil, Uruguay, Argentina and Paraguay, with Chile and Bolivia as associate members. This year Argentina expects to send 20 percent of its exports to the bloc, while importing 39 percent of its goods and services from there. The ambassador notes that the United States, Europe and Asia are also important trading partners, but that there is no dependency on any of these partners. Chinese imports, for example, are included in a total of 13 percent of imports from all of Asia, “and Argentina has an important trade surplus with that country,” he says.
MERCOSUR’s importance extends beyond trade benefits, the ambassador says. It is “very important” as an instrument to secure regional peace and stability and to fight terrorism and the proliferation of weapons of mass destruction. It has contributed greatly to mutual inter-state confidence in the region, he says. And confidence-building is the main objective of Argentina’s foreign policy.
As evidence of the positive impact of this policy, he points to Chile, where numerous border clashes over the years escalated close to war in 1978, at a time when both countries were ruled by military dictators. Now Chile and Argentina are good neighbors with all border disputes settled and business brisk, including four cross-border gas pipelines and several Chilean investors active in Argentina.
Regarding recent reports of tension between Brazil and Argentina over trade issues, the ambassador says that MERCOSUR is currently facing a decision on which way to go as an organization: towards fostering macroeconomic coordination of the member states, after the pattern of the European Union, or to keep integration at the current level. The ambassador notes that, “while Argentina and Brazil may have different views on certain issues, the friendship between both countries plus Chile is one of the pillars of Argentine foreign policy.” He points out that, “The three countries together constitute a democratic arc that brings stability to the region. As a result, there are no serious disputes between them and no massed troops on their borders.”
Ambassador Bordón says that one of the main reforms his government has initiated is in the judiciary. He says the Argentine Supreme Court is “highly qualified” now, and that reforms are being implemented throughout the judicial system.
All in all, Argentina has clearly achieved a dramatic reversal of the ill fortunes that have beset it for decades. With its foreign debt crisis now behind it, its economy growing strongly and the situation of its poorer citizens improving rapidly, Argentina is on the path to regaining an envied position among Latin American economies.
Biography of José Octavio Bordón
Ambassador of the Argentine Republic to the United States of America
Mr. José Octavio Bordón was appointed Ambassador of the Argentine Republic to the United States of America in June 2003.
He earned a Bachelor's degree (Licenciatura) in Sociology from the Universidad del Salvador, in Buenos Aires, Argentina, in 1970.
His public service career started in 1983 when he was elected Congressman for the province of Mendoza to the House of Representatives, where he served as Vice Chairman of the Foreign Relations Committee and headed the Ibero-American Parlia-mentary Group to the 74th World Parliamentary Conference in Ottawa, Canada, in 1985.
Mr. Bordón was elected Governor of the province of Mendoza, serving from 1987 until 1991, when he was elected Senator for the same province for the 1992-1996 term. While in the Senate, he chaired the Committee on Culture and was Vice Chairman of the Joint Parliamentary Committee on MERCOSUR.
As a presidential candidate in Argentina's 1995 national election, Mr. Bordón finished in second place with 30% of the vote. He later served as Minister of Culture and Education of the province of Buenos Aires from 1999 until 2001. In 2002-2003, he was Executive Director of the Social and Economic Development Program, a joint initiative of the Argentine government and the Inter-American Development Bank.
Mr. Bordón came to Washington, DC in 1992 as a research fellow of the Wilson Center, and at that time also taught as a Visiting Professor at Georgetown University. He was a consultant to the United Nations Development Program (UNDP) in 1997, as well as an Eisenhower Fellow along with his wife Mónica. He worked as a consultant at the Inter-American Development Bank from 1998 until 1999, and again in 2003.
His affiliations with international institutions include: member of the Advisory Council to the President of the Inter-American Development Bank on Latin-America Integration (INTAL) from 1989 till 1993; President of the International Commission on Education, Equity and Economic Competitiveness of PREAL since 1996; member of the Inter-American Dialogue since 1990; member of the Argentine Council for International Relations in Argentina (CARI) since 1989; member of the Pacific Council on Foreign Relations, based in San Francisco, CA, since 1995.
Mr. Bordón was Professor of Political Sociology at Universidad Nacional de Cuyo, in Mendoza, Argentina, in 1972-1976 and again in 1983-1995. He has been President of Fundación Andina since 1982. He was Director of Diálogo y Perspectiva Internacional magazine in 1989-1994, and Director of Temas de MERCOSUR magazine in 1996-2000.
Mr. Bordón has been married to Mónica González Gaviola, a Sociologist specialized in Education and Information Systems, for 33 years; they have 3 children. Mr. Bordón enjoys reading history and books by Latin American writers, mountain hiking, soccer, skiing, music (especially tango), and cooking Argentine "asados" for his friends.