For shell-shocked Greeks struggling with temporarily shuttered banks, long lines at ATMs and limits on withdrawals, Argentines who survived similar financial chaos more than a decade ago have some guidance.
“The
advice I would give is to go get your money out of the bank,” said Leo
Suckewer, a Buenos Aires restaurant operator, recalling Argentina’s
“corralito”, or freeze, on bank accounts in late 2001, aimed at halting a run
on banks.
That
move preceded the decision to abandon pegging the peso to the dollar as well as
convert savers’ dollar holdings into local currency. The radical policies
plunged millions of Argentines into poverty as the economy contracted violently
after three years of steady decline and triggered deadly rioting, the fall of
the government and Argentina’s record default on $100 billion of sovereign
debt.
But
within a year from a sharp devaluation in early 2002 the country returned to
economic growth – something that Greece must now crave, with its economy
shrinking by more than 25 percent since 2009.
There
are striking similarities between the Argentine economic crisis of 2001-2002
and the turmoil in Greece: rigid monetary regimes, creditors battling against
domestic politics to fix the problem and banking systems at breaking point.
On
Tuesday, German Chancellor Angela Merkel ruled out new negotiations with Greece
until after it votes on a bailout proposal by creditors. That left Athens
virtually no hope to avert a midnight default, and could set Greece on a path
out of the euro.
Some
economists argue that Greeks might be better off going back to its old drachma
currency as it would allow Athens to spend more freely and point to Argentina’s
rapid recovery from the brink of collapse.
Riding
an export boom for commodities such as soybeans and spending heavily to fuel
consumer demand, Argentina became one of the fastest growing economies in the
Americas with growth averaging above 8.5 percent annually between 2003 and
2007.
NO
RUSH TO “GREXIT”
Yet
Roberto Lavagna, Argentina’s economy minister in 2002-2005 and architect of its
recovery, said it was too early for Greece to consider ditching the single
currency.
“Devaluation
is not the central issue today, because it means leaving the euro. I don’t
think that is necessary.”
He
said, however, that creditors had to accept that Greek debt “had reached a
point where it has to be restructured” and that further belt-tightening made no
sense.
“Greece
cannot afford to be sucked into austerity reforms,” Lavagna told Reuters. “On
the contrary, it needs to boost productivity which is what we did back then.”
One
thing that Greece does not have is an export cash cow that helped Argentina
ride out of its slump.
Domingo
Cavallo the former economy minister who imposed Argentina’s “corralito” but
lost his job before the peso devaluation a month later, warned Greece against
leaving the single currency.
“The
exit of Greece from the euro zone … would produce a sharp devaluation of the
drachma,” Cavallo wrote in a blog this week. “Inflation would follow and it
would generate a sharp reduction of real wages and pensions.”
Cavallo
said such a drop would be worse than declines resulting from a negotiated
bailout package.
FINANCIAL
SYSTEM COLLAPSE
In
any case, Greeks may need to brace for more pain.
Argentina
spiraled deeper into economic, political and social chaos after its “corralito”
was imposed. It was a period that saw five presidents in two weeks. Crowds of
young, educated Argentines emigrated to their grandparents’ ancestral homes in
Europe.
In
2002, the economy shrank 11 percent.
“The
collapse in the financial system was in part a result of the default but also
to a large extent because the government was forced to turn dollar deposits
into pesos. Many of the banks had negative capital,” said Alejo Costa at
investment bank Puente in Buenos Aires.
“And
the financial system collapse led to a collapse in production. That will be the
biggest concern to Greece.”
To
avoid its own banking collapse, Athens needed to persuade creditors to
restructure its debt and lower the purchasing power of Greeks by cutting
salaries.
“Then
you will have deflation and you will regain competitiveness without leaving the
euro, without an exchange rate devaluation,” Costa said. “But that is extremely
difficult to sell to the public.”
Greek
Prime Minister Alexis Tsipras blames German-driven austerity for his country’s
economic crisis and has steadfastly refused to meet creditors’ demands for
further belt tightening, in particular on pensions, in return for a bailout.
The
“corralito” and subsequent devaluation still haunt Argentines, who more than a
decade on hold scant faith in the peso. Many express sympathy for the Greeks.
“We
were saved by soy,” said Walter Lorenzo, a 57-year-old television studio
technician. “What’s going to save them? Fishing?”