Dean Baker is tut-tutting at Planet Money for their segment on the 2001-2 Argentinian default:
NPR's Planet Money made its entry in the Stake Your Claim game show with a segment on Friday that claimed that Argentina is suffering horribly as a result of its decision to default at the end of 2001. It turns out that Argentina has actually been doing quite well since its 2001 default as the most recent data from the IMF show.
Source: International Monetary Fund.
As can be seen, Argentina was already in a severe recession prior to default. It had tied its currency to the dollar, which went through the roof following the East Asian financial crisis in 1997. While the United States could support the trade deficit that resulted from the over-valued dollar, Argentina could not. It eventually had no choice but to break its peg with the dollar and default on its debt in December of 2001. Its economy fell sharply in the next quarter, but had stabilized by the summer of 2002. It then began to grow rapidly and was above its pre-recession level by the end of 2004.
Paul Krugman piles on:
This isn't the only case where news organizations consistently report as truth something that didn't happen, while failing to report what did. Another one that comes to mind is the California electricity crisis of 2001-2002. As some readers may recall, that crisis was caused by market manipulation -- and that's not a hypothesis, Enron traders were caught on tape telling plants to shut down to create artificial shortages. Yet "news analyses" published after the whole thing was revealed would often tell readers that excessive environmental regulation and Nimbyism caused the crisis, with nary a mention of the deliberate creation of shortages.And as you'll notice, in both cases the imaginary history just happened to be one more comfortable to status quo interests.
As you can see, the dollar peg was very bad for Argentina. When Argentina left the peg and defaulted on its debt, they ended a multi-year recession, and rebounded to
Robert Smith: It has been a tough decade for Argentina, but a lot of people think that the default was the best thing to happen to them.
Zoe Chace: After the money was devalued, banks opened up again. Pesos weren't worth as much, sure, but Argentinian products suddenly looked cheap on the world market. And that's been really good for Argentina's economy. Exports of staple products like soybeans and wheat went up. And eventually, some investors started to lend Argentina money again...
Robert Smith: This whole thing is something of a happy ending, after a long nightmare of a story
Which is not surprising, because when it comes to Argentina, as far as I know, the "status quo" view is that default and devaluation were pretty much inevitable. I haven't spoken to anyone who thinks that with the economy stuck in a four-year recession, riots in the streets, and the government changing leaders every few days, Argentina could have held onto the peg much longer. And once it left the peg, default was inevitable, because there was no way they could pay that much dollar-denominated debt while collecting taxes in radically devalued pesos. The only question is whether the transition could have been handled better--a question that neither Krugman nor Baker address.