As Greece Ponders Default, Lessons From Argentina

“Thieves!” some yelled, banging hammers.

It was a low moment for Argentina as it abandoned an experiment to peg the peso to the dollar, froze bank accounts and defaulted on $100 billion in mostly foreign debt.

Today, the sheet metal is gone. But the debilitating effects of Argentina’s 2001 default and currency devaluation still linger. And now, as Greece edges toward a possible default, the Argentine lessons could be instructive.

For one thing, a decade later, Argentina has still not been able to re-enter the global credit market.

“A default is not free,” said Jaime Abut, a business consultant in Rosario, a city north of Buenos Aires. “You have to pay the consequences, and for a long time. Argentina is no longer considered a serious country.”

If anything, economists say, Greece’s prospects could prove worse. Argentina was, and is, a big exporter of agricultural products, and it runs a foreign trade surplus. The bulk of the Greek economy is services, particularly tourism, and Greece perennially runs a trade deficit.

Moreover, at the time of its default Argentina had a fiscal deficit of 3.2 percent of gross domestic product. Greece’s deficit was 10.5 percent of G.D.P. last year, according to the European Commission — well above the European Union’s limit of 3 percent.

And as a percentage of G.D.P., Greece’s debt of 150 percent is far worse than the 54 percent Argentina had when it defaulted.

But perhaps the biggest bind for Greece is that it shares a common currency with the other European nations that use the euro. And so, unless it takes the imponderable and unprecedented step of breaking from the euro zone, Greece does not have access to one big tool — devaluing its sovereign currency — that has helped Argentina weather its economic storm.

Despite the financing challenges, Argentina’s economy has grown by more than 8 percent a year since 2003, and many industries have benefited from the devaluation. Argentina has resumed exporting cars to Brazil. Tourism has flourished from an influx of Brazilians and other foreigners.

“The big problem for Greece is that they have a strong currency, much stronger in relation to their productivity,” said Eric Ritondale, a senior economist at Econviews, an economic consulting firm here.

During the 1990s, seeking to tame hyperinflation, Argentina had tied the value of its peso to the American dollar — a “convertibility” strategy that proved unsustainable because of rising global interest rates. The country privatized many industries, which led to high unemployment but also made Argentina’s economy more efficient. (Greece, whose public sector accounted for about 40 percent of its economy before the debt crisis began last year, is now under heavy privatization pressure.)

By 1999, however, it was clear to most economists that Argentina was marching inexorably toward a default and devaluation. The number of people under the poverty line was growing — it peaked at more than 50 percent of the population in 2002 — and unemployment was soaring. The government coalition of President Fernando de la Rúa began to fall apart.

As with Greece now, social tensions rose. There were eight general strikes in Argentina in 2001, with looting and thousands of roadblocks. Huge lines formed outside many European embassies as waves of Argentines fled their country.

“People sold everything and moved to Spain, and took jobs doing anything, because they felt this country had no hope,” recalled Daniel Kerner, an analyst with the Eurasia Group, a political risk consultancy.

Mr. de la Rúa resigned on Dec. 21, 2001, fleeing the government house by helicopter as a riot raged below. Over the next 10 days, four presidents assumed power and then quickly resigned before a fifth, Eduardo Duhalde, declared the currency devaluation. A short time later, Congress formally approved the debt default that was already a de facto reality.

In 2003 Nestor Kirchner was elected to replace the interim president, Mr. Duhalde. Mr. Kirchner embarked on a new economic model — one that his wife, Argentina’s current president, Cristina Fernández de Kirchner, continues to follow today. Its pillars are sustaining a weak currency to foster exports and discourage imports, and maintaining fiscal and trade surpluses that can be tapped for financing government and paying down debt.

Charles Newbery reported from Buenos Aires and Alexei Barrionuevo from São Paulo, Brazil, and New York.

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