One of the great myths about the Argentine economy that is repeated nearly every day is that the rapid growth of the Argentine economy during the past decade has been a "commodity export boom". For example, the New York Times reported last week:
"Riding an export boom for commodities like soybeans, Argentina's economy grew at an average rate of 7.7% from 2004 to 2010, almost twice the average annual growth of 4.3% in Chile, a country often cited as a model for economic policies, over the same period."
Michael Shifter, the president of the inter-American dialogue and probably the most quoted source on Latin America in the US press, wrote in a disparaging article about Argentina this week that "If the sales and price of soybean, Argentina's principal export (mainly to China), remain high, then the country may be able to continue its path of economic growth."
I haven't seen any economists make the claim that Argentina's remarkable economic growth over the past nine years - which has brought record levels of employment and a two-thirds reduction in poverty - has been driven by soybeans or a commodities export boom. Maybe that is because it is not true.
I know what you're thinking: "Who cares?" Well, try to keep reading, because this does have implications beyond the sprawling soybean farms in the Argentine province of Cordoba.
What does it mean to have a "commodities boom", or growth driven by the export of commodities? One possibility would be based on quantity: the production and export of these commodities grows so fast that it makes up a large part of the country's real growth in output. Thus, as a matter of accounting, we could look at real GDP growth for 2002-2010, the last year for which we have complete data on exports, and ask, how much of this real, inflation-adjusted, growth is due to exports of commodities?
It turns out that only 12% of Argentina's real GDP growth during this period was due to any kind of exports at all. And just a fraction of this 12% was due to commodity exports, including soybeans. So Argentina's economic growth from 2002-2010 was not an export-led growth experience, by any stretch of the imagination, still less, a "commodities boom".
The other possibility is based on prices: the price of soybeans and other commodity exports also rose during part of this period. This can boost the economy in various ways, even if the physical amount of exports does not increase as rapidly as the economy. If this were driving Argentina's growth, we would expect the dollar value of these exports to have grown faster than the rest of the economy. But this did not happen either. The value of agricultural exports, including of course soybeans, as a percent of Argentina's GDP didn't rise during the expansion. It was about 5% of GDP when the economy started growing in 2002, and 3.7% of GDP in 2010.
In other words, there is no plausible story that anyone can tell from the data to support the idea that Argentina's growth over the past nine years was driven by a "commodities boom." Why does this matter? Well, as economist Paul Krugman noted yesterday, "articles about Argentina are almost always very negative in tone ― they are irresponsible, they are renationalizing some industries, they talk populist, so they must be going very badly." Which, he points out, "doesn't speak well for the state of economics reporting." It sure doesn't.
The myth of the "commodities export boom" is one way that Argentina's detractors dismiss Argentina's economic growth as just dumb luck. But the reality is that the economic expansion has been led by domestic consumption and investment. And it happened because the Argentine government changed its most important macroeconomic choices: on fiscal, monetary, and exchange rate policies. That is what took Argentina out of its 1998-2002 depression and turned it into the fastest-growing economy in the Americas.
Now for the world-wide significance of how Argentina's recovery actually happened: as I and many other economists have written, the policies currently being imposed on the eurozone economies - especially the weaker ones - are similar to what Argentina went through during the depression that led to its default and devaluation. These policies were pro-cyclical, meaning that they amplified the impact of the downturn. Together with a fixed, overvalued exchange rate, they made the economy worse. By defaulting on its debt and devaluing its currency, Argentina was freed to change its most important macroeconomic policies.
If the European authorities (the European Commission, the European Central Bank, and the IMF) continue to block the eurozone's economic recovery with senseless austerity measures, individual countries will want to consider more rational alternatives in order to restore full employment. The people of Greece, Spain, Portugal, Ireland, and other countries are told every day that they must swallow this bitter medicine, and that there is no alternative to the prolonged suffering and high unemployment that they are going through. But the Argentine experience - in reality rather than in mythical portrayals - indicates that this is not true. There are definitely better alternatives - and they have nothing to do with soybeans or commodity export booms.
Reader Comments
Currency controls, rampant currency inflation exceeding the rate of world USD devaluation are symptoms of another 2002 sooner rather than later.
Foreign expats have been leaving Argentina in the past year as conditions have worsened. And a flood of immigrants from Argentina to Chile like in 2002 onwards can't be too far behind.
The only thing good I can say is the purchase of gold reserves by Argentina a couple years back. But what will happen to this now that the characteristically corrupt Argentina governmental institutions have placed full monetary discretion in the hands of the President?
Watching from the other side of the Andes...
The main message in the article is that austerity measures in Europe is only going to make things worse and that there are examples of alternative ways of dealing with it. Argentina and Iceland comes to mind as alternatives. Of saying no to the the big bankers and no to austerity, both of which only benefit the elite.
The crisis Argentina finds itself in now is totally their own doing and most important, this while we are 3/4 of the way into a secular commodity boom.
Pity such a country so rich in resources can't get it together for more than a decade between economic crisis.
Author seems very dismissive of Chile.
Chile may not have 7% growth but it is steady managed growth with a year to year surplus rainy day fund primarily from yes the GOVERNMENT OWNED COPPER COMPANY CODELCO and unlike the developed world has a HEAVILY REGULATED DOMESTIC BANKING SECTOR that has been virtually untouched by the 2008 initiated world banking crisis. The middle class is not shrinking and the lower class incrementally receives more benefits each year. Only drawback is the entrenched elite but unlike the developed world, everyone in the country is conscious of this reality and that it must be eventually addressed if things are to move to the next stage.
Argentina is on the verge of another major economic crisis and all this talk about reduced poverty will be wiped out in a matter of weeks or months. I remember the lady in Mendoza coming up to our table begging for food back in 2003. In Chile, they beg for money not food.
I find it hard to see what alternative is being talked about here. Argentina is nothing like Iceland AFAI can see.
IMO, seems to be the importance of domestic consumption/investment as the basis of stable economic development. Most countries have exports, but it is their domestic marketplace that is the engine of growth and stability... and that last word is the most important as China knows and has encouraged greatly in recent years. To ride out the storms of Central Bank manipulation, the provinces have to create this stability the old fashioned way, they must earn it. Stability attracts stability.
This has been the making of the USmarketplace since its inception, but in recent decades of empire-building, we have encouraged the provinces to lean towards the export driven model as it feeds our own consumption, and plays right into our economic model that exploits these many provinces. They must learn the hard way like everyone else. Argentina, like most every other country, has the same problem of pseudo political gaming the system, which will lead them into further 'balloons' as our own Fed has led us, but it really doesn't matter when the entire system collapses, and all the members suffer the consequences of this lack of a domestic marketplace that serves as a buffer in the storm.