Thursday, 7 August 2014

ARGENTINA vs. GREECE: Who is Worse off? (A Comparison of Bankrupt, Dependent Societies)

Praising Greece, Demonizing Argentina: An Introduction
Neither Greece nor Argentina is the envy of the world, certainly not of politicians or business people that like stability. Both countries remain on the top ten list in Standard and Poor’s for potential bankruptcy, along with Ukraine and Egypt that the US and EU have been supporting. No country would want to be in the place of Argentina that has been facing serious financial and economic problems from 2000 until the present, pursued by a predatory American hedge fund and the US government intent on making an example out of Argentina for defying creditors and rejecting International Monetary Fund (IMF) austerity.

Argentina’s victims are workers and the middle class suffering for the past fifteen years, just as the same holds true for their Greek counterparts in the last five years. Greece has not done any better than Argentina from 2009 until the present, despite the umbrella of the European Union. The Greek government as well as EU leaders, including Jean-Claude Juncker, the new president of the EU Commission, pride themselves that Greece has been so obedient to the IMF-EU austerity program, and stayed in the eurozone through all sorts of financial, economic, political, and social problems. Well worth the “sacrifices” as far as EU and US politicians, bankers, and mainstream journalists are concerned, for Greece staying in the EU has helped to pacify the banks and bond market, and has not upset the European Union that has become much less popular than it was fifteen years ago under an integration model of mutual assistance.

"Greece could have been a good example for Argentina to avoid the problems it was not able to avoid. So Greece is not Argentina,” Juncker proudly stated in his recent visit to Athens. If Greece is so much better than Argentina, the question is why even after a second technical default in July 2014, investors see opportunities in Latin America’s third largest economy, while Greece literally has to give away public assets to attract a small fraction of Argentina’s investment? Why is it that Greece has attracted less than one percent of GDP in direct foreign investment annually during the austerity years, while Argentina ranks among the top five Latin American countries to invest, third in South America behind Brazil and Chile, and ahead of Peru? If Juncker had a million to invest and had to choose between Greece and Argentina, where would he invest?

Is Greece really so much better off than Argentina today and its prospects so much brighter than the embattled South American country, or is the propaganda war raging in much the same manner as between Russia and US over Ukraine to obscure the realities in Argentina and Greece? One only need to analyze OECD and various statistical studies to see that the majority in Greece is really worse off because of the IMF-EU bailout and their prospects far worse than their Argentine counterparts in the next decade, if not half century.

In this essay, I will do a few comparisons showing that both countries are in a horrible financial, economic and social mess and likely to remain so for a few years longer for Argentina, two decades or so for Greece. However, because Greece enjoys the political cover of the US and EU, largely because it complies with their policy dictates across the board, it enjoys greater stability but poorer economy than Argentina; certainly much poorer prospects for growth and development in the next decade, and beyond.

Synopsis of External Dependence

Both Argentina and Greece share the common experience of a long history of external dependence; Argentina was a colony of Spain, then an economic dependency of Great Britain from the early 19th century to the Great Depression, and a US dependency after WWII. Greece was part of the Ottoman Empire, then a virtual dependency of Great Britain until WWII, followed by heavy dependence on the US from the Truman Doctrine to the 1980s, and more recently a dependency of Germany.

Both Argentina and Greece have known nothing but growth through chronic foreign debt, which entails external dependence from their national independence in the early 19th century until the present. Because both countries relied heavily on foreign investment for growth and development, they have a political history marked by clientist politics and military intervention in the political arena even down to the mid-20th century. Greece had a US-backed military Junta from 1967 to 1974, and Argentina had a US-backed military dictatorship from 1976 to 1983. Both countries had a sociopolitical base of leftists, but never strong enough to challenge the system of dependency. The closest Argentina came to having a strong national government was under Juan Domingo Peron in the 1940s and 1950s. A populist military officer, Peron made a futile attempt both at bringing greater social justice for the masses and achieving greater economic sovereignty. Given the superpower status of the US, Argentina could not possibly survive unless it went along with the US on foreign policy, trade policy, investment, and national greater economic integration into the Western Hemisphere.

Unlike Argentina whose fate rested in the Organization of American States that the US dominated, Greece’s geopolitical significance to NATO made it far more valuable to the US than Argentina safely far away from the Communist bloc. The US used the global anti-Communist campaign to keep both Argentina and Greece in line under US diplomatic, military and economic hegemony. Everything from austerity to diminished labor rights was justified in the name of defeating Communism during the Cold War and preventing more Cuba-style Castro regimes from coming to power. Once there was no Soviet bloc, the US could not use fear of Communism as a pretext to impose its policies on client states around the world, but it did stress the importance of globalization and neoliberal policies.

By the time of the US-based financial crisis of 2007-11, Argentina had already defaulted on its debt, but Greece’s financial problems were just beginning. In 2001, Argentina could not pay its debts and it could not come to terms with the austerity measures that the IMF demanded for the country. Opting to go the route of exerting national sovereignty over monetary policy meant resorting to hedge fund borrowing as a temporary fix. Perhaps the Argentines did not realize that the rate of return such funds demand can be astronomical in comparison to market rates, and they certainly did not anticipate that the US, EU, IMF, World Bank, Paris Club, and all international financial institutions and corporations, with the exception of Russia, China, Iran and a few others around the world, would organize a financial war against Buenos Aires.

Ironically, Russia and China that have been responsible for filling some of the investment gaps in the Argentine economy have also been responsible for investing Greece, while the EU and US that imposed austerity have stayed away. if it were not for China investing in port infrastructure, Russia in natural gas, and Gulf states in some luxury real estate and resorts, Greece would really have no foreign investment in the last five years. If the US and EU have such immense confidence in the austerity measures as dynamic forces of future growth and development, then the logical question is where is the investment to back up such rhetoric? Even more interesting, if Argentina is such a bad risk, why has investment even from the West been flowing into that country that defied the IMF and hedge funds, and not in Greece that played along?

Comparison criteria and Integration Models

The question of whether Argentina or Greece depends on the criteria the analyst relies.
1. The Neoliberal Model of Integration:
If the criteria are that a country must be closely integrated into the international financial system and go along with neoliberal policies the G-7, IMF, World Bank, European Central Bank, the Paris Club and of course banks and corporations advocate, then Greece is better off because it has done exactly as the IMF-EU have dictated ever since it adopted austerity measures in 2010. The only problem here is that even the IMF admits the austerity measures have not resulted in the publicly stated goals of economic growth. On the contrary, GDP has shrunk by at least 25% and unemployment remains the highest in Europe at 28% with no prospects of improvement any time soon.

2. Mixed Economy/Nationalist Model of Integration:
If the criteria are that the economy functions well enough to minimize poverty, raise living standards whenever possible, maintain growth prospects for all social strata and not just the top ten percent of the population, and enjoy national economic sovereignty, then Argentina is much better off. This is not because Argentina under Christina Fernandez has been free of corruption, or that it has suddenly become friendlier to the plight of labor and the middle class because it sees the moral strength behind Socialism. On the contrary, Argentina is a capitalist country serving national capitalist interests, with the goal of preserving a modicum of national sovereignty at a very high cost. The issue for both Argentina and Greece is not capitalism or Socialism, but the model of integration under which they can operate.

A number of years ago, I reviewed for a scholarly journal an excellent work entitled No Apocalypse, No Integration by Martín Hopenhayn. Approaching the subject of economic integration and neoliberalism from a theoretical perspective without delving into empirical cases, Hopenhayn analyzed how Latin America has been coping with the diminished role of the state as an agent of economic and social development amid the triumph of globalization. In the absence of a utopian vision driving major social and political movements, Latin America after WWII has been dangling in the wind in search of a development path that would satisfy all social classes.

The example of Argentina with its enormous economic development potential owing to its natural resources provides an excellent case of a country trying to carve out its own model of integration against the neoliberal tide coming from North America and EU.  The question is the viability of new models and the degree to which the Western-based capitalist system would permit any changes in the neoliberal model, as the case of Argentina in the past decade and half has proved. By contrast, the integration model for Greece also poses difficulties because it has gone major shifts from interdependency that existed in the 1990s, to the current German-imposed patron-client model Germany has imposed on the rest of EU members. This essentially divides EU into the core members of the northwest corridor and the periphery in southern and Eastern Europe, the latter suffering low living standards and forced into the same type of quasi-colonial system as Latin America has been with the US as the economic superpower in the Western Hemisphere.  

Clearly for propaganda purposes, many Greek and European politicians engage in frequent self-congratulations that Greece has not upset the euro zone, as though preserving its membership with a 27% unemployment, 35% poverty is good enough; as though 176% debt-to-GDP ratio, and slim chances of ever servicing the debt is good enough. After all, integration under the neoliberal model is the only thing that matters, no matter what the cost to social justice and democracy.

The argument is that Greece is not as bad as Argentina forced out of international financial markets, except for China, Russia and Iran, among some other countries doing business with the agriculturally rich South American republic. The deliberate US political and business effort to isolate Argentina from international credit markets owing its rejection of a Greek-style IMF austerity program is largely to show other nations what can happen if they dare deviate from the neoliberal model of integration behind which are hedge funds. However, the case is also about the US and the G-7 imposing a uniform policy model on the rest of the world, and integrating countries under such a model. To a large extent, the fight over Ukraine, besides its geopolitical dimensions has to do with its integration with the West instead of Russia.

As I have written in the past, Argentina’s international isolation from credit markets stems from the determination of a single hedge fund owned by Paul Singer who demands outrageous returns on his bond investments; something that would force Argentina to pay out an estimated 110 billion dollars, if it had gone along with Singer. Moreover, Argentina would have to sell major public assets and mortgage its future for the entire century, if had gone along with the demands of Singer’s group.

By contrast, Greece played ball with the EU and IMF and the reward is that it stays in the euro zone. However, the beneficiaries have been large European banks, especially German and a few Greek millionaires who have cashed in on austerity once the government began to sell precious assets for pennies on the euro. Despite its total conformity with IMF-EU, in Greece yields on the 10-year government bond reached 29% in early 2012 and remain so high that Athens cannot possibly go to the markets to borrow because rates are well above the 5% cut off point for serving the debt. Argentina can actually borrow on lower rates than Greece, despite its isolation, largely because it has gross reserves of roughly $28 billion, and its national debt as a percentage of GDP is expected to be between 35 and 40%. Meanwhile, Greece manufactures a statistical primary budgetary surplus, as it manufactures statistical reserves amounting to roughly $6 billion.

What frightens creditors, the IMF, EU, and US is that no country follows Argentina’s example of disregarding international norms of financing and defying the neoliberal model. For this reason, from 2010 to the present EU and the US were deeply worried that Greece could follow the nationalist example of Buenos Aires. Although Argentina’s debt-to-GDP ratio is one of the smallest in the world at one-fifth of Greece’s debt-to-GDP ratio, and although the Argentine economy has a solid foundation in comparison with Greece relying mostly on tourism and shipping, the geopolitics of Greece’s case – a NATO and EU member – actually make it less of a risk than the financial, balance of payments, and investment numbers would suggest in comparison to Argentina. For example, when Argentina defaulted in 2001 its deficit was a mere 3.2% of GDP, while Greece’s official deficit was at 7.8% and the unofficial anywhere between 12 and 15%. And even in 2014 when Greece has a debt-to-GDP ratio of 176%, Argentina has less than 40% with far greater growth prospects of reducing it into the low 30s according to the IMF.

Given this reality of quantitative comparisons, why is the international community punishing Argentina, while praising Greece that Standard and Poor’s continues to have on the top ten list of default risk nations? Just as the West backs Ukraine that Standard and Poor’s has on the top ten list of possible default nations, similarly, Greece enjoys comparable political cover for its financial and economic chaos. What is important for the G-7 members if that governments comply with the model of integration and not deviate, otherwise they face the kind of punishment Argentina has been suffering. Amazingly, besides using the court system to punish Argentina by ruling in favor of a massively profiteering Hedge Fund Paul Singer controls, the US has been advocating removing the South American country from the G-20, just as it removed Russia from the G-8, not for economic but purely political considerations. 

The US government, media and corporations have been lobbying to make sure Argentina receives no development loans from the World Bank or any other international financial institution. Europeans, have simply gone along with everything the US has dictated on the Argentine issue, just as they catered to US demands that Greece must remain in the euro zone. 

Unlike Greece that tries to create annual budgetary surpluses through the infamous “Greek statistics” that have become the laughing stock of Europe, Argentina has real reserves it tries to hold on to in case the US-led economic squeeze becomes tighter. Because its reserves and economic power is so substantial US politicians, media and corporations want Argentina to use those reserves and to mortgage its future, just as Greece has done to cater to foreign creditors so the country can remain a financial dependency for the duration.

Prospects for the Future: Greece and Argentina
Argentina enjoys monetary sovereignty, allowing the government to use its own currency to stimulate growth, albeit at the high risk of inflation. By contrast, Greece is part of a hard currency with a very weak economy in the periphery of a dynamic bloc in which Germany dominates and exerts monetary, fiscal, trade, investment and social policy influence over the periphery members like Greece.

Argentina has enjoyed a growth rate in the last fifteen years, growing between 3% and about 8% in the last six reporting quarters, depending on the source, and it has sharply lowered its poverty rate. Such growth rates are above emerging markets, partly because of major price increases in commodities that Argentina exports globally, especially to Asia. Its agricultural-based economy has served to keep its economy steady, even in light of the July 2014 announcement that it was technically going into a default. In fact, the impact on its real economy has been minimal, given that the worst is behind them. The hedge fund predators aside, there are interests in the US and EU that want a resolution and want to reintegrate Argentina back into the world economy by agreeing to a compromise on the foreign debt.  

While Argentina was growing by 3%-8% in 2013, Greece suffered negative growth rates for the years under IMF-EU austerity ranging from minus 3% to minus 8%. Only in 2014 does Greece expect slight growth in GDP. Middle East, North Africa, and Ukraine wars have entailed record tourism for Greece, but that is a seasonal business. Unlike Argentina that can sustain its growth, especially considering the greater reliance of Russia and China for commodities, Greece has no prospects of steady and sustainable growth unless there is an influx of foreign investment equivalent to its GDP at 175 billion euro. This is highly unlikely, because all around Greece there are much cheaper labor and raw materials markets with lower taxes. With structural unemployment at 28 percent and wage rates that are closer to Eastern Europe than northwest Europe, Greece is highly unlikely to recover before 2030. Argentina’s prospects look much brighter, assuming the US does not go all out to isolate it economically, fearing the example of Venezuela and Cuba.

Argentina’s poverty rate in 2002, the critical year that its finances began to take a tumble owing to disagreement with international creditors, was about 50% while ten years later it was between 6.5% on the low end according to government stats and as high as 24% according to independent sources. The current poverty rate in Greece is above 35%, well above Argentina’s with all its troubles owing to Singer’s profiteering group. Greece on average lost one-third of income as a result of austerity, but the actual loss is much greater when taking into account the one-third drop on average of home values in a nation where home ownership runs at 85% largely because housing was one way to launder money.

It is true that in Argentina income and housing values losses combined amounted between one-third and one-half, but data show a doubling of GDP per capita between 2004 and 2012, while the situation in Greece has not bottomed out six straight years of negative GDP growth. Of course, Greece started out from a much higher income base (ranking 32nd in the world before austerity) than Argentina. However, the fall from such a high ranking is even harder than Argentina’s because the new EU model of integration means lowering living standards to reflect those of the northern Balkan countries and Eastern Europe. 

It is difficult to say if ten, twenty, thirty years from today Argentina or Greece would be as “democratic” as they are today, or if they revert to some type of dictatorship. In the case of Argentina, there are clear signs that along with economic nationalism and the will to asset a modicum of national sovereignty, there is political nationalism at play. This is clearly absent in the case of Greece that has in every respect surrendered it economic and political sovereignty to its creditors, headed by Germany and the IMF. Even more disturbing, as I stated above, 

Greece has a very popular neo-Nazi party non-existent before IMF-EU austerity, and a strong center-left party, accounting for a polarized political arena. While Argentina also has a small neo-Nazi party, it does not enjoy the popularity of the Greek Golden Dawn Party (neo-Nazi).
As bad things are politically in Buenos Aires, we do not have evidence of sociopolitical polarization comparable to Greece where the government has imprisoned elected neo-Nazi members of Parliament to prevent the Golden Dawn Party from making any more gains at the expense of the governing conservative New Democracy party – anything but democratic in its policies regarding labor unions, as well as professional associations that include not just doctors and pharmacists, but even military and police officers coming under the axe of austerity. 

It is true that there are those claiming that Christina Fernandez and her late husband Kirchner polarized the country and catered to the national bourgeoisie and isolated the comprador capitalists. Some analysts argue the current Peronism and anti-Peronism sociopolitical struggle represents a schism in society. However, that was present even before the default, and it hardly poses as great a threat to the electoral process as the presence of neo-Nazis in Greece that the judicial system is trying to rest.

Transparency International’s Global Corruption Barometer identifies the Argentine government and the judicial system that the executive more or less controls as the most corrupt institution. Needless to say, Greece ranks number one on the list of EU members in the domain of official corruption. Although the government in the last five years used official corruption as the pretext to undergo fiscal austerity and erosion of the social welfare policies along with sharp drop in wages, Greece remains the most corrupt country in Europe and one of the most corrupt in the world. IMF/EU austerity has not changed anything on that score, despite government promises. 
More significant than official corruption, is the neo-Nazi menace Greece is facing, largely because the policies of neo-Nazis actually adopted by the government that wants the voters of the ultra-right wing on its side in the next elections. Therefore, the issue of comparing Argentina to Greece does not only revolve just around the debt and fiscal solvency, investment policy and access to open markets from New York to Paris. There is a broader question of political and social consequences in society and its political future. 

From the early 1950s when IMF imposed its first austerity program on Chile until today where it is involved around the world, the political consequences always entail a turn toward authoritarian politics. The reason austerity goes hand in hand with authoritarian politics is because of the transferring of income from the bottom of the social pyramid to the top through monetary, fiscal, wage, health and education policies. Whether in Chile in the early 1950s, Brazil in the early 1960s, Argentina in the 1990s, or Greece in 2010s, austerity always meets with resistance. Workers and the lower middle class demand social justice and democracy for all citizens and not just the top ten percent of society and foreign capital. 

While Argentina may in some respects resemble the Peronist era, although in a distorted manner that does not further labor interests, Greece has become a country resembling the early Cold War era of right wing regimes totally dependent on the US and NATO that demanded absolute conformity in the name of defeating Communism. The current political climate is all about has given rise to neo-Nazism where there was none before austerity. By contrast, Argentina escaping the IMF trap has managed to enjoy relative political stability, despite popular protests that are understandable. 

Unlike Greece, Argentina has avoided the right wing route and police state methods necessary to force austerity upon a reluctant population that sees no hope in the near future, or even in a decade from today. This does not mean that Fernandez has not moved to amass power at the executive level for which she has been criticized. More than the Greeks who had been under the illusion that they were European, no different than the Germans or Dutch, the Argentines at least know from historical experience that debt crises are cyclical for dependent societies. The best they can hope is the next growth cycle will be sufficiently strong to sustain them until the inevitable next debt crisis.

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