“There is no evidence that Argentina has learnt the lesson from the 2001 crisis”, said Carmen Reinhart one of the most influential US economists and an expert in Latin America, who has worked for the IMF, in Wall Street and teaches at the University of Maryland.
Interviewed by the Argentine media Ms Reinhart expressed concern about the over exposure situation in several European countries and anticipated they will have to renegotiate and restructure their debts because fiscal austerity is not enough.
Nevertheless she is hopeful since the European countries will most probably restructure as a whole and “not unilaterally like Argentina”, rather like Uruguay that was ‘more intelligent’ since “it recovered credit much faster and didn’t experience such a GDP collapse as Argentina”.
The US economist however is also critical of investors that have learnt nothing since 2008, and “this could have an impact on developing countries”.
“Even when the 2008 crisis was not anticipated the quick reaction from central banks in the US and Europe lowering interest rates assured the banking system with liquidity, which was the opposite of what happened when the Great Depression”, said Ms Reinhart but “investors and some countries have not learnt the 2008 lesson”. Looking for the best returns makes emerging countries very attractive for investors, “misinterpreting a current situation with a structural situation, since many of these countries have not yet graduated”.
Ms Reinhart said the US has been too complacent with the European debt problems because they believe “this can’t happen in the US”, but in Asia, 1995, nobody expected the Mexico (collapse) experience but “two years later it happened”
Although emerging countries tend to be more cautious about the massive inflow of capital, in Brazil, for example, “many companies are taking short term loans in US dollars at low rates, but that can change and hurt everybody because private debts, following a crisis, become public debts” warned Ms Reinhart.
Regarding China, the current world locomotive, Ms Reinhart cautioned that inflation in that country has soared, even when statistics don’t reflect it, therefore “it is better for emerging countries to recover strongly, which so far is difficult to for-see”.
Insisting on Argentina Ms Reinhart argues that if the country had access to the voluntary money market “it would most probably be suffering the same problems than before” since there are recurrent habits and attitudes. “Provincial governments spend too much when the cycle is good and then after? This has been happening in Argentina since the end of the 19th century, and similarly with inflation, that has not changed”.
How come Argentina recovered so strongly then? “With the unannounced Brazilian devaluation of January 1999 (in spite of Mercosur) and its impact well into 2002, which meant a 20% fall in the GDP plus the massive 2002 default, both helped to recover the economy”.
Finally economist Reinhart forecasted that emerging countries will inevitably experience more inflation because they will be unable to continue with the nominal appreciation of their currencies, forced by the inflow of foreign capital looking for higher returns. This however is not the case for developed countries since they still have surplus capacity and high unemployment.