Unemployed people march in downtown Buenos Aires in 2003, after the country’s economic collapse. (AP Photo/Natacha Pisarenko)
BUENOS AIRES — In the summer of 2002, many of the Latin American immigrants in Argentina were suffering from the country’s economic collapse with an extra concern: devaluation had ruined their chances of sending dollars to their families in Lima, La Paz or Asunción. The peso’s value had been untied from the U.S. dollar in December 2001, and a month later, the national currency was rising rapidly to an exchange rate of 3.50. The capital of the second-largest economy in South America had suddenly mutated into a city where people earned one of the lowest salaries on the continent.
As many Peruvians living in Buenos Aires thought how to restart their lives, at least one of them was enjoying a successful season. I met him every day when I commuted by train from my neighborhood then, Villa Urquiza, to the newsroom of the newspaper I used to work for, in the city center. With a guitar and a clean voice, he sang a protest song that hit the right button for the passengers: “They have robbed us of even the spring / but they can’t get our song / which seems fragile, does not give up / it remains singing like you and me.”
At any other time, he’d have drawn some applause and a few coins, but that January, the train commuters became a choir. The song ended with hugs, a standing ovation and a number of peso notes for the main singer.
We were a country in free fall. In Argentina, already mired in an economic crisis for several years, Christmas 2001 had arrived with a default on most of the government’s $141 billion worth of debts to foreign creditors. Two weeks later, the 10-year-old program tying the peso to the dollar ended, and the nation’s worst depression in generations hit its nadir.
Our experience 13 years ago has many Argentines keeping an eye on Greece today, as negotiations aimed at keeping it in the euro zone continue ahead of Sunday’s deadline. Over the past weeks, everyone here — politicians, pundits and taxi-drivers — has had something to say about what could be coming there. After all, though the roots of the crisis here and the crisis in Greece are different, Argentines know what Greeks could soon be facing if they’re forced to devalue their currency.
Throughout 2002, daily life in Buenos Aires turned into strikes and pickets and the never-ending banging of saucepans. Weeks after the end of the convertibility program, all the nation’s banks had replaced their windows with metal shutters, after they’d been broken time and time again by enraged customers.
As in Greece, the fear was that the banks would run out of cash. Just days before the end of the one-peso-one-dollar dream, the government implemented the so-called “corralito,” which established a weekly withdrawal limit of 250 pesos or dollars for each bank account. About $65 billion was trapped in the branches of banks, and these institutions became the favorite target of society’s anger.
For months, nobody was really sure if they would receive their salary or how much they had to pay for their mortgages. The government announced that debts issued in dollars would be converted to pesos at 1 peso per dollar, but bank accounts would be converted at 1.4 pesos to the dollar — and that the state would issue bonds to make up the difference, which ultimately benefited the main private debtors.
The dollar doubled its value over the course of six months, reaching 3.8 pesos in June. Real hyperinflation didn’t set in; the economy had collapsed so completely that prices could only rise so high. The housing market plunged, with values less than half of what they were in 2000.
The economy as a whole fell another 11 percent in 2002, the last and worst year of depression. External debt jumped from 54 percent to 160 percent of the GDP, but that was no longer an immediate problem, since the government had admitted it couldn’t pay what it owed. Argentina’s poverty rate peaked at 54 percent, more than double what it was in 1996 and 10 times more than in the early 1970s.
Buenos Aires, a city that had always fancifully told itself it was a European capital that happened to be on the wrong continent, looked in the mirror, and it couldn’t believe its eyes. Such a reality perhaps had always been there, but never had it been so cruelly exposed. Thousands of parents, with their kids, took to the streets to beg or to rescue something from the garbage, especially metals and paper, whose price was linked to the dollar.
But every cloud has a silver lining. With imports suddenly too expensive thanks to the devalued peso, the industry sector regained competitiveness to supply the domestic market. In turn, high unemployment restrained wage demands for two years, so many companies reached extraordinary levels of profitability. While imports plunged, two years after the crisis, soybeans began a long-term boom. The government saw an opportunity to finance the state with high export duties.
From when the recovery began in 2003 until 2011, the country grew at what local economists called “Chinese levels.” Without any access to foreign loans, dollars came in via exports as refreshed profit margins attracted specific investments. Starting in 2003, center-left Peronists Néstor Kirchner and then later his widow Cristina Fernández de Kirchner, placed all their bets on domestic consumption and implemented a series of social policies that allowed them to maintain good approval ratings.
The unemployment rate has hovered between 7 and 9 percent since 2007, while poverty rates have declined every year until 2011, when it stabilized (the government has falsified poverty statistics since 2007, though, so estimates for this figure range from 5 percent to 30 percent).
But if Argentina’s suffering shares points in common with what could be ahead for Greece, its recovery after the crisis may, unfortunately, not serve as a similarly hopeful sign.
The commodities boom and Argentina’s well-developed industrial sector left us in a better position to come out of the depression than Greece would be, says Mariano Kestelboim, professor of macroeconomics at the University of Buenos Aires. The one thing Greece could look forward to? “Tourism revenues will be high and immediate.”
As for the likely need to “recreate” the drachma, the former Greek currency, Eduardo Levy Yeyati, a visiting professor of public policy at Harvard University’s John F. Kennedy School of Government, is skeptical. “Greece should introduce a currency that no one will seek because everyone is going to try to keep the euro, something that has no precedent,” he says. “If Argentina had held the level of debt and the industrial infrastructure of Greece, we would have suffered even more than we have.”
For anyone in Argentina, that’s a chilling thought. The consequences of the collapse are still harming the country. If Greece falls, Argentina is here to tell the story.
@sebalcunza