Hey, look at Argentina!

By Mike Andrew

“You can’t spend your way out of a recession!”

So say Republicans and all economic conservatives.

And yet Argentina did just that, bouncing back not just from mere recession but from national bankruptcy, in less than 10 years.

In 2001 Argentina defaulted on $100 billion of sovereign debt. Its banks were collapsing like a house of cards. Its people were occupying shut down factories.

In the four years between 1998 and 2002, Argentina’s economy shrank by almost 20%.

The problem was easy to see. Argentina was the victim of a series of right-wing military dictatorships trying one supply-side economic experiment after another, all of them failures.

The solution was a brave gamble by the Argentine government.

First, the government intervened in the currency market to keep the value of its own currency low. This in turn boosted local industry by making Argentina’s exports cheap, while keeping foreign imports expensive.

It then taxed imports and exports, and spent the revenue on a series of public works projects. Today, Argentine government spending is 25% of GDP, compared with only 14% in 2003.

As a result of the government-financed construction projects, the country has 400,000 new low-income housing units, and a new 235-mile highway between the northern cities of Rosario and Córdoba.

The Argentine government also strengthened its social safety net.

The Universal Child Allowance gives 1.9 million low-income families a monthly stipend of about $42 per child, which helps increase consumption. The Allowance began in 2009 with bipartisan support from both the ruling party and the opposition,

Because the amount of the stipend depends in part on the child’s school attendance, the allowance is also a measure to promote public education.

The Argentine economy has grown by over 6% a year for seven of the last eight years, unemployment has been cut to under 8% today from a whopping 20% in 2002, and the poverty level has fallen by almost half over the last decade.

Argentines are expected to buy some 800,000 new vehicles this year. Plasma TVs and BlackBerrys have become common among Argentina’s growing middle class.

Obviously, this policy is inflationary, with the inflation rate now well over 20%. It remains to be seen how well Argentina’s working people will be able to cope with that.

Nevertheless, Argentina is another example that runs counter to the all-cuts austerity response to economic crisis.