Argentine Debt-to-GDP

[nicoenarg]

I saw this graph randomly. Interesting stuff. Don't know how accurate it is though. It claims IMF as one of its sources.

 

[Xeneizes]

Well, when you default on millions of dollars of loans your debt to GDP ratio will definitely decrease

 

[nicoenarg]

Well, when you default on millions of dollars of loans your debt to GDP ratio will definitely decrease

Depending on whether the information on the chart is correct or not, if you notice, their debt-to-GDP was pretty darn low even before the default. In fact it was lower in the years running up to 2001 and it was at the same level as today in 2001.

 

[expatinowncountry]

Thanks for sharing this. The graph is correct (I think) The problem if there is a large crisis, the number jumps quickly because:

1) If there is a large devaluation, most of the debt is in foreign currency and most of the GDP is non tradable so it is in pesos. The devaluation would increase the ratio overnight as in 2002.

2) During a crisis there are a lot of contingent liabilities that are assumed by the government (in the jergon "skeletons in the closet"). In 2002, the Argentine government assumed the cost of pesification of the banks'dollar deposits issuing bonds (so the debt increases significantly). That bond issue is the one that the government will finally pay in full (hopefully) this coming 3rd quarter (one of the main motivation for the exchange control implemented this year). Of course, this is not only the case in Argentina... US and European taxpayers will have to assume the "rescue packages" given to the financial sector in 2008/9.

 

[el_expatriado]

This chart is correct. Argentina has one of the lowest debt to GDP ratios in the world. That's why there is NO REASON for another default. The problem is that the government behaves so irresponsibly that creditors won't loan to Argentina, despite the healthy financials it has.

Remember the whole INDEC intervention started as a scheme to cheat the bondholders who had bonds that adjusted with inflation. It was a "hidden default". Since investors know that Argentina is out to cheat them, they demand ridiculously high interest rates (higher even than countries who are actually about to default).

 

[expatinowncountry]

Well, when you default on millions of dollars of loans your debt to GDP ratio will definitely decrease

Add a few zeros... Argentina defaulted on billons!!!

When a country defaults on its debt, the IMF automatically remove the amount from "outstanding debt" and put it in a special account called "debt in arrears". I have no idea if this calculation of the debt ratio includes the debt on default. It should not be more than 10% points of GDP.

As el_expatriado mentioned, a low ratio could represent two very different stories, a very prudent country that has a solid fiscal position and good debt management capabilities, or a country with very bad reputation no one wants to learn any money. If you have to bet your money on it, which story do you think represents Argentina?

 

[davonz]

I think the chart is probably correct too. Argentina's economy basically came to a stand-still so the amount of debt as a percentage of GDP will have increased dramatically in a very short time due to the sudden fall in GDP.

It also must be remembered that at the time one of the big problems was that the arg peso was pegged to the us$, and while other countries currencies were dropping against the us$ the arg peso wasnt, so arg exports became very expensive for their biggest trading partner - brazil, and brazilian imports to arg became very cheap, so exports decreased, imports increased, and local manufacturers couldnt compete. This all happened in a very sort time frame.

I would say a better way to look at this is that debt has been decreasing since 2004 (due to being written off mostly and some repayments), but GDP dropped dramatically in 2004, then has increased thanks to an export lead recovery due to the currency devaluing, commodities prices increased etc..

 

[nicoenarg]

If the chart is correct then, and seeing Argentine history, it doesn't matter how low their debt-to-GDP is then since Argentina manages to screw itself over regardless.

Secondly, wouldn't some still contend that the peso isn't falling fast enough and that the only way Argentina is able to remain competitive still is by, recently, strong arming other countries into decreasing their exports to Argentina while Argentine exports to those countries remain unchanged?

Or am I off on this one?

On the Peso, I think it was Morgan Stanley that said the Peso should be around $7 against the dollar by the end of 2013.

 

[nicoenarg]

Also, the economy is expected to go into a recession, if all things remain unchanged, by the end of this year (not counting the university that said we've been in a recession since November last year).

Here's WSJ on it: http://online.wsj.com/article/BT-CO-20120703-707499.html

 

[nicoenarg]

Here's GDP figures for Argentina covering the same period as the chart above. The claimed source is World Bank:

And the following chart is for comparison from 1987-1999: