Argentina Did the Right Thing in 2002, the Wrong Thing Last Year

We’re in trouble, Enrique.

Photo by Alexander Vilf/Host Photo Agency via Getty Images

With Argentina’s economy melting down, I’ve gotten various queries from people asking whether I regret having praised the country’s successful 2002 devaluation and default back in 2012 as an example for Spain and Greece to emulate.

The answer is: absolutely not!

Argentina is a country that has not, historically speaking, been well-governed. In fact one reason that the 2002 default was necessary was that Argentina  previously embarked on a deeply misguided currency board scheme. To say that Argentina’s 2002 default and devaluation was the right thing to do and that there are important lessons to be learned from it is not to say that all countries should always emulate Argentina in all respects. On the contrary, Argentina made a lot of policy mistakes over the subsequent decade. In fact, as I wrote about a year ago Argentina had become a clear example of a country that’s not suffering from a demand shortfall and whose economic problems are attributable to bad supply-side policy.

That said, back in 2002 Argentina was a country facing a choice between a generation-long demand-side depression and a rapid recovery based on thumbing its nose at the global elite. It chose correctly.