If Greece Defaults, Imagine Argentina But Much Worse

• If Greece Defaults, Imagine Argentina But Much Worse
  by JAMES B. STEWART, http://www.nytimes.com/
  There may be a one-word explanation for why Greece will ultimately capitulate to European demands for more austerity:
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  Argentina.
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  Greece is hardly the first nation to face the prospect of defaulting on its sovereign debt obligations. Argentina has defaulted on its external debt no fewer than seven times since gaining independence in 1816, most recently last year. But it’s Argentina’s 2001 default on nearly $100 billion in sovereign debt, the largest at the time, that poses a cautionary example for Greece.
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  Should Greece default, “Argentina is an apt analogy,” said Arturo C. Porzecanski, a specialist in international finance at American University and author of numerous papers on Argentina’s default. But for Greece, “It would likely be worse. Argentina was comparatively lucky.”
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  Daniel Gros, director of the Center for European Policy Studies in Brussels and the author of “A Tale of Two Defaults,” a paper comparing Greece and Argentina, agreed. “Default would be much worse for Greece than it was for Argentina,” he said.
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  Like Greece today, Argentina had endured several years of hardship and austerity by 2001. It borrowed heavily from the International Monetary Fund, the World Bank and the United States, all of which demanded unpopular spending cuts. The I.M.F. withheld payments when Argentina (like Greece) failed to meet its deficit targets. A bank run led the government to freeze deposits, which set off riots and street demonstrations. There were deadly confrontations between police and demonstrators in the heart of Buenos Aires, and the president at the time, Fernando de la Rúa, fled by helicopter in December. In the last week of 2001, Argentina defaulted on $93 billion in sovereign debt and subsequently sharply devalued the peso, which had been pegged to the dollar.
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  In addition to social unrest and a wave of political instability (at one point, the country had three presidents in four days), Argentina’s economy plunged into depression. Tens of thousands of the unemployed scavenged the streets collecting cardboard, an enduring image that gave rise to the term “cartoneros.” Dollar-denominated deposits were converted to pesos, wiping out over half their purchasing power.
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