Down Argentine Way

It can be a glamorous life, at least until the 15-hour flights get to you. Sadly, even flying first class and living in luxury-hotel suites pale after the 25th trip eight time zones away, and you long to lie on the grass of your own backyard for awhile. But then, globetrotting bankers from the likes of Goldman, Sachs and Salomon Bros. can usually afford at least an acre of blue lawn in Westchester after a very few years of peddling “sovereign loans” abroad. They certainly did very well for awhile, before one of the great financial meltdowns of the post-World War II era: the foreign-debt default of Argentina in December 2001, which plunged that tormented First World wannabe into a depression. (Happily, this potentially very rich country has been recovering for the past couple of years–although per-capita income has not yet reached its 1998 high, at the summit of the boom.)

Paul Blustein’s suspenseful book vividly shows how even low-income Argentines benefited from that boom, which followed decades that included wild inflations, short booms, and longer busts–not entirely unconnected with a political system heavy on dictators, corruption, and industrial-strength incompetence. And then he shows the economic devastation that followed, a crisis that would be almost inconceivable to post-Depression Americans. Part of the problem was (and is) Argentina’s famous tendency to act like a rich European country but without the institutional disciplines thereof.

For awhile, in the 1990s, it seemed as if Argentina would rise again to the First World status to which its beef, wool, and other riches had brought it in the early 20th century. After all, as Blustein, a financial writer for the Washington Post, explains in crisp prose accessible even to those who rarely read financial newspapers, reforms to privatize many government-owned organizations, to deregulate entire sectors, and to control inflation by mandating that the central bank exchange pesos for dollars at a fixed rate provided more hope for long-term prosperity than this weird nation had seen since the 1920s.

With compassion for the players, from the near-starving poor of Argentina’s cities to the frantic financial-industry gadabouts to increasingly anxious government officials, Blustein explains about as well as anyone what caused the crash–as he relates the hectic trips between Buenos Aires, Washington, New York, and other power centers, and, in the end, the anger and pathos of proud Argentine leaders brought low by their failure to satisfy either their own people or international creditors.

He especially goes after the disinclination of the International Monetary Fund (aka the U.S. Treasury) to gradually wean the nation off the debt issues that let its government do what all governments love to do: provide lots of big public programs without commensurate taxation. The IMF continued to give alcoholic Argentina more and more drinks until it threw the Argentines out of the bar and into the cold street. Blustein argues that the IMF probably could have arranged for a soft landing rather than a crash as the Argentine economy showed warning signs of turning down. Of course, the investment bankers, whose firms had so ramped up the glories of “emerging-market” investments, made things worse after they had made things better for a few years in the ’90s. In those boom days they extended credit to a country that seemed to have happy prospects for prosperity, a new and far more disciplined economic system, a large and educated middle class (if with inadequate capital), and immense natural resources. The bankers (who, with IMF and other foreign officials, made good use of Buenos Aires’s many fine restaurants) came to think that they could do good by doing very well for themselves indefinitely. They kept pushing Argentine debt sales with all the relentlessness of a South Florida real-estate salesman unloading overpriced condos on people about to lose their jobs.

As Paul Blustein notes, the investment bankers had every incentive to promote maximum Argentine borrowing. The more debt sold, the more fees earned by investment bankers! And U.S. and European fund managers, and many middle-class and wealthy individual investors, just couldn’t buy enough of those juicy “emerging-market” bonds in the go-go ’90s, when globalization was expected to make every other Third World country rich. “A Bravo New World” was a Goldman, Sachs headline about Argentina and other Latin markets in 1996.

Still, it was the governments–of rich lending countries and of Argentina itself–that bore prime responsibility for pouring the drinks until it was too late. (And you can be sure that they will do it again.) Behind the bond-issue tombstone ads and Bloomberg bulletins are all-too-human dramas–greed, fear, ambition, envy, patriotism, fancy dinners, getting fired, navigating street riots, and missing your flight. Paul Blustein deserves much praise for his stagecraft.

Robert Whitcomb is editorial page editor of the Providence Journal.