Argentina, Latin America’s largest economy after Brazil and Mexico, appears again to be in deep economic trouble.
Inflation is running at 55 percent. The peso lost most of its value in January. The government is asking the U.S. Supreme Court to approve postponement of the repayment of a $1.3 billion installment on a loan, including to two U.S. hedge funds, in order to avoid default.
Argentina has defaulted three times before on major loans, in 1982, 1989 and 2001. The question is why would anyone loan the country $140 billion?
On top of all this, Argentinian President Cristina E. Fernandez de Kirchner, 61, has been in questionable health since suffering a brain injury last year, calling into question her ability to make decisions at a time of economic adversity. Presidential elections are scheduled for next year and she can’t run, facing term limits.
So how did this situation occur? Argentina appears to have a deeply ingrained culture of economic irresponsibility. It spends money it doesn’t have, borrows what it can to make up the difference and defaults when it feels it must.
Too bad the United States exhibits some of the same fiscal habits. Most Americans were rightly glad that Congress raised the debt limit this month. Reasonable Republicans went along with it because they saw the threat of voters’ fury this year if they shut down the government again. At the same time, America’s national debt stands at a stunning $17.3 trillion and the federal government is still running annual budget deficits, even though Americans may rejoice that the deficits are shrinking a little.
The United States has low inflation, although everyone knows that the real cost of living is rising, not falling. It is also worth noting that America’s debt to foreign lenders stands at nearly $6 trillion, a third of it to China and Japan.
Argentina will probably get bailed out again. The rescue should be accompanied by harsh words about fiscal responsibility. American politicians should be obliged to read those words also.