Monday, June 16, 2008

Argentina creeps closer to trouble

Last month, I casually tossed out the notion that Argentina may be on the verge of another serious economic crisis. Besides the issues I raised then (inflation, farmer's strike, reserve losses), which are ongoing, it now turns out that the Argentine public debt is 56% of GDP which surpasses the level it reached (54%) at the beginning of the 2001 crisis. And, if you include the amount owed to investors who refused their crisis related haircuts and are suing to recover, the figure is actually 67% of GDP!

Wow.

Plus, Argentina is off the IMF gravy train and is in default to the Paris Club countries for a few billion, so their main source of external funding is good old Hugo Chavez, who has been charging a fairly healthy (13%) interest rate on his dough.

Of course, given that independent estimates put Argentine inflation at over 20%, maybe Hugo needs to think about doubling his rates!!