Nicolás Tereschuk, a political scientist and author of the blog artepolitica.com, has written an article for the Buenos Aires Herald to try and explain what is meant when we speak about “public debt” in Argentina. In his article, he paraphrases the work of Eduardo Basualdo, the head of the Economy and Technology Area at FLACSO Argentina, who explained that the Argentine debt wheel of fortune since the late 1970s has worked like this:
Local interest rates were maintained at artificially high levels by government policies. Therefore, the cost of borrowing abroad was lower.
This situation triggered waves of borrowing abroad by the biggest economic sectors and also foreign subsidiaries.
US Dollars were not used by the companies to invest in the industrial sector, but rather to invest in local financial instruments. Correspondingly, the price of those instruments also rose.
Once the local financial assets rose in value, they were sold and converted back into US dollars.
The money was sent abroad, usually to tax havens.
State borrowing abroad was a phenomenon that also played a crucial role in the process described above as those loans guaranteed that there were enough US dollars to be transferred abroad by the biggest companies while at the same time maintaining the balance of payments more or less stable.
Tereschuk later observes:
Since the dictatorship that began in 1976 until the mega crisis of 2001, borrowing abroad and then earning returns on those funds locally before whisking them away was not some marginal activity but the main business in town in Argentina.
He also commented that Argentina is still the country with more US dollar bills per capita outside of the US itself.
To read the whole article, Debt? Which debt?, go to the website of the Buenos Aires Herald.
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