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Argentina’s Bumpy Ride

The question making the rounds in Argentina nowadays is whether the period of plenty since the country's default a decade ago is coming to an end. With imports still growing strongly and commodity prices beginning to fall as a result of the world slowdown, the country's trade surplus is disappearing quickly, while inflation is rising sharply.

SANTIAGO – “Fasten your seat belts, because it should be a bumpy ride,” the captain warned from the cockpit. We were about to enter Argentine airspace.

Investors looking to do business in Argentina have long been issued similar warnings. This is the country that scholars study when they want to understand financial crises. The country’s largest such crisis, in 2001, brought down the local banking system and caused the Argentine government to default on its debts. The economy contracted by a whopping 18%, and the unemployment rate peaked above 22%.

After a period of calm that has now lasted a decade, dire economic warnings are back.  Forecasts for the world economy are turning pessimistic, and economists in export-dependent Argentina are finding much to worry about. Itau, Latin America’s largest bank, is predicting GDP growth in Argentina of only 3.2% next year, down sharply from 6% in 2011.

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