Argentina’s Bumpy Ride

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.

Inflation is another concern. With official figures widely discredited, private analysts estimate that consumer prices are rising at an annual rate of 25% or more.