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The Costs of a Neo-Populist Experiment

Jun 1, 2003

One of the most remarkable features of Argentina's debt debacle is the government's attempt to shift the burden of adjustment away from the domestic economy, transferring wealth from creditors to debtors, and from future generations to current ones. Guillermo Mondino says the long-term consequences of such a strategy are serious and warns other countries to take heed.

Most Latin American governments are heavily indebted and are now engaged in the arduous process of reducing their liabilities. As always, this is a painful and costly process in which debtors and creditors both must share the burden of adjustment. Argentina's debt crisis is clearly the largest and most complex of its kind so far, but it is unlikely to be the last such episode in Latin America. The outcome of events in Argentina therefore will probably serve as a precedent for other governments, investors and banks alike. They should all draw on Argentina's experiences to better manage their debts and avoid many difficulties that the country and its creditors have had to deal with. Simultaneously, both as a cause and effect of the adjustment processes, public opinion in many countries in the region has veered away from the neo-liberal reforms of the 1990s. Argentina, again, stands out...

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“The crisis has been a setback for reserve diversification."

Jan Dehn, Ashmore Investment Management


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