Regarding Nicolás Cachanosky’s insightful article this morning on Argentina’s coming default, I would just add that it can’t come soon enough. Although one can only imagine what kinds of behind-the-scenes pressure Argentine President Cristina Kirchner and central bank head Juan Carlos Fábrega are under right now to pay these bonds, Argentina should continue with its default. It’s the only moral choice. If it doesn’t default, it will (i) maintain its creditworthiness in the future, which only puts off for another day the inevitable end to the government’s tax-borrow-spend policies that only favor the political class and well-positioned cronies, and (ii) it imposes Greece-like austerity on the remaining productive sectors and other innocent parties when real austerity would imply vastly reducing the size and scope of the Argentine state. If it defaulted and the government was finally deemed a credit risk by the World Bank (and its cronies), then the government’s ability to intervene in the economy would be severely hampered and incentives for real savings and sustainable economic growth would finally reappear.
I wrote about the “upside of Argentina’s default” back in 2002 here. The argument still stands. A default today can only help to normalize them in other western countries, to the great benefit to future generations. Make those establishment parties who bought Argentina’s bonds assume the risk themselves. Using international courts to bail them out only harms the Argentine people who will have to pay for them through taxes and inflation in the future while it perpetuates moral hazards that exist well beyond the confines of Manhattan and Buenos Aires.
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